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Government Attempts to Restructure MSME

Kushaj Gupta 
on 11 February 2018

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In an attempt to uplift the Indian economy, the government introduced MSME registrations in India. The aim is to empower the micro, small and medium enterprises with certain government benefits and subsidy, to make the local players capable enough to strive in the competitive industry.

The Union cabinet gave its consensus to redefine the basic criteria of grouping the enterprises into micro, small or medium enterprises.

The Old Classification

MSMED Act, 2006 classified any incorporated entity into micro, small and medium enterprise based on the following level of investment in plant and machinery and equipments

For manufacturing businesses:


Type

Classification

Micro Enterprises

Investment in Plant and Machinery does not exceed Rs.25 lakhs

Small Enterprises

Investment in Plant and Machinery is more than Rs.25 lakhs but less than Rs.5 crores

Medium Enterprises

Investment in Plant and Machinery is more than Rs.5 crores but less than Rs.10 crores


For Service Sector businesses:


Type

Classification

Micro Enterprises

Investment in Plant and Machinery does not exceed Rs.10 lakhs

Small Enterprises

Investment in Plant and Machinery is more than Rs.10 lakhs but less than Rs.2 crores

Medium Enterprises

Investment in Plant and Machinery is more than Rs.2 crores but less than Rs.5 crores


The Proposed Classification

Any type of business entity can qualify to apply for an MSME Certificate, if their revenues from Annual Turnover are as under:


Type

Classification

Micro Enterprises

Having total revenue of not more than Rs.5 crore

Small Enterprises

Having total revenue of more than Rs.5 crores but less than Rs.75 crore

Medium Enterprises

Having total revenue of more than Rs.75 crores but less than Rs.250 crore


Reserve Bank Of India notified to extend a longer credit period i.e. from 90 days to 180 days, to MSMEs before declaring their loans as bad loans or as non performing assets.

Moreover, a corporate tax of 25% is proposed in the Budget 2018 for entities having an annual turnover of more than Rs.250 crores.

The Point of contention for alteration of definition

The government attempted to replace the investment in plant and machinery with annual turnover limit due to following reasons:

To integrate the MSME registrations with the GST network.

The government before issuing the certificates will no longer have to get into the intricacies of inspecting the investment in plant and machinery. Instead, the turnover claims can be easily verified with the GST Sales data filed with the Goods and Service Tax Portal, in no time.

To eliminate chances of miss-calculations in self-declaration of investment

While calculating the Total Investment in plant and machinery, the manufacturing entities were required to exclude

- Investment in land and building
- Only original cost of equipment and plant and machinery was taken into consideration
- Depreciation was ignored

However, while deducing the actual figures some applicants were likely to include the above-mentioned figures in the total investment in plant and machinery. With the alteration in the definition, any ambiguity pertaining to the same are eliminated.

To extend ease of doing business to micro, small and medium enterprises

By making the classification process transparent, it not only makes the registration process time effective but also evolutionary. With reliable turnover figures, any attempt to defraud can be curbed in the nip. The applicants can now easily apply for MSME registration.

A Point of concern

Even though the restructuring of the basic classification is constructed on a non-discretionary transparent platform,  but the higher limit of Rs.250 crores would really serve the purpose to protect the micro, small or medium enterprises?

Or it has opened scope for large companies to seek extra benefits from the government?

The author has an impassioned zeal for penning the untamed thoughts. He likes to explore different realms of the technology-driven business world along with a legal touch. When not writing he is busy watching football or gaming for as long as he possibly can. Currently, he is associated with StartUpSection.com which is currently dealing in MSME Registration, Company Registration in India and other associated activities.


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