An Awaited Milestone In Evolution of MSMED Act Is Arriving

It was 2006 when the Indian parliament gave a final nod to the MSME Act. But in all these fourteen years the Micro Small and Medium Enterprises have evolved and have come across several issues. As a core policy document this MSMED Act 2006 have been referred by policymakers in ensuring the pro MSME ecosystem. Now the time has come to review this policy document In order to establish a strong and robust ecosystem for MSMEs.

Well, this is not just any other policy, according to me, policy document has the potential of bringing the much-needed economic transformation of India. MSMEs, in India, are the biggest employers and extremely critical component of India's GST contributions. Having said this, the upcoming amendment of MSMED Act can make or break the economic roadmap of the potential rich MSMEs.

According to Office Memo issued by Office of Development Commissioner under Ministry of MSME  on 8th Jan 2020,   a Working Group has been constituted under the chairmanship of Surendra Nath Tripathi, Director, Indian Institute of Public Administration (IIPA). Tripathi- a former officer of Indian Administrative Services, headed Office of DCMSME as Additional Secretary earlier and is conversant with issues confronting MSMEs.

The Working Group is ‘tasked to conduct a necessary study and recommend modifications that are required in the MSME (Development) Act, 2006 in order to ensure ease of doing business and sustainable growth & development of MSMEs’.

MSME associations have been demanding changes in the MSMED Act. However, some entrepreneurs are also a bit reluctant in absorbing some core changes.

While talking to MSMEs and their representatives, SMEStreet has come up with opinions that may reflect that MSMEs are finding this revamp a little bit cumbersome activity, especially because of the possibilities of changing the entire parameters of MSME categorization.

"We, over past several years have been categorised on the basis of our plant and machinery investments. This gave us to be categorised in MSME domain and this is relatively a long term categorization. This helps us in stabilizing our business prospects and profile. However, if this parameter gets changed to the proposed parameters of turnover, the MSME status might vary from year to year. This can be very difficult for us to execute long term projects and financial interactions with banks. As an entrepreneur, I am personally not in favour of any change in this aspect," says Mr Pramod Gupta, Managing Director of United Drilling Tools Ltd.

Based in Noida, UP Mr Gupta has mentioned issues such as credit availability and access must be relooked and MSMEs perspective should be added.

On the contrary, Mr. Anil Bharadwaj of FISMI clarified by stating, “Some of the key provisions in the Act related to delayed payments and public procurement need to be strengthened based on the experience of last 14 years.”

Mr. Prem Narayan Singh, secretary-general U.P Garment Export Association and N.A.E.C commented, "We have been working with garment exporters and this sector is getting considered as the major portion of India's MSMEs landscape. But the issues of these MSMEs needed to be looked upon carefully. However, common issues such as credit and finance availability must be streamlined and pro-business environment should get established. As an industry segment, the garment industry itself is one of the biggest employers for the country. This quality of the garment sector should be considered while making any amendments in the MSMED Act."

The prominent members of the Working Group include Anil Bhardwaj, Secretary-General, Federation of Indian Micro and Small & Medium Enterprises (FISME), Harsh Shrivastava- CEO, Micro Finance Institutions, Prashant Girbane, Director General, Mahratta Chamber of Commerce, Industries & Agriculture among others.

The MSMED Act is the cornerstone legislation for MSMEs in India. It provides for ‘facilitating the promotion and development and enhancing the competitiveness of micro, small and medium enterprises’.

It provides the definition of MSMEs in India currently on the basis of investment in plant and machinery (excluding investment in land and building) for manufacturing and service enterprises separately.

The current thresholds of investments for manufacturing are: Micro up to 25 lac, Small up to 5 crore and Medium upto 10 crore. Corresponding thresholds for service enterprises are:  Micro 10 lac, Small 2 crore and Medium 5 crore.

Although the Cabinet had cleared replacement of investment based definition with one based on turnover, yet the Act could not be amended through the Parliament. The Working group may also look into change in criteria of definition.