The ministry for micro, small and medium enterprises (MSMEs) will propose amendments in the next Parliamentary session to remove the definition of small scale industries out of the sector law, which will give the administration flexibility to increase the qualifying thresholds.
The MSME Act, 2006, defines a micro enterprise as the one which has an investment of up to 25 lakh in plant and machinery, those with up to 5 crore and 10 crore investment qualify as small and medium enterprise, respectively. If the amendment is approved, the limits will be prescribed through rules and guidelines in line with inflation, which will provide a number of opportunities for MSME sector to expand.
The government also feels raising the thresholds every few years will encourage the small and medium enterprises to invest more in plant and machinery and grow bigger and add to the manufacturing sector.
At present, MSMEs are often unwilling to violate the existing threshold and expand as they fear losing various benefits reserved for them; resulting in sluggish growth in the country’s manufacturing sector. Complex labour laws have also discouraged expansion as investors feel employing more people will create manpower issues.
The wholesale price index has gone up by 40 per cent between 2007-08 and 2011-12. Calculation based on that indicates that the new thresholds based on investment in plant and machinery will stand at 35 lakh for micro, 7 crore for small and 14 crore for medium enterprises.
Sector experts lauded the proposal.
Anil Bhardwaj, secretary general, Federation of Indian Micro and Small & Medium Enterprises said, "Keeping the definition out of the Act will add more employment and spur the manufacturing sector."
Today, 30 per cent sourcing from MSMEs is mandatory for FDI in multi-brand retail. If a company has to source from MSME, the company needs to be equipped to provide large quantities of products, which requires high investment in plant and machinery to be able to produce more, Bhardwaj pointed out.