The recent policy initiatives taken by the Government and RBI to boost MSME sector will go long way in expanding the contribution of manufacturing to overall GDP in the coming years, Anil Khaitan, President, PHD Chamber of Commerce and Industry (PHDCCI) has said.

From a current level of just about 14 per cent of GDP, manufacturing could account for nearly 25 percent of GDP in the next 5 years if the latest MSME-related policy initiatives are “aggressively implemented” by Government, Khaitan told BusinessLine in an interview here.

Besides introducing a “turnover” based criterion for definition of MSMEs, the Government had recently (in the budget) announced that fixed term contract for workmen would be allowed.

Allowing fixed term contracts for workmen would give a nice tool handle for MSMEs as they could now terminate non-performing workmen.

The RBI policy decision to allow MSMEs a time period of 180 days (as against 90 days earlier for NPA purposes) to “square up their accounts” in the banking system is the single most positive development for the sector and could help boost employment in the country, according to Khaitan.


After agriculture, MSME sector is the second largest employment creator in the country, he added.

As per the new classification, a micro enterprise will be defined as a unit with annual turnover less than or equal to Rs 5 crore; a small enterprise with the annual turnover more than Rs 5 crore and less than Rs 75 crore and medium enterprise with annual turnover more than Rs 75 crore and less than Rs 250 crore. Hitherto, the definition of MSME was based on investments in plant and machinery.

Interestingly, the turnover-based definition for MSME aligns itself with the current GST regime.

Khaitan said that the new turnover-based definition will bring more firms within the MSME fold and thereby help increase their accessibility for funds from the banking sector.

The PHDCCI President said that manufacturing sector in China accounts for 31 per cent of their GDP. “We too have to come to that level. For this entrepreneurship should be encouraged”, Khaitan said.