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  3. Govt to amend investment thresholds for MSMEs in line with inflation

Govt to amend investment thresholds for MSMEs in line with inflation

14 Mar 2013 Evaluate

To encourage micro, small and medium enterprises (MSME) to make investment and expand operations, the government is expected to revise the investments thresholds in line with inflation by proposing amendments in MSME Act, 2006. The government will propose amendments to remove the definition of small scale industries out of the sector law, which will give the administration flexibility to increase the qualifying thresholds.

As per the MSME Act, 2006, a micro enterprise is one which has an investment of up to Rs 25 lakh in plant and machinery, enterprise with up to Rs 5 crore and Rs 10 crore investment qualify as small and medium enterprise. If the amendment is approved, the limits will be prescribed through rules and guidelines in line with inflation, which will provide a number of opportunities for MSME sector to expand. 

The small and medium enterprises are often unwilling to violate the given threshold and expand as they would lose the various benefits reserved for them, partly the reason why India's manufacturing has not grown as expected. Apart from this complex labour laws have also dejected expansion as investors feel employing more people will create manpower issues. Hence, manufacturing share in GDP has slid to 13.6% in 2012-13 from 17% in 2002-03, contributing particularly to problem of jobless growth.

Even Swedish home furnishing company, IKEA had also raised this issue after government imposed conditions that it must source at least 30% goods from SMEs. The company, given IKEA's scale of operations and SME units that it sourced goods from would quickly outgrowth the prescribed thresholds. Subsequently, the government diluted the sourcing conditions.

With this the government now feels that raising the investment thresholds for the MSME sector every few years will encourage the small and medium enterprises to invest more in plant and machinery, leading to its growth and also add to the manufacturing sector.

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