New MSME definition is skewed; favours the creamy layer of medium enterprises: FOCIA

When the Centre notified the changes in the MSME definition a fortnight ago industry associations by and large hailed the move. But as things start to unfold, the Federation of Coimbatore Industrial Association (FOCIA) — the apex body of 18 small and tiny engineering associations — has voiced concern as it felt that the basic principles of MSME definition are “shaken and diluted”.

J James, Co-ordinator, FOCIA and President, Tamil Nadu Association of Cottage and Tiny Enterprises (TACT), said: “The classification of Micro, Small and Medium Enterprises (MSME) is just the beginning… the first step in the long journey. But this should be in the right direction. The changes announced vide the notification dated June 26, 2020 indicate that the tenets of the MSMED Act 2006 have been conveniently discarded, and focus shifted to prop up the creamy layer of medium enterprises.”

Citing deficiencies in the notification, FOCIA Coordinators — S Surulivel and A Siva Shamughakumar — said : “Should such changes be implemented, micro units — with turnover of less than ₹1 crore — would be equated with medium enterprises (whose turnover would be upwards of ₹250 crore). Further, under the public sector procurement policy, units with an annual turnover of ₹1 crore would have to compete in the tender process with enterprises clocking a turnover of over ₹250 crore.

Statistics show that 95 per cent of the MSME units belong to the micro sector and 4.5 per cent in small sector; less than 0.5 per cent of the units are classified as medium-scale units.

Emphasis on manufacturing

The changes in the definition now allow any undertaking to be registered as micro or small. But the MSME notification dated January 2009 affirms that “only manufacturing units which use plant and machinery in the process of value addition would be eligible for registration under the Act. This notification is still in force,” clarified Surulivel, adding “the emphasis on manufacturing has been completely withdrawn. Manufacturing units are equated with pure trading units.”

FOCIA has urged Union MSME minister Nitin Gadkari to change the definition to include “enterprises engaged in manufacture or production of goods pertaining to any industry and employing plant and machinery in the process of value addition, insert another category – Cottage Enterprises (with turnover not exceeding ₹1 crore and investment in Plant and Machinery up to a maximum of ₹25 lakh) and enhance public sector procurement to 50 per cent ( from the prevailing 25 per cent)”.

Separate Ministry urged

“The Government should consider formation of a separate ministry for Cottage, Micro and Small Enterprises (CMS) and focus on the development and upliftment of the deprived strata of society,” suggested James.

Industry insiders have sought withdrawal of registration on the Udyam Portal as the existing Udhyog Adhar Memorandum (UAM), with slight modification to include GST registration details, will help the units move forward without much hassle, they felt.