Infrastructure

KEY POINTS

·         MSME development (amendment) bill attempts to change the basis of classifying Micro, Small and Medium enterprises from ‘investment in plant & machinery/equipment’ to ‘annual turnover’.

Benefits

·         Earlier method of classification stipulates self declaration which is susceptible to manipulation.

·         The new system will be more reliable, transparent and objective as the qualifying criteria will be verifiable with reference to the data available in the GST network.

·         This will also reduce transaction costs as it will be no more necessary to carry out any inspection.

·         With such replacement, many enterprises that presently do not qualify should come within the ambit of the MSMED Act, 2006 and benefit from a large number of schemes promulgated by the government for this sector from time to time.

·         Existing MSMEs should also be able to invest more in plant and machinery and equipment without losing out on the benefits available to them.

·         Newer units with high investments, as part of the industrial modernisation efforts, are kept out of MSME definition by the current system.

·         The bill facilitates fairer comparisons between older and newer ventures and helps starters in utilising MSME sops.

·         It will discourage the proliferation of inefficient units created mainly with an eye to utilise sops.

·         Substantial capital investments are needed to ensure even minimal scale in technology-intensive sectors such as engineering, auto components or pharmaceuticals.

·         Turnover, instead of investment criterion, would be more beneficious to such sectors.

·         This will encourage ease of doing business; make the norms of classification growth oriented.

Flip side

·         Depending on business cycles, turnover may increase or decrease.

·         Whenever such change occurs, it would be difficult to reclassify and extend or withdraw the entitlements of incentives for this sector.

·         Globally, turnover and employment are the most important elements used to define MSMEs.

·         India still does not take into account the number of people employed to define an MSME.

Please Review 

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