Micro, Small and Medium Enterprise Development (Amendment) Bill, 2018 was introduced in Lok Sabha to amend the Micro, Small and Medium Enterprises Development Act, 2006 and to provide for change in the criterion of classification of micro, small and medium enterprises from the existing criterion of investment in plant and machinery or equipment to a new criterion based on annual turnover of the enterprises and confer power upon the Central Government to vary, the turnover limits, by notification which shall not exceed thrice the limits specified in sub-section (1) of section 7 for the purpose of development of micro, small and medium enterprises.
The Micro, Small and Medium Enterprises Development Act, 2006 (the said Act) was enacted to provide for facilitating the promotion and development and enhancing the competitiveness of micro, small and medium enterprises. The said Act, inter alia, provides for classification of the enterprises as micro, small or medium based on their investment in plant and machinery or equipment. Over a period of time, it has been felt necessary to change the criteria for the classification in order to align it with the need of current times and changing business ecosystem.
2. In the course of consultation with various stakeholders, it has been noted that the criterion of investment in plant and machinery or equipment entails physical verification having associated transaction costs. It also incentivises the tendency in the promoters of the enterprises to keep the investment size small in a particular business entity in order to retain the benefits associated with micro or small enterprises category. While evaluating various alternatives, it has been considered appropriate that if the annual turnover is taken as a criterion for classification, the information available with goods and services tax network and other sources can be used for determination of the category of the enterprises. Overall, the turnover based clasification will promote the ease of doing business and will put in place a non-discretionary, transparent and objective classification system.
3. In view of the above, it is proposed to amend section 7 of the Micro, Small and Medium Enterprises Development Act, 2006 to—
(a) provide for change in the criterion of classification of micro, small and medium enterprises from the existing criterion of investment in plant and machinery or equipment to a new criterion based on annual turnover of the enterprises; and
(b) confer power upon the Central Government to vary, the turnover limits, by notification which shall not exceed thrice the limits specified in sub-section (1) of section 7 for the purpose of development of micro, small and medium enterprises.
4. Sub-clause (a) of clause 2 of the Bill seeks to insert sub-section (1A) in section 7 of the Micro, Small and Medium Enterprises Development Act, 2006, so as to confer power upon the Central Government to vary the turnover limits relating to the classification of micro, small and medium enterprises by way of notification.
