written by | October 26, 2021

Separate Ministry needed to focus on micro-units, says CIA

Consortium of Indian Associations (CIA) convenor K.E. Raghunathan said that there is a need for a separate Ministry for Micro Enterprises with dedicated policy support under an exclusive Minister. He observed that “we cannot have the same lane on a highway for a cyclist and a lorry which is what is happening in the name of MSME.”

He said that over 99 percent of the businesses in the MSME category are micro units which have a turnover not more than 5 crore. These micro enterprises cannot be compared to businesses with turnover up to ₹ 250 crore.

As per the 2020-21 annual report of the Ministry of Micro, Small and Medium Enterprises, there are 6.33 crore MSMEs in India, of which 6.30 crore are micro enterprises and only 3.31 lakh or 0.52 percent are small units. There are only 5,000 medium businesses which is just 0.01 percent of the total MSMEs.

MSMEs in India

According to the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, the definition of micro, small and medium enterprises is as under:

  • Enterprises engaged in the manufacturing or production, processing or preservation of goods as specified below:
    • A micro enterprise is an enterprise where investment in plant and machinery does not exceed ₹25 lakh;
    • A small enterprise is an enterprise where the investment in plant and machinery is more than ₹25 lakh but does not exceed ₹5 crore;
    • A medium enterprise is an enterprise where the investment in plant and machinery is more than ₹5 crore but does not exceed ₹10 crore.
  • Enterprises engaged in providing or rendering of services and whose investment in equipment (original cost excluding land and building and furniture, fittings and other items not directly related to the service rendered or as may be notified under the MSMED Act, 2006 are specified below.
    • A micro enterprise is an enterprise where the investment in equipment does not exceed ₹10 lakh;
    • A small enterprise is an enterprise where the investment in equipment is more than ₹10 lakh but does not exceed ₹2 crore;
    • A medium enterprise is an enterprise where the investment in equipment is more than 2 crore but does not exceed ₹5 crore.

Findings of the Survey

The CIA, which represents about 50 MSME associations across the country, had conducted a survey in June this year which covered more than 81,000 self-employed and entrepreneurs running micro and small businesses. In the survey it was found that 73% of the units were unprofitable during 2020-21 and 42% could not make a decision on retention of their workers.

Nearly 88 per cent of respondents were yet to avail any of the stimulus packages introduced by the government and 60 per cent reduced or sacked or removed their staff compared to the pre-COVID period (the first wave: 37%; second wave: 22%). About 82% of the respondents felt that the central and state governments weren’t looking after their interests. 

Recommendations

Mr. Raghunathan said that “A company doing a turnover of ₹1 lakh a month and ₹20 crore a month are both called an MSME. Therefore, it becomes difficult to administer any stimulus or relief to any enterprise in the country during pandemic times. For example, we offer the same stimulus scheme for a company engaged in running a salon or a transporter or a manufacturer, or an exporter or a training institute. Giving one medicine for all issues makes it impossible to expect any cure unless strong luck saves the patient.” He said that several of the MSMEs were in the ICU and needed oxygen to survive.

To revive MSMEs, the governments should adopt a three-pronged approach. First, the MSME units should be exempt from statutory compliances and penal actions. Secondly, the government should protect them from interest burden and high prices of raw materials and thirdly, the industries should be supported with liberal loans, moratorium and interest waiver.

CIA also proposed to the government to exempt the units from GST for two years along with exemption from PF/ESI for two years to help micro enterprises recovering from the Covid impact. Other important aspects suggested by the CIA were unconditional moratorium of all types of loans below ₹2 crores to start EMI payments from 2022 September onwards and till then the interest to be in line with RBI Repo interest, immediate clearance of all pending dues payable from central public sector units, state undertakings, and corporates, offer additional loans to any micro enterprises that seek funds without any eligible conditions up to 50 per cent of their current facility, waive from Capital Gains tax for the sale of factories to settle loans and to reinvest in the business, open Fair price shops and offer raw materials at fixed prices for one year and with credit terms to micro Entrepreneurs, etc

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