MSME Development (Amendment) Bill 2018

Why in news?

The Centre has tabled the MSME Development (Amendment) Bill 2018 in Parliament.

What are the key provisions?

• The Bill amends the Micro, Small and Medium Enterprises Development Act, 2006.
• Under the Act, manufacturing units are defined depending on their investments in plant and machinery as:

1. micro enterprises (below Rs.25 lakh)
2. small enterprises (Rs.25 lakh to Rs.5 crore)
3. medium enterprises (Rs.5 crore to Rs.10 crore)

• The thresholds were lower for services units.
• Under the Bill, all MSMEs will be classified on the basis of their annual turnover.
• This is irrespective of whether they are manufacturing or service-providing enterprises.
• Now, the units will be

1. ‘micro’ enterprises if their annual sales turnover is less than Rs.5 crore
2. ‘small’ if they fall in the Rs.5-75 crore range
3. ‘medium’ if they are in the Rs.75-250 crore band

• The central government may change these annual turnover limits through a notification.
• The maximum turnover may be up to three times the limits specified in the Bill.

What are the benefits?

• Starters - MSMEs are offered a range of incentives and tax benefits, to promote them.
• Under the current definition, the newer units often face disadvantages.
• As, their higher investments, as part of the industrial modernisation efforts, keeps them out of MSME definition.
• Hence, the turnover criterion is a more pragmatic way to incentivise industry.
• It facilitates fairer comparisons between older and newer ventures and helps starters in utilising MSME sops.
• Sectors - Turnover-based sops may be friendlier to technology-intensive sectors.
• These include engineering, auto components or pharmaceuticals.
• Substantial capital investments are needed to ensure even minimal scale in these.
• Here again, turnover, instead of investment criterion, would be more beneficious.
• Procedure - The annual turnover criteria can be directly verified from the GST Network.
• It thus puts an end to physical inspections necessitated by the investment-based regime.
• Efficiency - Turnover criteria will allow a unit to graduate from its MSME status on reaching a fair size.
• It will discourage the proliferation of inefficient units created mainly with an eye to utilise sops.
• The Centre should consider a sunset clause on MSME benefits to encourage small units to climb up the value chain.

Source: PRSIndia, BusinessLine