The government’s decision to redefine Micro, Small and Medium Enterprises by including larger units into the sector needs to be considered carefully before it is implemented from 1 July. Otherwise, this may lead to a crisis in the micro and small units, and the very purpose of creating the MSME sector will be defeated.
The Centre had recently announced that six crore micro, small and medium enterprises of the country will be classified on the basis of the new definition. The new definition says that a company with up to Rs 50 crore investment and up to Rs 250 crore turnover is eligible to be included in the MSME sector.
It may be noted that the latest hike in limits is substantially higher than the definition announced by finance minister Nirmala Sitharaman as part of the Rs 20 lakh-crore Atmanirbhar Bharat package. The scheme had pegged the investment limit for medium companies at Rs 20 crore and turnover at Rs 100 crore.
The MSME minister, Mr Nitin Gadkari, has clarified that regardless of whether a unit is micro, small or medium, its export turnover will not be factored in. These hikes are likely to edge smaller firms out from the major benefits of the stimulus schemes announced for the sector.
Obviously, the larger enterprises in the sector will absorb the major chunk of the funds available. According to a recent survey, the micro enterprise segment, which accounts for 32 per cent of the total MSME debt, will be the most affected by the crisis following the Covid-19 pandemic. So, while chalking out a scheme to help the MSME sector to survive, the focus should always be on the micro and small units.
But the government appears to have done just the reverse. Mr Gadkari has claimed that the new definition will help a wider section of companies to avail the facilities announced by the government. But at whose cost will this section get the benefits? Obviously, at the cost of the smaller units, for whom the MSME sector was created.
This sector accounts for 29 per cent of the nation’s gross domestic product and contributes to about half of its exports. More than 11 crore workers are employed by these units. Indeed, the government claims to have taken the initiative to meet the demands of the comparatively larger entities.
But the larger entities should have been better placed to fend for themselves and support should primarily have targeted the smaller units. But if the Government is determined to go ahead with its new criteria, it should set aside a defined percentage of the available funds for micro and small units.
In the absence of such earmarking, many micro units will find themselves starved of funds and will not be able to survive the twin blows of a depressed economy and a depleted workforce.