Interview with Top executives

Topic

The Union government has recently changed the basis of classifying MSMEs from 'investment in plant & machinery/equipment' to 'annual turnover'. How will this benefit the textile and apparel industry?

The Union Cabinet chaired by the Prime Minister Narendra Modi has approved change in the basis of classifying Micro, Small and Medium enterprises. Fibre2Fashion spoke to representatives of various textile apparel bodies in the country to get their reactions.

 

The apparel sector is the most unorganised sector amongst all industries. The MSME classification criteria includes businesses with revenue of as much as Rs 5 crore will be called a micro enterprise, those with sales between Rs 5 crore and Rs 75 crore will be deemed as small and those with revenue between Rs 75 crore and Rs 250 crore will be classified as medium-sized enterprises. Corporate tax rate has been reduced to 25 per cent for entities with sales of up to Rs 250 crore. This will largely benefit companies having turnover of less than Rs 50 crore. But in textile and apparel industries, most of traders are running proprietorship or partnership business or LLPs. So, their tax benefit has not increased and nothing has changed for companies like us.

It is a great move taken by the government that will support small and medium scale businesses. The companies hit by GST norms last year will now enjoy the benefit from reduced tax percentage; this will also help in a transparent overview of the small and medium enterprises. They will now be able to adopt new and other advanced methods of doing business adding up to the country’s GDP.

The change in basis for classification of MSMEs from ‘investment in plant and machinery equipment’ to annual turnover will motivate Indian entrepreneurs and result in a massive expansion in the number of MSMEs both in textiles and apparel manufacturing. This change also makes MSME lending more formalised which will allow them to contribute more to the GDP. In addition to that, the 5 per cent corporate tax reduction will result in an increase in employability in the textile and apparel manufacturing industries. The growth of each individual business, however, will not be directly affected much because apparel and textile manufacturing has become significantly less labour intensive than it was previously. However, the change also directly makes it simpler to do business in both industries and reduces complications.

The earlier definition of MSME Act was frozen in 2006. Through these 12 years the MSME sector has been raising a demand for revision/amendment in the MSME definition. The shift from doing away with investment criterion and instead defining MSMEs on the basis of annual sales turnover will resolve many of the ills of earlier regime. Firstly, the new definition is much more transparent, as authorities have ways of cross checking the value of the turnover through platforms such as GSTN.

Secondly, it evens the field for new enterprises to enter the industry. The cost of setting up a unit to produce a product today would require a far greater investment than what was needed twenty years ago to produce the same product. So, a micro unit of that time, would be a medium or large set up today. Overall, the new definition is a vast improvement over the earlier definition and should help MSMEs to face new challenges in a better frame.

 

Published on: 17/03/2018

DISCLAIMER: All views and opinions expressed in this column are solely of the interviewee, and they do not reflect in any way the opinion of Fibre2Fashion.com.

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