"All these measures are aimed at making the 6.33-crore MSME enterprises growth engine for new India," Financial Services Secretary Rajiv Kumar told PTI. Multiple initiatives are trying to address various issues inhibiting the growth of the sector, which is the largest job creator, he said. First and foremost, the recapitalisation of the banks to enable them to enhance their lending capacity by Rs 5 lakh crore, a substantial chunk of this would go towards the MSME sector.
Besides, Finance Minister Arun Jaitley in his Budget speech lowered the corporate tax rate to 25 per cent from 30 per cent for companies with a turnover of up to Rs 250 crore, benefiting the entire MSME sector, he said.
As part of alignment with the new taxation regime, the Union Cabinet last week also approved the change in criteria for classifying MSMEs from Investment in Plant & Machinery to annual turnover. As per the new classification, enterprises having annual turnover of less than or equal to Rs 5 crore fall under the micro category.
Units having turnover between Rs 5 crore to Rs 75 crore will be classified as small enterprises, whereas those having turnover between Rs 75 crore and Rs 250 crore will be classified as enterprises. The move will encourage ease of doing business, make the norms of classification growth- oriented and align classification norms to the new tax regime revolving around GST, an official statement after the Cabinet meet said.
The RBI last week also said that the formalisation of business through registration under Goods and Services Tax (GST) adversely impacted cash flows of the smaller entities during the transition phase with consequent difficulties in meeting their repayment obligations to banks and non-banking financial companies (NBFCs).
The central bank also removed credit caps on MSME in services sector under priority sector.
"In the light of feedback received from various stakeholders and in line with the increasing importance of services sector in our economy, it has been decided to remove the currently applicable loan limits of Rs 5 crore and Rs 10 crore per borrower to MSME (Services) respectively, for classification under priority sector," it said.
Industry bodies welcome new definition:
Federation of Indian Micro Small & Medium Enterprises (FISME) has welcomed the changes proposed by the Cabinet in definition of Micro, Small and Medium Enterprises (MSME).
“This is a historic change as since 1950s Small Scale Industries (SSIs) and later MSMEs have been traditionally defined based on fixed investment in plant and machine”, says Dinesh Tripathi, President of FISME.
From the auto industry, Nirmal Minda, President, ACMA has come out in favour of this initiative on behalf of ACMA. “This decision is indeed welcome, as over 80 percent Indian auto component manufacturers in India are MSMEs. The earlier definition had become out-of-date as the investments by industry today far exceed the earlier prescribed slab.”