Govt introduces revenue-based definition of MSMEs, industry loving it

The Union cabinet has accepted the proposal to move away from an investment-based definition to a revenue-centric definition, which will be verified by the GST Network

The change in the norms of classification will certainly improve the ease of doing business for MSMEs and bring in transparency. It will also pave the way for increased direct and indirect employment in the MSME sector

Rashesh Shah
President, FICCI

India Inc has welcomed the government’s move to change the criteria for classifying MSMEs, saying it will ease the cash flow for businesses and increase employment in the sector.

Industry bodies also cheered the Reserve Bank’s decision to give micro, small and medium enterprises (MSMEs) additional up to 180 days to clear their dues to banks, saying it may result into reducing the non-performing assets (NPAs).

On Thursday, the Union cabinet approved the change in criteria for classifying MSMEs from ‘Investment in Plant & Machinery’ to annual turnover.

Definition of Indian small and medium enterprises (SMEs)

As per the new classification, enterprises having annual turnover less than or equal to Rs 5 crore fall under the ‘micro’ category. Th units having turnover between Rs 5 crore to Rs 75 crore will be classified as small enterprises, whereas those having turnover between Rs 75 crore and Rs 250 crore will be classified as medium enterprises.

“This will foster higher productivity, greater efficiency, improved competitiveness and increased employment in the sector which continues to be the backbone of our economy,” CII director general Chandrajit Banerjee said.

He said the new turnover based criterion while aligning itself with the GST regime will prove to be a good tool to assess the contribution of MSMEs to GDP.

“The change in the norms of classification will certainly improve the ease of doing business for MSMEs and bring in transparency. It will also pave the way for increased direct and indirect employment in the MSME sector of the country,” FICCI president Rashesh Shah said.

“Change in the MSMEs classification from investment in plant and machinery to turnover criteria is a major breakthrough in the ease of doing business for MSMEs and a step forward in synchronisation of business firms with GST,” PHD Chamber president Anil Khaitan said.

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