“On the other hand, the Federation of Indian Micro and Small & Medium Enterprises has told us that importers and multinationals engaged in trading activities could pass themselves as MSMEs and take away their benefits,” a ministry official said.
The government would need to bring the changes through amendments to the Micro, Small and Medium Enterprises Development Act, 2006, attempts at changing, which had been met with severe opposition in 2018.
The government had introduced the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2018 in Parliament during July’s monsoon session. While the Opposition had slammed the move, it had also been countered by a key industry ally of the government, the Swadeshi Jagran Manch (SJM), an affiliate of the Rashtriya Swayamsevak Sangh. Back then, Ashwini Mahajan, co-convener of the SJM, had argued that turnover was not the sole criteria for classifying MSMEs anywhere in the world.
As a result, it was referred to the department-related parliamentary standing committee on commerce and industry in October. Finally, in December 2018, the committee also suggested that MSMEs be classified according to their annual turnover. The panel had said the move would allow for more streamlined policies in the sector, as more small businesses would come under the ambit of the MSME ministry.
In the run-up to the last Lok Sabha elections, the BJP had stressed it was “keen on implementing the change after coming to power”.
The statement of the amendment Bill moved by the government last year said the criterion of investment entails physical verification, bringing with it transaction costs. It also incentivises promoters to keep the investment size small to retain the MSME tag. “Overall, the turnover-based classification will promote the ease of doing business and will put in place a non-discretionary, transparent and objective classification system,” the statement read.
This argument has continued to find favour with the ministry, which has continued to stress that the government’s definition would align MSMEs better with the GST regime, besides encouraging ease of doing business and making norms of classification growth-oriented. On Friday, Gadkari said the government was aiming to bring more small business into the official GST framework. Of the 60 million businesses registered on the GST platform, an estimated 12.5 million are MSMEs, a senior MSME ministry official said.
According to official estimates, there are more than 63 million MSMEs, which account for 45 per cent of industrial production, 30.5 per cent of services sector and employ close to 110 million people.