MSME – An attempt at redefinition

In recent times the discussion about redefining the MSME classification criteria has resurfaced again. The current qualifiers were infact set much before the MSME nomenclature came into vogue. Previously, MSME used to be known by the term SSI (Small Scale Industry).

With great emphasis to catalyze and acknowledge the importance of the small business sector, the government enacted the MSME act, thereby bringing an end to the SSI nomenclature. While the change brought about some modifications and improvements, many aspects of the SSI act continued in the MSME act as well. One such unchanged item is the MSME classification criteria.  The same is presented for reference in the table below based on their investment in plant and machinery:

Micro  (Manufacturing) Upto 25 lakhs Small (Manufacturing) 25 Lakhs to

5 Crore

Medium

(Manufacturing)

5 Crore to

10 Crore

Micro

(Services)

Upto 10 lakhs Small

(Services)

10 lakhs to

2 Crore

Medium

(Services)

2 Crore to

5 Crore

 

Today considering the changing economic scenario, a change in the criteria is being considered in the values. The debate today is around the proposal from the government for revising the figures of investment in plant and machinery upwards.

Number of associations voicing and lobbying for the benefit of MSME; have been discussing around right values that are to be considered for classification. Though there have been faint voices, highlighting a much needed change to the criterion itself, the topic does not seem to gather steam.

With more than 80% of the MSME in the country belonging to the Micro Group, change in values alone might cause the maximum challenges only to the medium sized members of the MSME group.  This has been one of the primary reasons, for lot of associations to be against upward revision of the values. An upward revision of values would bring more institutions into the MSME fold, thereby making the upper end of the spectrum more competitive. While this would increase the number of ventures coming under the protection of MSME Act, how it would actually improve the situation of the overall MSME cadre remains an unanswered question. However, the rationale behind changing the criterion (which is not received keen interest) from the prevailing ‘investment in plant and machinery’ to other factors used globally such as ‘Employee head count’, ‘Turn over’ is not even being entertained or discussed.

There could be many reasons for this. Could it be that if such factors are brought in – some of the medium sized members may have to move out of the group? Will there be a greater than estimated upheaval and churn in the MSME group? Will multiple factors make governing an act such as MSME more difficult?

While there are many questions that needs serious consideration, debates and thoughts, one thing that is undeniable is the importance of the MSME sector.

Though a lot gets spoken about MSME sector in India, a lot remains to be done and acted upon. Considering the evolution, importance and impact of MSMEs in the economic development of other nations – it is clear that governing and developing this sector is going to be an important yet daunting task. Public policy, professionals, planning enthusiasts, strategists, political leaders, bureaucrats and ofcourse the MSME owners need to put their heads together and look more comprehensive and holistic reforms than just recalibrating the qualifying bar..