Current Article: New Notice on Investment in Micro, Small and Medium Enterprises

September 7, 2009

Background of the situation:
  1. The MSE sector in India has around 26 million (2.6 crore) units in which employ about 60 million (6 crore) people.
  2. After declaring Industrial Policy in July 1991, Government of India announced a policy towards the small sector on August 6, 1991. In this policy the investment limit was raised from Rs. 2 lakh to Rs. 5 lakh.
  3. After accepting the recommendation of Abid Hussain Committee on MSE sector, Government extended the limit to 25 lakh for investments in Tiny Units.
  4. In the industrial policy of July 1991, The government had announced the increase in the investment limits in Plant & machinery of small units, ancillary units and export oriented units to Rs. 60, 75 & 75 lakhs.
  5. In 2006 MSE Development Act 2006 was enacted. This act defined the investment limit in the Micro small & medium enterprises as Rs. 10 lakh, Rs. 5 crore & Rs. 10 crore.
  6. This act came into effect on October 2, 2006 and made a distinct category for medium enterprises.
  7. According to this act the Micro units those where investment in plant and machinery does not exceed Rs 25 lakh, while small units as those investing between Rs 25 lakh and Rs 5 crore.
  8. For service industry investment in equipment up to Rs 10 lakh is defined as micro enterprises and Rs 10 lakh to Rs 2 crore as small units.
  9. A “Package for Promotion of Micro and Small Enterprises” was announced in February 2007. This includes measures addressing concerns of credit, fiscal support, cluster-based development, infrastructure, technology, and marketing.
  10. The package included the phased wiping out of reservation of the items specially manufactured for these entrepreneurs so promote investment.
  11. 125 items were dereserved on March 13, 2007, reducing the number of items reserved for exclusive manufacture in micro and small enterprise sector to 114.
  12. Further, 79 items were dereserved through a notification dated February 5, 2008.

What is the recent Notice About?

  1. A recent notice has come as press note 6 from Government of India, which is related to the Foreign Investment in production to 21 items which include bread, pickles and aluminum utensils specially reserved for Micro, small & medium enterprises.
  2. As a protection to the micro, small & medium enterprises the government, these entrepreneurs earlier used to enjoy reservation of 114 items that the bigger enterprises cannot manufacture this reservation now gets wiped out.
  3. Earlier, any unit having more than 24 per cent foreign direct investment had to withdraw its registration as a small-scale unit and obtain industrial license. Now this process has been removed.
  4. Now, any foreign investment in excess of 24 per cent in an industrial unit, which manufactures items reserved for micro and small enterprises, will require prior approval of the Foreign Investment Promotion Board.
  5. Any industry which manufactures items reserved for MSEs will require an industrial license subject to some general conditions, including export of at least 50 per cent of new or additional production over a period of three years.

How MSE will look at the issue?

  1. This is being looked as a a blow to micro and small enterprises (MSEs) as the government permits big companies to foray into the remaining 21 items reserved for the exclusive manufacture by the small and micro industries.

Conclusion:

The big companies can manufacture these items (bread, pickles and aluminum utensils) now after they obtain an industrial license and on a condition that they export minimum 50 % of the annual production within max. 3 years. This industrial license has been made mandatory in the above press note.

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