- A legislative commission proposed splitting microenterprises from the larger MSME category and updating definitions every five years.
- A government decree requiring prompt MSME payments has revealed knowledge gaps and unintentionally marginalised smaller businesses, showing problems with understanding their structure and operations.
What are the different sorts of categories in micro-enterprises?
- Category 1: Micro. More than 98% of MSMEs fall into this group, reporting an annual revenue of Rs 50 lakh or less.
- Category 2 – Small: MSMEs with yearly revenues of Rs 50 lakh to Rs 5 crore.
Present ambiguity and structural gap in defining MSMEs.
- Lack of Clarity and Consistency: In India, there are over 50 definitions of MSMEs spread throughout 70 countries, with substantial uncertainty in terminology. Even while some regard the definition of MSMEs as simple and obvious, it contains ambiguity and might spark debate.
- Changing definitions in India: In India, the MSMED Act of 2006 classified MSMEs based on plant and machinery investment, prompting firms to keep their operations small in order to preserve MSME benefits.
- However, the MSMED Amendment Bill of 2018 proposes categorising MSMEs purely on the basis of annual turnover, which has been criticised for under-reporting of eligible businesses.
- Quantitative vs. Qualitative Approaches: MSMEs are often characterised quantitatively. Quantitative metrics like as personnel count, total assets, and annual income have limits because they differ by business and sector.
- Impact on Micro firms: The uncertainty in identifying MSMEs has a detrimental impact on micro firms, resulting in challenges such as delayed payments and limited access to benefits and support schemes.
- Furthermore, the COVID-19 epidemic has disproportionately affected unregistered micro-enterprises, which represent for more than two-thirds of all MSMEs and have a greater degree of informality.
Way forward:
- Enhanced Data Collection: Conduct regular and extensive surveys to collect detailed data on MSMEs, with an emphasis on microenterprises.
- Further classification within micro-enterprises: Create sub-categories within the micro-enterprise category depending on revenue criteria (e.g., under Rs 10 lakh, Rs 10-25 lakh, Rs 25-50 lakh).
- Revenue Diversity: There is significant variety in revenue across micro-enterprises, necessitating additional segmentation.
- Targeted policies: Addressing categorization gaps can improve policy efficacy, hence promoting microenterprise development and sustainability.
Source: https://indianexpress.com/article/opinion/columns/msme-micro-enterprises-pay-the-price-9339425/