MSME policy and Korean investment in India

The micro, small and medium enterprise (MSME) sector is the second-largest employer in India, coming in just behind the agrarian sector. The MSME sector plays a critical role in the Indian economy. The central government has set itself the target of making India a US$5 trillion economy by 2025 and the MSME sector has a key role to play in achieving that objective by transforming India into a manufacturing hub.

The central government and various state governments have launched policies and frameworks for developing and encouraging the MSME sector. The Ministry of Micro, Small and Medium Enterprises is a nodal agency whose remit is to implement central government frameworks for the benefit of the sector. Various state governments have their own schemes. The government has enacted The Micro, Small and Medium Enterprises Development Act, 2006 (MSME act) to facilitate a uniform and enabling policy environment for the MSME sector.

The MSME act defines micro, small and medium sized enterprises depending on the value of plant and machinery for manufacturing entities and the value of equipment and services sector. The categories are as follows:

Micro: investment in plant and machinery – not more than ₹2.5 million (US$34,875); investment in equipment – not more than ₹1 million;

Small: investment in plant and machinery – ₹2.5 million to ₹50 million; investment in equipment – ₹1 million to ₹20 million, and

Medium: investment in plant and machinery – ₹50 million to ₹100 million; investment in equipment – ₹20 million to ₹50 million

The MSME ministry has issued detailed guidelines on what will be included and what will be excluded in calculating the value of plant and machinery for the purposes of the MSME Act. The government has proposed changing the classification based on the value of plant and machinery, to one based on the turnover of the enterprise and a law to bring about this change is expected soon.

Rajat Prakash is the managing partner of Athena Legal and Siddharth Mahajan is a partner at the firm.

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