The Karnataka Small Scale Industries Association (Kassia) has urged the Central Government to change the definition of Micro, Small and Medium Enterprises (MSME).

Drawing attention to the proposed changes being made to the definition of MSME with suitable amendments to the MSME Act, Kassia president Basvaraj Javali said “We do appreciate the need for the scientific definition of SMEs keeping in view the global trends. We are quite aware that the SMEs globally are classified on the basis of employment and turnover.”

“However, in India at present is a peculiar case in view of the capital scarcity and also the very nature of small businesses which are essentially family run. In the circumstances and with a view to directing concessions and subsidies to such businesses, a simple definition based on investment in plant and machinery has been put in place which is currently operative.”

Kassia said the new basis which is on turnover, classifies MSMEs as follows: Micro upto Rs 5 crore, Small from Rs 5 crore to Rs 75 crore and Medium from Rs 75 crore to Rs 250 crore.

“We feel this is quite a drastic change and may jeopardise the very existence of large number of small manufacturing units,” Javali said.

Kassia has pointed out the following to safeguard the MSME sector:

The proposed definition will bring in large number of firms within the definition of SME: This is a serious worry as such a thing will likely crowd out a large number of small units from the benefits targeted at them as there will be much higher demand for such benefits from a greater number of businesses. This will definitely harm the interest of SME which are largely family run and struggle for existence, and depend a great deal on such incentives and concessions for survival.

The distinction between manufacturing and service has been removed in the new definition. This will further add to the numbers and negatively impact on the manufacturing and thereby creation of jobs and enterprise development.

Public Procurement

Javali said “SMEs are eligible for mandatory share in the public procurement of 20 per cent, though this remains contentious. This will likely be negatively impacted with the many hitherto medium and large industries coming in to the bracket and with the small cake available having to be further shared with a large number of so called SMEs. This is an undesirable consequence.”

Kassia would, therefore, like to suggest that the government maintain the status-quo in the definition of MSMEs by continuing the definition of MSMEs on the basis of investment, as being presently followed.

Government may, however, increase the investment limits suitably taking into account inflation and the other parameters. Present definition of MSME is as follows: Micro upto Rs 25 lakhs, Small from Rs 25 lakhs to Rs 5 crore and Medium from Rs 5 crore to Rs 10 crore.

“As the matter is extremely important for the survival of MSMEs in the country, the Government may also consult all the stake holders before effecting any change in the definition,” pleaded Javali.

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