Hyderabad: Suggesting that the Centre should take steps to ensure lending support from banks, industrialists in Telangana and Andhra Pradesh have welcomed the changing scenario of Micro, Small and Medium Enterprises (MSMEs).
Small enterprises are anticipating that the reclassification of MSMEs may enhance fund flow and working capital. The MSME space is unorganised and suffers from lack of funding and minimal technology upgrade, the Telangana Industrialists Federation (TIF) said.
Union Minister of State for Micro Small and Medium Enterprises Giriraj Singh tabled the MSME Development (Amendment) Bill-2018 in the Lok Sabha last Monday. The Bill seeks reclassification of MSME from based on investment in plant, machinery or equipment to based on annual turnover.
TIF president K. Sudhir Reddy said: “It is a long-pending demand from the industry. The turnover-based classification will ensure that there is no ambiguity. After the GST, we have more clarity on turnover. The new system will ensure business growth, while enhancing funding levels. So, with Rs 1 crore investment, we can expect Rs 25 crore turnover. If business volumes increase, the government will also get more revenue.”
The MSMEs account for 70 per cent of employment in the two Telugu states. The sector makes over 8,000 products and provides 1.5 million jobs in Telangana alone. The number of MSMEs may be hovering around one lakh in Telangana, while unregistered firms comprising small units may come to several lakhs. However, the MSME industry is suffering from lack of credit flow as most of the banks are reluctant to extend loans.
“Major industries are contributing the most to NPAs in the banking sector. But, NPAs are nominal in the MSME sector. We want separate classification of NPAs for MSME sector. The present one-month clause for NPAs is eroding the breathing space for the industry. We want the government to extend it to 180 days,” Mr Reddy said.
There is high concentration of micro and small units in sectors like food, minerals and building materials, drugs and pharmaceuticals, fabricated materials, trading, handlooms, power looms, handicrafts and service. Despite this, the Federation of Telangana and Andhra Pradesh Chambers of Commerce and Industry (FTAPCCI) finds no major benefit as banks are not coming forward due to NPAs.
FTAPCCI president Arun Luharuka said, “I do not think reclassification of MSMEs will benefit the sector much. In the pre-GST regime, MSMEs used to enjoy excise duty concession of 30 per cent for up to Rs 2 crore turnover. But, GST has taken away that benefit leaving MSMEs at par with other major industries. We agree that the practice of inflating or deflating invoices is not possible in the GST regime. However, by huge NPAs, banks are not willing to lend to MSMEs.”
Based on investment in plant and machinery, the present system defines micro units as below Rs 25 lakh, small units in the range of Rs 25 lakh to Rs 5 crore and medium units in the range of Rs 5 crore to Rs 10 crore.
