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The Centre and the RBI’s recent policy initiatives to boost the MSME sector will go long way in expanding the contribution of manufacturing to overall GDP in the coming years, said Anil Khaitan, President, PHD Chamber of Commerce and Industry (PHDCCI).
From a current level of just about 14 per cent of the GDP, manufacturing could account for nearly 25 per cent of GDP in the next five years if the latest MSME-related policy initiatives are “aggressively implemented” by the Centre, Khaitan told BusinessLine in an interview here.
Besides introducing a “turnover” based criterion for definition of MSMEs, the Centre had recently (in the Budget) announced that fixed term contract for workmen would be allowed.
Fixed term contracts for workmen will enable MSMEs to terminate non-performing workmen.
The RBI 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, the 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 ₹5 crore; a small enterprise with the annual turnover more than ₹5 crore and less than ₹75 crore and medium enterprise with annual turnover more than ₹75 crore and less than ₹250 crore. Earlier 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 access to funds from the banking sector.
The PHDCCI President said that the manufacturing sector in China accounts for 31 per cent of GDP.
“We too have to come to that level. For this entrepreneurship should be encouraged,” Khaitan said.
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