Will amendments in MSME Act bring relief to micro, small and medium enterprises?

Since the introduction of the Micro, Small and Medium Enterprises Development Act (MSME Act) in 2006, there has been no specific amendment, or any notification, that allows for the classification of micro, small and medium enterprises according to various characteristics, or investment in plant and machinery andequipment.

Thus, it was heartening to note the introduction of an enabling notification (in April this year). It proposes to amend provisions of the MSME Act that are slightly forward-looking, such as revisions in the investment limits in plant and machinery and equipment -- indicators of whether an enterprise can be micro, small and medium.

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Where before the limits for classification prescribed is as under:

Micro enterprise: Rs 25 lakh or less in plant & machinery/Rs 10 lakh in equipment

Small enterprise: Rs 25 lakh to Rs 5 crore in plant & machinery/Rs 10 lakh to Rs 2 crore in equipment

Medium enterprise: Rs 5-10 crore in plant & machinery / Rs 2-5 crore in equipment

The limits have been revised mainly in view of inflation and changing market situations. The new prescribed quantum are around double the earlier limits for each type of enterprise and thus stand as under:

Micro enterprise: Rs 50 lakh or less in plant & machinery / Rs 20 lakh in equipment

Small enterprise: Rs 50 lakh to Rs 10 crore in plant and machinery / Rs 20 lakh to Rs 5 crore in equipment

Medium enterprise: Rs 10 - 30 crore in plant & machinery / Rs 5 – 15 crore in equipment

Additionally, this notification enables the Central Government to vary the investment limits as long as they do not exceed it by thrice the deemed limits. This introduction is positive, as it eases the process of changing the investment limit from an administrative angle. There is no longer need to introduce a Bill and this saves on time.

What’s missing?

Could the amendment have introduced additional criteria of classification of MSMEs? Make no mistake, the original act empowers the Central Government to vary the criterion of investment and consider standards relating to employment or turnover of an enterprise. But how has the government made use of this provision so far? To just offer a comparison, some of the western countries utilize indicators such as number of workmen, enterprise turnover, size of the balance sheet and the type of industry. So yes, perhaps the amendment could have probably addressed that too.

On a related note, the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2015, that was introduced a few months ago which contains provisions relating to revival of MSME’s, has introduced a definition for the term ‘entrepreneur’. This definition seems to be new and so even the attempt is remarkable as this has not been made earlier neither in the domestic market nor globally.

What is disheartening is that these changes are taking a while to reach the stage of implementation. When the latest amendments will see the light of the day is undetermined.

Note - Investment in plant & machinery refers to enterprises in the manufacturing sector and investments in equipment refers to enterprises in the services sector.