Revised Criteria and Definition of MSME! Explained

On May 13th, 2020, an announcement was made in the Atmnirbhar Bharat Package regarding a revision in the definition of Micro, Small and Medium Enterprises(MSME). Once the package was reported, numerous representations were made for the upward revision of the definition of MSME. The Ministry of Micro, Small and Medium Enterprises considered it under gazette notification that was dated June 1st, 2020 and announced an upward criteria and definition of the MSME. The new report and criterion of the MSME came into effect on July 1st, 2020.

Summary of the Notification

A gist of the important notifications that were made by the MInistry of MSME under the gazette notification are listed below:

1. As per the notification, MSMEs will be classified on the  basis of the combined criteria of investment made in the plant and the machines and turnover. The medium unit limit has been revised up to Rs. 50 Cr. for investments and up to Rs. 250 Cr. for turnover.
2. According to the new definition of MSME, the exports will not be considered in terms of turnover for any MSMEs.
3. A new combined formula for the categorisation of MSMEs has been introduced by the government. The Ministry has eradicated the difference between service-based MSMEs and manufacturing-based MSMEs.
4. Another change that was introduced was that the turnover of the sector will define the MSME. Till now, the MSMEs were determined on the basis of the scale of investments. But now, the MSME will be represented by turnover and not by investment.

Revised Definition of MSME

The changes that have been made in the definition of MSME recently were part  of the Atmnirbhar Bharat Abhiyaan relief package. The amount of turnover and investment have been changed to significant values as depicted below:

Reasons for Revised Criteria of MSME

The following are the reasons for the revised criteria for the categorisation of MSME:

• One of the main reasons for the revised criteria and definition of the MSME was to strengthen the MSMEs and support their growth.
• Also, exclusion of exports from the computation of turnover was to encourage MSMEs to export more without the fear of losing the benefits of being an MSME unit.
• The government planned to enhance the growth and economic activity and to create jobs by encouraging the exports from India.

Revised Definition of MSME

After 14 years from the introduction of MSME Development Act, a revised definition was introduced by the government in the Atmnirbhar Bharat package on May 13, 2020 in order to bring more units under the influence of the announced schemes. According to this package, the combined criteria are investment and turnover for defining the MSME. The difference between the service-sector and manufacturing-sector have also been eradicated.

• The limit of the Micro units was increased to Rs. 1 Cr. for investment and Rs. 5 Cr. for turnover.
• In the same way, the limits for the small units were also increased to Rs. 10 Cr. for investments and to Rs. 50 Cr. for turnover.
• Also, the limits for medium enterprises were raised to Rs. 20 Cr. for investments and to Rs. 100 Cr. for turnover.

In order to get a better understanding, then look at the following table:

The previous definition of MSME

The previously existing criterion of the Ministry of MSMEs is based on the MSME Development Act. This act was introduced in the year 2006. The MSMEs are categorised on the basis of investment made in the plant and machinery and were different from the services and manufacturing units. According to the MSMED Act, 2006, the MSMEs are categorised into two categories:

• Manufacturing Enterprises: Those enterprises which are engaged in the production and manufacturing of goods are referred to as manufacturing enterprises.
• Service Enterprises: Those units which are engaged in providing services are referred to as service enterprises.