Several representatives from the Micro, Small, and Medium Enterprises (MSMEs) have criticised the Centre’s proposed move to redefine the segment based on a company’s turnover instead of investments in plant and machinery and have cautioned that the move may kill functioning units and affect several livelihoods.

“With the proposed definition on turnover basis and not on investments in plant and machinery, there will no difference between a manufacturer and traders. The benefits for the MSME sector will go to both manufacturing and traders. In such a scenario, manufacturers would not want to take the pain to do business. People who want to set up their units will be discouraged," says Janak Bhatia, President, Laghu Udyog Bharti, Uttar Pradesh.

The proposed move would encourage traders to import more and the consequent fall in manufacturing would adversely impact the country’s GDP growth, Bhatia warned. “Employment will take a hit. With the increase in imports, the adverse balance of trade will worsen and local industries will be killed,” Bhatia said.

According to the new criteria being considered by the Centre, units with a turnover up to ₹ 5 crores would be considered as micro, those with a turnover between ₹5 crores and ₹75 crore would be defined as small which medium industry would be those with turnover between ₹75 crores and ₹250 crores.

At present, MSMEs are classified on the basis of investment in plant and machinery for manufacturing units, and investment in equipment for services enterprises. Under the goods category, the slabs are up to ₹25 lakh for micro, ₹25 lakh to ₹5 crore for small and ₹5-10 crore for medium. In the case of services, the slabs are: up to ₹10 lakh , ₹10 lakh to ₹2 crore and ₹2-5 crore.

In a joint press release issued by the Swadeshi Jagran Manch and the LUB, it was proposed that the definition criteria of micro and small industry should be based only on investment in plant and machinery with ceiling for micro enterprises fixed at ₹ 50 lakh and for small enterprises fixed between ₹ 50 lakhs and ₹ 5 crore.

“It is very important that the micro and small industry is not only protected but promoted and preferred in the national economic and industrial policy to get demographic advantage, boost GDP growth and make the ecosystem more equitable and inclusive,” the release stated.

The Karnataka Small Scale Industries’ Association (KASSIA), in a separate release, alleged that the Centre was creating a hostile environment for the MSME sector. “The government’s proposed redefinition of MSME units and the imposition of Goods and Services Tax could prove to be fatal for the sector with far-reaching negative impacts,” said Basavaraj S Javali, President, KASSIA.

MSMEs get a number of benefits in India. The government has been encouraging and supporting the sector through policies for preferential access to credit, preferential purchase policy and some reservation in manufacturing as well.