Recently, in couple of newspaper articles and research reports I
saw the use of abbreviation SMB. The articles and reports had not specified the
full form of the term anywhere; which implied that this is common jargon
understood by everyone. Embarrassed by my ignorance, I sought the help of St.
Google, who referred me to St. Wiki for enlightenment. St. Wiki suggested that
it may mean "Server Message Block", a network communication protocol
for providing shared access to files, printers, and serial ports between nodes
on a network. This explanation did not match the context of the articles and
reports.
Perplexed, I further probed St. Google, who finally provided the
answer I was looking for, i.e., "Small and Medium Businesses". Since
ages we were used to the term "SME" for this, and never realized that
"SME" has been subsumed by the new term "MSME" since 2007,
when the central government created a new union ministry for Micro, Small and
Medium Enterprises. With a heavyweight (literally also) minister in charge of
the ministry for the first time, the term has gained tremendous popularity in
past one year. The recent stimulus packages announced by the government have
focused overwhelmingly on this segment.
Historically, in October 1999 the NDA-1 government had created
"The Ministry of Small Scale Industries and Agro and Rural
Industries". In September 2001, the ministry was split into the Ministry
of Small Scale Industries and the Ministry of Agro and Rural Industries. In
2007, UPA-1 merged the two ministries into one Ministry for Micro, Small and
Medium Enterprises. The Khadi, Village and Cottage Industries are now within
the realm of this umbrella industry. For non MSME we have Ministry of Heavy
Industries and Public Enterprise, which primarily governs 48 Industrial CPSEs
and the Ministry of Commerce and Industry which governs policy for all other
trade and commerce related matters, including foreign trade.
So, while all traders, irrespective of their size and form, are
governed by the same policy maker, industries are classified into MSME, CPSE
and Others. The same policy framework is used for a cottage industry doing an
annual revenue of Rs five lac and an industrial unit logging an annual revenue
of Rs2.5bn. I am sure, there are different departments and different
bureaucrats within the ministry dealing with various types of industries, but
the minister must find it very tough to think from so many viewpoints at the
same time.
The reporters and analysts are however quick to make a
distinction and carve out a subset from MSME and name it SMB. Some may also
like to see this as apartheid towards micro, village and cottage industries,
insofar as the analysis of industries is concerned.
Anyways, for investors it is worthwhile acquainting oneself with
the present MSME definition and scope, because many of these enterprises may
now come in stock market radar. This is as per the latest RBI circular relating
to funding of MSME.
Classification of enterprises
An enterprise shall be classified as a Micro, Small or Medium
enterprise on the basis of the following criteria, namely:
- a micro enterprise, where the investment in plant and machinery or equipment does not exceed one crore rupees and turnover does not exceed five crore rupees;
- a small enterprise, where the investment in plant and machinery or equipment does not exceed ten crore rupees and turnover does not exceed fifty crore rupees; and
- a medium enterprise, where the investment in plant and machinery or equipment does not exceed fifty crore rupees and turnover does not exceed two hundred and fifty crore rupees
Composite criteria of investment and turnover for
classification
- A composite criterion of investment and turnover shall apply for classification of an enterprise as micro, small or medium.
- If an enterprise crosses the ceiling limits specified for its present category in either of the two criteria of investment or turnover, it will cease to exist in that category and be placed in the next higher category but no enterprise shall be placed in the lower category unless it goes below the ceiling limits specified for its present category in both the criteria of investment as well as turnover.
- All units with Goods and Services Tax Identification Number (GSTIN) listed against the same Permanent Account Number (PAN) shall be collectively treated as one enterprise and the turnover and investment figures for all of such entities shall be seen together and only the aggregate values will be considered for deciding the category as micro, small or medium enterprise.
Calculation of investment in plant and machinery or equipment
- The calculation of investment in plant and machinery or equipment will be linked to the Income Tax Return (ITR) of the previous years filed under the Income Tax Act, 1961.
- In case of a new enterprise, where no prior ITR is available, the investment will be based on self-declaration of the promoter of the enterprise and such relaxation shall end after the 31st March of the financial year in which it files its first ITR.
- The expression ‘’plant and machinery or equipment’’ of the enterprise, shall have the same meaning as assigned to the plant and machinery in the Income Tax Rules, 1962 framed under the Income Tax Act, 1961 and shall include all tangible assets (other than land and building, furniture and fittings).
- The purchase (invoice) value of a plant and machinery or equipment, whether purchased first hand or second hand, shall be taken into account excluding Goods and Services Tax (GST), on self-disclosure basis, if the enterprise is a new one without any ITR.
- The cost of certain items specified in the Explanation I of section 7 (1) of the Act shall be excluded from the calculation of the amount of investment in plant and machinery.
Calculation of turnover
- Exports of goods or services or both, shall be excluded while calculating the turnover of any enterprise whether micro, small or medium, for the purposes of classification.
- Information as regards turnover and exports turnover for an enterprise shall be linked to the Income Tax Act or the Central Goods and Services Act (CGST Act) and the GSTIN.
- The turnover related figures of such enterprise which do not have PAN will be considered on self-declaration basis for a period up to 31st March, 2021 and thereafter, PAN and GSTIN shall be mandatory.In case of an upward change in terms of investment in plant and machinery or equipment or turnover or both, and consequent re-classification, an enterprise will maintain its prevailing status till expiry of one year from the close of the year of registration. In case of reverse-graduation of an enterprise, whether as a result of re-classification or due to actual changes in investment in plant and machinery or equipment or turnover or both, and whether the enterprise is registered under the Act or not, the enterprise will continue in its present category till the closure of the financial year and it will be given the benefit of the changed status only with effect from 1st April of the financial year following the year in which such change took place.
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