Capital ceiling to be raised to qualify as SME

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Biswajit Choudhury | 24 Mar, 2015
The government has decided to change the definition of what constitute small and medium enterprise (SME), notably by raising the capital caps for qualification, in a bid to revive a sector that is India's second-largest employer, with a 40 percent share in exports.

A draft bill has already been prepared proposing such revisions, officials said, adding, the cap is proposed to be doubled to Rs.50 lakh for micro enterprises and Rs.10 crore for small-scale firms. For medium enterprises it is proposed at Rs.30 crore from Rs.10 crore, officials said.

"We have not produced global level players in providing services except in information technology and information technology enabled services," says the draft Micro, Small and Medium Enterprises Bill, 2015, that also has a thrust on Prime Minister Narendra Modi's 'Make in India' initiative.

"India can become a global exporter of services. But with the above exceptions, it has not done so," it added in its observation on the sector, whose story replicates that of manufacturing in India overall.

According to a senior official in the ministry, the aim of the proposed amendments not only to help revival the enterprises in this category, but also facilitate the exit of some distressed enterprises, aso that investments can be unlocked for more productive use.

"Micro, small and medium enterprises face a lot of insolvency and bankruptcy issues. They must be given legal aid for revival, the ministry official said. "We also need to limit their liabilities and improve the process involved in winding up with affordable mechanism," he said.

Towards this end, while presenting the Prime Minister Modi government's first full budget for the next fiscal in February, Finance Minister Arun Jaitely said that a new, comprehensive bankruptcy code on the lines prevailing in the US will make it easier for the exit from unviable ventures.

"We will bring a comprehensive Bankruptcy Code in fiscal 2015-16, that will meet global standards and provide necessary judicial capacity," Jaitley had said -- a move that will replace the laws dealing with sick companies, and the one on industrial and financial reconstruction.

The senior official in the Ministry of Micro, Small and Medium Enterprises said funding was also a major issue for the sector, since banks get wary after loans become distressed, while the high debt-to-equity ratio prevents them from taking further exposures.

Officials said the proposal for a Rs.5-000 crore India Opportunities Venture Fund under the Small Industries Development Bank will go a long way in pumping equity, even as the turnover limit for compulsory tax audit and presumptive taxation was being enhanced from Rs.60 lakh to Rs.1 crore.

Another area being looked at is listing on bourses. The platform for such companies allows does not mandate a compulsory initial public offer. But reflecting their problem with equity funding, there are only a little over 90 such firms listed on the Bombay Stock Exchange.

The micro, small and medium enterprises contribute 8 percent to the country's GDP, 40 percent of its total exports and around 45 percent of the manufacturing output, as per official data. There are 3.62 crore such firms of which 15.64 are registered. They employ 8.1 crore people.