The need for a permanent definition of MSMEs in India

The MSME sector in India has emerged as a highly vibrant and dynamic sector in Indian economy. Though the role of small and tiny industries has been key since1956, MSME Development Act, 2006 brought a new dimension to this sector through including medium enterprises. The Government of India has been changing the definitions of small scale enterprises quite frequently. While defining small enterprises, the Government dropped the criterion of employee count since 1960 and started considering only investment in plant and machinery. As the investment value is subject to change from year to year, and decrease in case of inflation, the Government was forced to enhance the limits of small enterprises often. That is the reason why the investment limit increased from 5 lakh in 1950 to 5 crore in 2006(100 times increase in a span of 56 years). After including medium enterprises, since 2006, the latest defined limits of Micro, Small and Medium enterprises became outdate and many industry associations are expecting a new definition again with enhancement in the limits of MSMEs. How long will this go? In India, there is no monitoring body for automatic revision of the definition and the policy makers are seem to be not serious about this. Further, they are not looking for a permanent definition which will be suitable to Indian environment. In this background, the researcher attempts to give three possible alternatives in defining MSMEs in India. One is employee count, the other is continuous change in the investment limits and third one is the combination of these two A strong definition of MSMEs will help the enterprises to cope up with global competition and contribute significantly to the GDP of the country.