Explained: Why the govt wants to change the definition of MSMEs -Udit Misra

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published Published on Oct 25, 2019   modified Modified on Oct 25, 2019
-The Indian Express

A change in definition is expected to improve their ease of doing business and help create more jobs.

It has been reported that the government will soon change the way it defines the micro, small and medium enterprises (MSMEs). “We will have one meeting and then finalise it (changes to MSME definition),” Union Minister Nitin Gadkari told news agency PTI, adding that extensive changes will be made soon. In August, Finance Minister Nirmala Sitharaman had said that the government would consider shifting to a “single definition” of MSMEs. The change in definition would require an amendment to the MSME Development Act. In February last year, the Union Cabinet had approved amendments to the MSMED Act and had decided to choose shift from a criterion of classifying MSMEs based on ‘investment in plant and machinery’ to a criterion based on ‘annual turnover’.

What is the importance of the MSME sector?

According to a Reserve Bank of India report, the MSMEs are amongst the strongest drivers of economic development, innovation and employment. Looking back at data since 2000-01, MSME sector growth has almost every year outstripped overall industrial growth in the country.

“The MSME sector also contributes in a significant way to the growth of the Indian economy with a vast network of about 63.38 million enterprises. The sector contributes about 45% to manufacturing output, more than 40% of exports, over 28% of the GDP while creating employment for about 111 million people, which in terms of volume stands next to agricultural sector,” stated the report.

However, the RBI report also noted that at present the sector is “exceedingly heterogeneous in terms of size of the enterprises and variety of products and services, and levels of technology employed” and that it has the potential to grow at a much faster rate. One of the key attractions of this sector is that it huge employment generation potential at relatively lower capital investment.

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The Indian Express, 23 October, 2019, https://indianexpress.com/article/explained/explained-why-the-govt-want-to-change-the-definition-of-msmes-6083885/

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