Concept of Micro Small and Medium Enterprises in India
   Date :19-Mar-2020

 Sudhakar Atre _1 &n
 
By Sudhakar Atre :
 
MICRO Small and Medium Enterprises (MSMEs) form an important component of the Indian economy. There are more than 3.61 crore MSME units throughout the country which contribute around 6.11% of the manufacturing GDP and 24.63% of the GDP from service activities. Hence, MSMEs are rightly called as growth engine of Indian economy. Government has set a target to increase its contribution to GDP to 50%, exports’ contribution from current 50% to 75% while employment to 15 crore from present 12 crore, by the year 2025 as India dreams to become a $5 trillion economy by that time. MSME is the second largest employment generating sector after agriculture.
 
Their capacity to generate employment is much more than large corporate if compared on yardstick of investment to employment ratio. They promote inclusive growth by providing employment opportunities in rural areas especially to people belonging to weaker sections of the society. In the present context when the agriculture sector is under distress, MSMEs are the only ray of hope to address the issue of rising unemployment and social unrest. In a democratic structure no Government can afford to ignore aspirations of younger generation for gainful employment which otherwise may lead to socio political unrest in addition to economic recession. In order to streamline the development of MSMEs, Government enacted the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 and notified the same vide gazette notification dated June 16, 2006.
 
The act made a paradigm shift in the then prevalent concept by including the services sector in the definition of MSMEs. The MSMED Act, 2006 modified the definition of MSMEs engaged in manufacturing or production and providing or rendering of services. The act defined MSMEs as under: (a) Manufacturing enterprises: Manufacturing enterprises would mean enterprises engaged in the manufacture or production of goods as specified below: (i) A micro enterprise is an enterprise where investment in plant and machinery does not exceed Rs 25 lakh; (ii) A small enterprise is an enterprise where the investment in plant and machinery is more than Rs 25 lakh but does not exceed Rs 5 crore; and (iii) A medium enterprise is an enterprise where the investment in plant and machinery is more than Rs 5 crore but does not exceed Rs 10 crore. In case of the above enterprises, investment in plant and machinery is the original cost excluding land and building and items specified by Ministry of Small Scale Industries vide its notification No. SO 1722(E) dated October 5, 2006. (b) Service Enterprises: Enterprises engaged in providing or rendering of services and whose investment in equipment (original cost excluding land and building and furniture, fittings and other items not directly related to the service rendered) as specified below: (i) A micro enterprise is an enterprise where the investment in equipment does not exceed Rs 10 lakh; (ii) A small enterprise is an enterprise where the investment in equipment is more than Rs 10 lakh but does not exceed Rs 2 crore; and (iii) A medium enterprise is an enterprise where the investment in equipment is more than Rs 2 crore but does not exceed Rs 5 crore. 3) In terms of Ministry of MSME, Office Memorandum (OM) F No 12(4)/2017-SME dated March 8, 2017, it was clarified that for ascertaining the investment in plant and machinery for classification of an enterprise as micro, small and medium, the following documents could be relied upon: (i) A copy of the invoice of the purchase of plant and machinery; or (ii) Gross block for investment in plant and machinery as shown in the audited accounts; or (iii) A certificate issued by a chartered accountant regarding purchase price of plant and machinery. 4) Further, Ministry has clarified that for the investment in plant and machinery for the purpose of classification of an enterprise as micro, small or medium, purchase value of the plant and machinery is to be reckoned and not book value (purchase value minus depreciation). 5) In terms of RBI Master Direction FIDD CO Plan 1/04.09.01/2016-17 dated July 07, 2016 all bank loans to MSMEs, for both manufacturing and service sectors are eligible to be classified under the priority sector. As the MSMED Act, 2006 does not provide for clubbing of investments of different enterprises set up by same person / company for the purpose of classification as MSMEs, the gazette notification no. SO2 (E) dated January 1, 1993 on clubbing of investments of two or more enterprises under the same ownership for the purpose of classification of industrial undertakings as SSI has been cancelled vide GoI notification no SO 563 (E) dated February 27, 2009.
 
Moreover, to ensure that MSMEs do not remain small and medium units merely to remain eligible for priority sector status, the MSME units shall continue to enjoy the priority sector lending status up to three years after they grow out of the MSME category concerned. (The author is a freelance writer on finance & banking. He can be contacted on [email protected])