Govt data: Amid Covid disruption, thousands of micro enterprises grew into small businesses

Ease of Doing Business for MSMEs: The revised classification of MSMEs was approved by the government back in June 2020 to enable more businesses — outside the ambit of the MSME sector based on the erstwhile definition — to benefit from the schemes offered including priority sector lending by banks.

Govt data: Amid Covid disruption, thousands of micro enterprises grew into small businesses
According to the new definition, the investment limit for micro enterprises was increased to Rs 1 crore from Rs 25 lakh in the previous definition. (Image: pexels)

Ease of Doing Business for MSMEs: 93,048 micro enterprises in the country’s 6.3 crore-strong MSME sector have grown in size to become small enterprises post pandemic between July 2020 and July 2022, showed government data. The biggest jump in terms of the number of companies scaling in size was recorded in the micro segment itself despite Covid disruption in comparison to 10,141 small enterprises moving to the medium business category and 1,602 micro enterprises growing to the small business category during the said period.

The data shared by Minister of State for MSMEs Bhanu Pratap Singh Verma in a written reply to a question in the Rajya Sabha on Monday noted that since the launch of the Udyam portal on July 1 in the financial year (FY) 2020-21 till FY22, 28,729 micro enterprises turned small enterprises while 3,681 small units became medium businesses and 656 micro units grew into medium businesses.

In comparison, the number of micro enterprises growing into small businesses more than doubled to 64,319 during FY22-FY23 (as of July 20, 2022). Small to medium transition during the period was also higher at 6,460 and likewise for micro to medium segment with 946 enterprises scaling up.

“The growth could be among MSMEs in sectors such as pharma, grocery, small eateries, etc., that grew during the pandemic as people used digital medium to access goods. As a result, probably, MSMEs in these sectors have grown in size. However, it is difficult to understand how the government could come up with these numbers of enterprises switching categories since balance sheets for 2022 are yet to be filed. Generally, balance sheets are filed six months from March or even up to December,” an expert told FE Aspire seeking anonymity.

“There is no way other than the balance sheet for anyone to know the growth in the size of the business based on their turnover and investment. Classification is known based on the information available on the balance sheet,” he said.

Responses from the MSME Ministry for this story weren’t immediately available.

The revised classification of MSMEs was approved by the government back in June 2020 to enable more businesses — outside the ambit of the MSME sector based on the erstwhile definition — to benefit from the schemes offered including priority sector lending by banks. According to the new definition, the investment limit for micro enterprises was increased to Rs 1 crore from Rs 25 lakh in the previous definition while the turnover limit was capped at Rs 5 crore.

On the other hand, for small enterprises, the investment limit was increased from Rs 5 crore to Rs 10 crore and the turnover limit was set to Rs 50 crore. For medium enterprises, the investment limit was increased from Rs 10 crore to Rs 50 crore along with the turnover limit at Rs 250 crore. The revised definition had removed the distinction between the manufacturing and services sectors.

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Importantly, the government had included 2.5 crore wholesale and retail traders under the MSME ambit in July last year to expand the MSME base in the country. The benefits, however, to the traders were restricted to loans under priority sector lending.

Nonetheless, the government might enhance the turnover limit for small businesses going forward. MSME Minister Narayan Rane in April this year said that he will take up MSMEs’ suggestion of increasing the current turnover limit of small enterprises with the Finance Ministry and Prime Minister Narendra Modi. The request to increase the limit from current up to Rs 50 crore to Rs 100 crore was made by multiple industry associations in a meeting with Rane and other top officials of the MSME Ministry.

“The request was made by a number of bodies out of more than 100 associations present at the event. Currently, the gap between the maximum turnover of a small enterprise and a medium enterprise is quite large — from up to Rs 50 crore to up to Rs 250 crore. The challenges faced by a business with turnover let’s say Rs 51 crore is different from what a business with a turnover of Rs 250 crore face,” Mukesh Mohan Gupta, President, Chamber of Indian Micro, Small & Medium Enterprises (CIMSME) had told FE Aspire. 

In such a scenario, many small enterprises beyond Rs 50 crore turnover and yet not truly medium in size (below Rs 100 crore turnover) stand to lose out on schemes given to micro and small enterprises (MSEs) particularly such as CGTMSE. On the other hand, expanding the limit for small enterprises would also mean more enterprises vying for such benefits catering to lakhs of micro enterprises.

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