The Micro, Small and Medium Enterprise (MSME) sector needs a new definition, an industry chamber viewed last week. It added that the sector is critical in employment generation and poverty reduction. MSMEs can play a key role also in slowing rural-urban migration. This view sound convincing. There has been a long-standing demand that the decade-old definition of MSMEs needs to be changed to meet the changing needs of time.

Early last year, the Union Cabinet approved a proposal to change the definition of Micro, Small and Medium enterprises. Since 1950s Small Scale Industries (SSIs), and later renamed as MSMEs since the year 2006, have been traditionally defined based on their investment in plant and machinery for manufacturing units, and investment in equipment for service enterprises, but the proposed definition defines them based on their annual turnover.

According to the proposed definition, a micro enterprise is a unit where the annual turnover does not exceed Rs. 5 crore, a small enterprise is one where annual turnover is between Rs. 5 crore and Rs 75 crore, and a medium enterprises is where the turnover is more than Rs 75 crore but does not exceed Rs 250 crore. In order to give this new MSME definition effect, the Section 7 of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 needs be amended.

The industry body is of the opinion that the proposed definition will help in directing the benefits of economic growth to the intended beneficiaries. It is also noteworthy that such a change will align the definition with GST regime, making it far easier for authorities to verify claims of businesses using the sales data they have from the GST Network. The needs of inspection will be eliminated and thus ease of doing business for MSMEs will get a boost.

I invite your opinions.