Introduction:
The Ministry of Micro, Small and Medium Enterprises issued a gazette notification on 1st June 2020 where, the central government notified the changes in the criteria for classification of the Micro, Small and Medium Enterprises (MSMEs). The changes in the definition of MSMEs came into effect on 1st July 2020. These changes were announced in Atmnirbhar Bharat package announced by the Finance Minister, Smt. Nirmala Sitharaman on 13th May 2020.
Definition of MSME:
The criteria for classification of MSMEs have been defined under Section 7 of the MSME Development Act of 2006. Prior to changes brought by notification dated 1st June 2020, the MSMEs have been divided in 2 broad categories namely Manufacture or Production of Goods and providing or rendering of Services. They were further classified into on the basis of Investment in Plant and Machinery as follows:
- Enterprise engaged in the Manufacture or Production of Goods:
- a micro enterprise, where the investment in plant and machinery does not exceed twenty five lakh rupees;
- a small enterprise, where the investment in plant and machinery is more than twenty-five lakh rupees but does not exceed five crore rupees; or
- a medium enterprise, where the investment in plant and machinery is more than five crore rupees but does not exceed ten crore rupees.
2. Enterprise engaged in Providing or Rendering of Services:
- a micro enterprise, where the investment in equipment does not exceed ten lakh rupees;
- a small enterprise, where the investment in equipment is more than ten lakh rupees but does not exceed two crore rupees; or
- a medium enterprise, where the investment in equipment is more than two crore rupees but does not exceed five crore rupees.
After the approval of cabinet on changes brought by Atmnirbhar Bharat Package, the investment limits were revised upwards and annual turnover of the enterprises was made an additional criterion for classification of MSMEs. It further removed the difference between the definition of manufacturing-based MSMEs and Service-based MSMEs.
New Criteria to Classify the MSME:
The new standard for classification of MSMEs is as follows:
- a micro enterprise, where the investment in Plant and Machinery or Equipment does not exceed one crore rupees and turnover does not exceed five crore rupees;
- a small enterprise, where the investment in Plant and Machinery or Equipment does not exceed ten crore rupees and turnover does not exceed fifty crore rupees;
- a medium enterprise, where the investment in Plant and Machinery or Equipment does not exceed fifty crore rupees and turnover does not exceed two hundred and fifty crore rupees.
The following table explains the existing and revised definition of MSMEs’:
Other Changes bought by economic package for Atmnirbhar Bharat Package:
- Collateral free automatic loans will now be available for MSMEs. This facility is of a total amount of Rs 3 lakh crores. Those MSMEs whose turnover is 100 crore and have 25 crore outstanding loan exposure, are eligible for this facility. The tenor of this loan will be 4 years and a moratorium of 12 months will be provided to the MSMEs availing the offer. 100% credit guarantee on principal and interest will be provided by the government. This facility is available till 31st October and will benefit 45 lakh units and no extra cost or fresh collateral will be required.
- Subordinate debt worth Rs 20,000 crore introduced for stressed MSMEs. Those companies which are stressed or even an NPA are eligible for this facility. 2 lakh MSMEs are likely to benefit from this.
- A Fund of funds is being created which will lead to an infusion of 50,000 crore as equity into MSMEs. Those who have potential and are viable companies will benefit from this. This will help them expand their capacities and get listed in the markets which they can choose.
- Global tenders will be disallowed in government procurement for tenders under Rs 200 crore. This will make MSMEs run their business with much more confidence. Self-reliant India will work hand in hand with Make in India as they will be allowed to participate in government purchases.
- Ensuring that all MSMEs are provided with e-market linkage so that they can find their market in the absence of trade fairs.
- Statutory PF contribution for those not covered in this earlier point will be reduced from 12 to 10% for 3 months. However, for center and state enterprises, employers will continue to pay 12% but the employee will be given the benefit of paying only 10%. This equates to Rs 6,750 crore liquidity reliefs for 3 months.
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Author:
Juhi Vermani (Advocate)
BALLB (H), LLM