The announcement came on a day when the Reserve Bank of India announced some relief to the sector. But the change would be effective when the proposed amendments to the Micro, Small and Medium Enterprises Development Act, 2006, come into effect
Section 7 of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 will accordingly be amended to define units producing goods and rendering services in terms of annual turnover as a micro enterprise will be defined as a unit where the annual turnover does not exceed Rs five crore; a small enterprise will be defined as a unit where the annual turnover is more than Rs five crore but does not exceed Rs 75 crore and a medium enterprise will be defined as a unit where the annual turnover is more than Rs 75 crore but does not exceed Rs 250 crore.
Under the earlier definition, manufacturers with Rs 25 lakh investment in plant and machinery were termed micro enterprises and those with investments between Rs 25 lakh and Rs 5 crore were regarded as small enterprises. Firms with investments of up to Rs 10 crore are classified as medium.
“Taking turnover as a criterion can be pegged with reliable figures available e.g. in GST Network and other methods of ascertaining which will help in having a non discretionary, transparent and objective criteria and will eliminate the need for inspections, make the classification system progressive and evolutionary, help in overcoming the uncertainties associated with the classification based on investment in plant & machinery/equipment and employment, and improve the ease of doing business," the ministry said in a statement.
In addition the amendment will provide flexibility to the Government to fine-tune the classification of MSMEs in response to changing economic scenario without resorting to the amendment of MSMED (Micro, Small & Medium Enterprises Development) Act.
"The change in the norms of classification will enhance the ease of doing business. The consequent growth and will pave the way for increased direct and indirect employment in the MSME sector of the country," the MSME ministry said.