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How Small and Medium Companies will benefit from higher thresholds? 

 

Topics Covered:  Inclusive growth and issues related. 

 

How Small and Medium Companies will benefit from higher thresholds? 


Context: 

The Corporate Affairs Ministry has expanded the turnover and borrowing thresholds for Small and Medium sized Companies (SMC). 

 

What is the change? 

  • The Corporate Affairs Ministry has increased the turnover threshold for SMCs to Rs 250 crore from Rs 50 crore, and the borrowing threshold to Rs 50 crore from Rs 10 crore. 
  • SMCs are permitted to avail a number of exemptions under the Company (Accounting Standards) Rules 2021 to reduce the complexity of regulatory filings for smaller firms. 

 

Exceptions: 

  1. Banks, monetary establishments, insurance coverage firms and listed firms can’t be labelled as SMCs. 
  2. Any firm which is both the holding firm and subsidiary of an organization that’s not an SMC can’t be labelled as an SMC. 

 

Significance of the move: 

The move would promote ease of doing business for the firms that would now be included under the definition of SMC. 

 

What are the exemptions available to SMCs that are not available to other firms? 

  1. SMC are completely exempted from having to file cash flow statements and provide a segmental break up of their financial performance in mandatory filings. 
  2. They can also avail partial reporting exemptions in areas including reporting on employee benefits obligations such as pensions. 
  3. They are exempted from having to provide a detailed analysis of benefit obligations to employees, but are still required to provide actuarial assumptions used in valuing the company’s obligations to employees. 
  4. SMCs are also allowed to provide an estimated value in use of assets carried on their balance sheets, and are not required to use present value techniques to arrive at the value in use of assets. 
  5. They are also exempted from having to report diluted earnings per share in their filings. 

 

Share of MSMEs in India: 

  • Micro, Small and Medium Enterprises (MSMEs) have always played a vital role in the Indian economy. 
  • Not only do the 6.3 crore MSMEs in India contribute one-third to the GDP of the country but also provide employment to large sections of society. 
  • Moreover, the sector is a critical source of livelihood and provides nearly 110 million jobs. 

 

InstaCurious: 

Do you know that MSMEs are now referred to as Udyam and the registration process as Udyam Registration? Do you know the basic criteria for MSME classification ? Read here

 

InstaLinks: 

Prelims Link: 

  1. Share of MSME sector in India’s GDP and exports. 
  2. The basic criteria for MSME classification. 
  3. Classification of MSMEs. 
  4. What is V- shaped recovery? 
  5. SDGs on MSMEs. 

 

Mains Link: 

What is the potential of India’s MSME sector? Discuss the challenges and concerns associated with the growth of MSME sector in India. 

 

Sources: Indian Express