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MSME definition to change; Rs 10,000 cr fund for start-ups

Updated: Jul 10, 2014 03:10:11pm
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New Delhi, Jul 10 (KNN) Meeting long-pending demand from the industry, the government today agreed to review the definition of MSME and provide for higher capital ceiling. Besides, Finance Minister Arun Jaitley has proposed an Rs 10, 000 crore fund to act as a catalyst for start-ups.

“The definition of MSME will be reviewed to provide for a higher capital ceiling.  A programme to facilitate forward and backward linkages with multiple value chain of manufacturing and service delivery will also be put in place,” Jaitley said in his Budget Speech.

The current classification marks enterprises in manufacturing sector with an investment in plant and machinery of up to Rs 25 lakh as micro, up to Rs 5 crore as small and up to Rs 10 crore as medium enterprises. Similarly, the limits for enterprises providing services are set at Rs 10 lakh, Rs 2 crore and Rs 5 crore for micro, small and medium enterprises, respectively.

Considering the need to incentivize smaller entrepreneurs, the Budget proposes to provide investment allowance at the rate of 15 per cent to a manufacturing company that invests more than Rs 25 crore in any year in new plant and machinery.

This benefit will be available for three years - for investments up to March 31, 2017.  The Scheme announced last year will continue to operate in parallel till March 31, 2015, the Budget proposed.

Reacting to this, Secretary General of Federation of Indian Micro and Small & Medium Enterprises (FISME), Anil Bhardwaj said, “Some segments in the MSME sector like pharmaceuticals, auto components, and chemical among others have been demanding an upward rise in the MSME definition enabling them to scale up their operations.”
“It is disappointing that bulk of MSMEs have been deprived of this facility as the present investment limit remains beyond their investment capacities,” he said adding that “Traditionally, the investment allowance was available without any threshold and continued for several decades.”

To augment investment in the manufacturing sector, there should not be any threshold of minimum investment, FISME said.

Jaitley said there is a need to examine the financial architecture. “Financing to this sector is of critical importance, particularly as it benefits the weakest sections. There is need to examine the financial architecture for this sector. I propose to appoint a committee with representatives from the Finance Ministry, Ministry of MSME, RBI to give concrete suggestions in three months,” he said.

“Promotion of entrepreneurship and start-up Companies remains a challenge. While there have been some efforts to encourage, one principal limitation has been availability of start-up capital by way of equity to be brought in by the promoters. In order to create a conducive eco-system for the venture capital in the MSME sector it is proposed to establish a Rs 10,000 crore fund to act as a catalyst to attract private Capital by way of providing equity, quasi equity, soft loans and other risk capital for start-up companies,” Jaitley added.

“While welcoming the establishment of Rs 10,000 crore fund for the start-ups, the sector cannot  remain oblivious of the fact that many such funds announced in the last budget could not become operational,” FISME chief said.

The Finance Minister also proposed to establish technology centre network to promote innovation, entrepreneurship and agro-industry and set up a fund with a corpus of Rs 200 crore.

Entrepreneur friendly legal bankruptcy framework will also be developed for SMEs to enable easy exit, the Finance Minister said.

A nationwide “District level Incubation and Accelerator Programme” would be taken up for incubation of new ideas and providing necessary support for accelerating entrepreneurship, he said. (KNN/PC/SD)

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