What should be the correct parameter to define MSME?
New Delhi, May 9 (KNN) Micro Small and Medium Enterprises (MSMEs) which form a significant part of Indian industry whether needs a revision/amendment in current definition or not has become a debatable topic.
To discuss the matter with the stalwarts of the industry, Pahle India Foundation (PIF) in collaboration with YES Bank organized a seminar on ‘Definition of MSMEs’ as part of monthly seminar series at India International Centre, here.
Focusing on the theme ‘Defining MSMEs’, the Secretary General of Federation of Indian Small and Micro Enterprises (FISME), Anil Bhardwaj endorsed the recent change cleared by the Cabinet to define MSMEs on the basis of turnover instead of existing investment based criteria.
The new definition once cleared by the Parliament, will have turnover slabs of Rs.5 Crore for Micro, from Rs 5 to 75 Crore for Small and from Rs. 75 to 250 crore for Medium Enterprises.
He asserted that moving from investment to turnover as basis of defining MSMEs is a vast improvement over earlier definition.
“After Public Procurement Policy (2012) of Government of India which mandates 25% procurement from MSEs, many large companies and even foreign companies, procured certificate of lower investment and made themselves eligible for special MSE preference. With turnover as criteria such malpractices could be easily spotted and curbed”, he said.
Reacting to fears of a few MSME entrepreneurs that the medium and large enterprises might creep in the typical small scale space, he dubbed them unfounded.
“The fast growing MSME dominated modern sectors such as Pharmaceuticals, Auto-component, Food processing etc have themselves been demanding a many-fold increase in the investment limit needed to be compliant of the new mandatory and industrial standards”, he said.
FISME, the premier MSME body has been consistent in upholding the demand for change in definition and junking the investment based criteria.
The investment based definition creates uneven playing field between old and new MSME as to produce a product today would require several times more investment than the one set-up ten or twenty years ago to produce the same product with similar quantity.
While sharing the limitations of defining MSMEs on sectoral basis, the Group Executive Vice President, Small Enterprises Banking, Yes Bank, Vikas Arora shared that the approach should adopt both turover and investment in plant & machinery to define MSMEs.
He explained, some of the companies might have large investment in the plant and machinery but they would have smaller turnover, similarly some might have smaller plant and machinery but would have larger turnover depending on the business model, therefore it is important to club both the parameter while defining MSMEs.
According to a 2018 study of Ease of Doing Business in the Gems and Jewellery sector by Pahle India Foundation, a karigar, who is a single owner enterprise, uses on an average 3-5 kgs of gold per week. Assuming he uses 3 kgs of gold per week, which means around 145 kgs of gold is used in a year, his annual turnover comes to around INR 46 crores (taking the value of 1 gram gold at INR 3,200).
Therefore based on annual turnover, for the karigar (self-employed), who should technically be a ‘micro’ unit, the proposed limits would imply that his firm would be a ‘small’ enterprise, said Pahle India Foundation.
According to Pahle India foundation, such industry-level disparities establish that one criterion for defining MSMEs may not be enough and that there is a need for considering a composite definition.
While speaking with KNN India, Senior Fellow & Head of Research, Pahle India Foundation, Nirupama Soundarajan said “We should look at turnover primarily because it’s simplest but some kind of sectoral definitions are also necessary to take into account those that would be disadvantaged because of turnover based definition.”