SMEs may be brought into small scale sector

The government is considering changing the definition of the small-scale sector to include "medium-scale enterprise".

The new definition will include units having an investment of between Rs 1 crore and Rs 10 crore in plant and machinery.

Senior government officials told Business Standard that the proposal to spell out the specifics of a medium-scale enterprise was being examined by the small-scale industries (SSI) ministry.

According to officials, the finance ministry has already directed the Small Industries Development Bank of India (Sidbi) to operationalise loans from the Small and Medium Enterprises Fund announced by the previous National Democratic Alliance (NDA) government.

Sidbi has accordingly decided to give loans to medium-scale enterprises at the rate of 9.5 per cent per annum.

Though the SSI ministry had not taken a decision as yet, officials said the ministry would have to restructure margins by increasing the ceiling for small-scale units to help them graduate to medium enterprises.

At present, an SSI unit is defined as one having an investment in plant and machinery of up to Rs 1 crore.

Finance Minister P Chidambaram had in his Budget speech acknowledged the SSI sector as "an engine of growth" and said "SSI units should be given the space to grow into medium enterprises".

Chidambaram had reiterated that the global trend was to formulate policies for both small and medium scale enterprises collectively.

However, most industry bodies within the sector are lobbying against the move to define the medium scale enterprise.

They are of the opinion that such a classification will lead to medium enterprises extracting concessions, taking advantage of policy loopholes.

Sources in apex industry organizations in the sector say that the medium scale enterprises will negotiate at par with large enterprises.

Several manufacturers in the sector feel that once the new definition comes into force, it will reduce the maneuverability of SSIs.

They argue that the rationale for classifying small and medium enterprise in countries like the US or Europe do not apply to India. Bankers feel that defining medium enterprises may affect back end manufacturing.

What it means

• The new definition will include units having an investment of between Rs 1 crore and Rs 10 crore in plant and machinery
• At present, an SSI unit is defined as one having an investment in plant and machinery of up to Rs 1 crore