Background

• Recently, the government decided to change the basic definition of MSME and also end the difference between the manufacturing and services sector.
• Till now, MSMEs are categorised based only on the investment in machinery or equipment. The new classification has raised the investment limit and included annual turnover as an additional criteria.
  • Accordingly, units having investment less than Rs 1 crore and turnover less than Rs 5 crore will be called Micro units.
  • Investment between Rs 1 and Rs 10 crore and turnover of Rs 5 crore to Rs 50 crore will be categorised as Small Enterprises.
  • Units having investment between Rs 10 crore but up to Rs 50 crore and turnover between Rs 50 crore and Rs 250 crore will now be known as Medium Enterprises.

Rationale for the move

• It has been a long-standing demand from industry to hike the investment limits, as with inflation, units often cross the threshold that will bring them benefits. To prevent this, they either run their operations at a reduced level or incorporate multiple units so that turnover is distributed in a way that they remain within the threshold that will give them the benefits.
• With the revised definitions of MSMEs, they will not have to worry about growing their size and can still avail benefits.

Why in News?

• The Cabinet Committee on Economic Affairs has approved the expanded definition of micro, small and medium enterprises (MSMEs) that will include higher investment limit and an additional norm based on turnover.