New MSME Classification Sparks Debate Among Small and Mid-Sized Firms: Here’s Why

The Union government’s revised classification criteria for micro, small and medium enterprises (MSMEs) which came into effect on April 1, has objections from some representative bodies who claim that the revision could bereft the micro and small firms.

The revision, which was announced in Finance Minister Nirmala Sitharaman’s Budget speech in February, increased the investment cap for each of the three segments by 2.5 times and the turnover cap by two times. According to the revised classification, some first that identified as medium-sized are now small enterprises, while some small firms are now micro enterprises, reported The Indian Express.

Laghu Udyog Bharati, a Rashtriya Swayamsevak Sangh (RSS) affiliated body for micro and small enterprises, in a letter to the Ministry of MSME on March 12, stated that the revision will allow the medium firms to “corner” benefits meant for smaller firms, cited The Indian Express.

“Laghu Udyog Bharati foresee the adverse impact of above enhancements on micro and small-scale units who constitute about 99.99 per cent of MSMEs whereas handful of medium level units as they are less than 0.01 per cent are expected to corner such benefits,” the letter to SCL Das, MSME Secretary, said. “Hence, revision of classification of MSMEs at this stage will not serve any useful purpose and it is requested to restore the existing criteria for the time being,” it added.

What Has Changed?

According to The Indian Express, until April 1, micro enterprises were defined as those with investments up to Rs 1 crore and an annual turnover up to Rs 5 crore. The threshold for small enterprises was Rs 10 crore in investment and Rs 50 crore in turnover, while for medium enterprises, it was Rs 50 crore in investment and Rs 250 crore in turnover.

Speaking about supporting MSMEs to grow, Finance Minister Nirmala Sitharaman, while presenting the Budget on February 1,  said, “To help them achieve higher efficiencies of scale, technological upgradation and better access to capital, the investment and turnover limits for classification of all MSMEs will be enhanced to 2.5 and 2 times, respectively.”