New Delhi, April 11 (KNN) The Union government’s decision to revise classification criteria for micro, small, and medium enterprises (MSMEs), effective April 1, has generated unease among representative bodies.
Some organisations argue the revision will adversely impact micro and small firms, which constitute approximately 99.99 percent of MSMEs in India.
Finance Minister Nirmala Sitharaman announced the revision during her February Budget speech, increasing the investment cap for each MSME segment by 2.5 times and the turnover cap by two times.
This reclassification means some previously medium-sized enterprises now qualify as small enterprises, while some small firms are now categorised as micro enterprises.
Laghu Udyog Bharati, an RSS-affiliated body for micro and small enterprises, has expressed concerns in a March 12 letter to the Ministry of MSME.
The organisation warned that with this revision, erstwhile medium firms will “corner” benefits intended for smaller firms.
In India, micro and small enterprises benefit from a 25 percent public procurement quota, and MSMEs overall are eligible for priority sector lending, with a dedicated sub-target for micro firms.
The organisation has requested restoration of the existing criteria, arguing that pandemic recovery for MSMEs remains difficult to assess and that the revision would be premature.
They also highlighted the absence of fresh MSME data since the National Sample Survey of 2015-16.
Under the previous classification in effect until March 31, micro enterprises were defined as those with investments up to Rs 1 crore and annual turnover up to Rs 5 crore.
Small enterprises had thresholds of Rs 10 crore in investment and Rs 50 crore in turnover, while medium enterprises were categorised as having up to Rs 50 crore in investment and Rs 250 crore in turnover.
In contrast to these concerns, Anil Bhardwaj, Secretary General, Federation of Indian Micro and Small & Medium Enterprises (FISME), welcomed the enhancement.
He argued that periodic revision of investment and turnover limits is important, especially when inflation and geopolitical events are increasing raw material costs and consequently the turnover of firms.
Bhardwaj also cited the problem of India’s “missing middle” in the enterprise landscape, noting that firms often prefer horizontal expansion by setting up multiple smaller enterprises rather than growing vertically.
This occurs partly because companies lose certain benefits when they grow beyond the small category, resulting in inefficient resource allocation that doesn’t enhance productivity.
A third rationale for the revision, according to Bhardwaj, is to allow foreign investors exploring joint ventures in India to invest larger amounts while still qualifying as MSMEs to benefit from priority sector lending.
Laghu Udyog Bharati has also requested the creation of a separate department for micro and small enterprises, arguing there is an urgent need to protect this “vulnerable section of society” that cannot compete with medium enterprises.
The organisation noted that despite priority sector lending eligibility for MSMEs, most credit flows toward medium enterprises, with banks generally avoiding micro and small units due to their limited credit requirements.
(KNN Bureau)
