After four years out in the cold, retail and wholesale businesses are back within the category of Micro, Small and Medium Enterprises (MSMEs). The nod brings cheer to crores of traders after they spent the last few years urging the government to reverse its 2017 decision that had rendered them unable to access credit that is available through special provisions for MSMEs. Here is what their reclassification means.
Why Were They Taken Out In The First Place?
In 2017, a gazette notification declared that small retailers and wholesalers would no longer be deemed to be a part of the MSME category. The Micro, Small and Medium Enterprises Development (MSMED) Act, which was notified in 2006, had defined an ‘enterprise’ for the purposes of small businesses in terms of “manufacturing and service entities".
While retail and wholesale businesses were included under the definition of MSMEs under the 2006 Act, the Centre subsequently removed them from the list in 2017 after concluding that they were neither involved in manufacturing and nor were they service units of any sort.
According to the categorisation devised, a ‘micro’ enterprise is where the investment in infrastructure and equipment does not exceed Rs 1 crore with turnover below Rs 5 crore. A ‘small’ enterprise should have investments below Rs 10 crore and turnover of less than Rs 50 crore rupees while a ‘medium enterprise’ can have investment of under Rs 50 crore with turnover not exceeding Rs 250 crore.
How Will Their Inclusion UNder MSMEs Help?
The Centre has from time to time come up with several schemes to boost the MSME sector and enable easy access to formal loans for entrepreneurs within this space. The key benefit that can now flow to retail and wholesale traders again is eligibility for priority sector lending.
The Centre and the Reserve Bank of India (RBI) has designated certain categories as ‘priority sectors’ so that credit facilities can be earmarked for them and made available smoothly. The priority sector includes agriculture, education, housing, renewable energy, etc. along with MSMEs.
The RBI has mandated that commercial banks would ensure that 40 per cent of the adjusted net bank credit or credit equivalent amount of off-balance sheet exposure, whichever is higher, has to go to the priority sector, of which 7.5 per cent should be extended to micro enterprises.
Also, retailers and wholesalers will now be able to register on the Centre’s Udyam portal for MSMEs, which
was introduced in 2015 as a simplified one-page registration form. The benefits of obtaining a Udyam registration include access to cheaper bank loans, tax rebates and receiving preference for government tenders.
How Many Retailers, Wholesalers Will The Move Benefit?
Announcing the decision to bring back retailers and wholesalers under the MSME umbrella, Union Minister Nitin Gadkari tweeted that the move would help 2.5 crore entities. Earlier, though, industry body Confederation of All India Traders (CAIT) had said that the removal of MSME classification had adversely affected 8 crore retail and wholesale traders, who were described as being part of the service industry.
What Is The Total Count Of MSMEs In India?
The 2017-18 annual report of the MSME Ministry stated that the country had close to 6.34 crore “unincorporated non-agriculture MSMEs". According to data for 2015-16, the sector contributed 28.7 per cent of the national GDP while the National Sample Survey (NSS) 73rd round conducted during in 2015-16 said MSMEs provide employment to 11.10 crore people.
With close to 90 lakh units, Uttar Pradesh leads the list of states with the highest number of MSMEs followed by West Bengal (88.7 lakh) and Tamil Nadu (49.5 lakh).