Nearly two-thirds of small-scale units in north India are keen to scale up their operations and join the medium-sized industry league but are held back by the policy environment. A recent survey by industry chamber PHDCCI also reveals that a third of the small units are happy the way they are, that is, small.
Also, a majority of SMEs feel that turnover should be the basis of their categorisation as small or medium unit instead of the current practice of investment-based classification.
The chamber has surveyed a sample of small and medium units located in the northern states of Uttar Pradesh, Haryana, Punjab, Rajasthan, Madhya Pradesh, Himachal Pradesh, Jammu & Kashmir, Uttarakhand, Chhattisgarh, Chandigarh and Delhi .
In the survey, small and medium enterprises (SMEs) have expressed a desire to expand their business and upscale their operations in their core areas of competence, provided an enabling policy environment is there. An overwhelming 68% respondents revealed that they are planning to scale up from a small-sized industry to a medium-sized industry to derive the benefits of com petition and growth. The remaining 32% found merit in remaining small.
In this context, more than half the respondents, around 53%, felt that the Limited Liability Partnership (LLP) Act, meant to benefit small, proprietary and partnership companies through corporatisation, is a step in the right direction. The remaining 47% were either uncertain about the advantages or do not particularly favour the Act.
As for now, only 35% members are willing to move over to the LLP model, while the majority of 65% is adopting a wait and watch attitude, as they feel that the process could be lengthy.
Respondents also felt that the definition of SMEs should be such that it reflects the nature of their business. In this context, around 62% felt that the criteria for defining SMEs should be turnover-based in line with international practices.
The classification of SMEs on the basis of turnover would, according to the proponents, be progressive and equitable, while correctly reflecting the financial strength of a company. It was also felt that certain units with very high turnover continue to enjoy the benefits available to SMEs.
Arguing in favour of a turnover-based classification, members felt that by the present definition, total investment in plant & machinery is counted from the unit’s inception, even though the plant & machinery may have been depreciated. This does not reflect the scale of operations of a unit. Besides, it is the cash value of the machinery that counts in the definition, which can often be misleading.
However, a sizeable chunk, 38%, is in favour of continuing with the present definition of SMEs. Members in this group argues that it is the value of plant & machinery that is instrumental in determining the turnover of a company. Further, the present definition would help in inclusive growth as it facilitates the development of employment-intensive industries. However, it was suggested that within the current definition, the depreciated value of machinery should be included while calculating the investment limits on account of technological advances.
Among the SMEs that favoured the definition of SMEs based on plant & machinery, as specified under the MSME Act, 67% felt that the present limits on investment should be retained while 33% viewed that investment limits as given in the definition should be suitably expanded to reflect current realities.
The author is a senior economist with PHDCCI