New Definition of MSME
New Definition of MSME

New Definition of MSME

Today, the cabinet has passed a new law, which classifies the medium-sized companies funded by their annual revenue rather than expenditure. The revised basis for the definition of small and medium-sized businesses based on turnover has made it easier for both the government and the industry to consider the company as an MSME.

The branch of the Government of India includes the Ministry of micro, small and medium enterprises. The MSME is the Chief Executive Officer for the Administration and Formulation of Legislation, Regulations and Various Laws on Micro, Small and Medium Enterprises in India.The relevant criterion of the definition of MSMEs is predicated on the MSMED Act. It was initially different for manufacturing and services units. In terms of monetary constraints, it was also very poor.

A company can be classified on the basis of various criteria. Such as, a company where the investment in plant and machinery or equipment does not go above one crore rupees and turnover does not go above five crore rupees are called micro enterprise. 

A firm where the investment in plant and machinery or equipment does not go above ten crore rupees and the turnover does not exceed fifty crore rupees are called small enterprises. Whereas, a company where the investment in plant and machinery or equipment does not go above fifty crore rupees and turnover does not exceed two hundred and fifty crore rupees are classified as medium enterprises.

The Government of India has approved the new definition of MSME that is, Micro Small and Medium Enterprises to boost the growth of small companies. 

The Government has also approved the revised new definition of the MSME. The MSMEs have been redefined on the basis of investment limit as well as their turnover size. The Atmanirbhar Bharat Abhiyaan involves great reforms to boost the businesses with the major focus on the micro, small and medium Enterprises (MSME) sector.

Recently, under Aatmanirbhar Bharat Abhiyan (ABA), the Ministry of Micro, Small and Medium Enterprises, under the Aatmanirbhar Bharat Abhiyan (ABA), has revised the MSME classification by inserting a composite criterion for both investment in plant and machinery and annual turnover of enterprises. Also, now there is no distinction between the manufacturing and the services sectors under erstwhile MSME definition. This removal will create parity between the sectors.

To revive the MSME sector, there are a total of 6 reforms according to the rules of the Government on Atmanirbhar Bharat Abhiyaan. These include Rs 3 lakh crores collateral free automatic loans, Rs 20,000 crores subordinate debt for MSMEs and Rs 50,000 crore equity infusion through MSME fund of funds. 

The revised new MSME includes global tender disallowance of up to Rs 200 crores. The other interventions of MSME includes increased investment limit, Introduction of additional criteria of turnover, eliminated the difference between manufacturing and service sector and various amendments to laws were made.

The responsibility of promotion and development of MSMEs is of the State Governments, the centre has passed an act to empower this sector and has formed a ministry of MSMEs. The new turnover criteria of the MSME fits better with the GST network (GSTN) and other formats of segregating the MSMEs.

The new classification of MSMEs will be effective as soon as possible. This new classification which has been introduced by the Government is to boost businesses and put to rest the growing fear among MSMEs of losing benefits granted under the MSME Act on account of outgrowing the former thresholds of classification. So government introduced new registration process known as Udyam Registration.

Recently the government of India has introduced the provision of Collateral-free Automatic Loans worth Rs 3 lakh crores to MSMEs in distress. The move is expected to help 45 lakh companies to revive their business.

MSMEs with up to Rs. 25 crore outstanding credit and Rs. 100 crore turnover are eligible to get the loan from Banks and NBFCs. The tenure of the loan will be 4 Years with a moratorium of 12 months on principal amount. Interest will also be capped. Also no guarantee fee is required and they have 100% credit guarantee cover given to banks and NBFCs on principal as well as interest. The MSMEs as well as other businesses can avail this scheme upto a certain time period.

Also, a new composite formula of classification for manufacturing and services units has been notified. Now, the manufacturing and service sectors will have no differences in them in the new revised MSME.