FDI norms eased for micro & small scale units to tap funds

These industries will now be guided like other large enterprises as far as FDI is concerned. “The  resent policy on FDI in MSE permits FDI subject only to the sectoral equity caps, entry routes and other relevant regulations,” according to Press Note 6 issued by the Department of Industrial Policy & Promotion.
However, if non-medium and small enterprises manufacture any of the 21 items, including pickles, aluminium utensils, reserved for MSEs, any FDI above 24 per cent will require the Foreign Investment Promotion Board’s approval. The new note replaces press note 18 of 1997 which stipulated that for foreign collaboration, maximum equity participation for small scale units was 24 per cent. As per the old note, proposals for inducting foreign equity of more than 24 per cent was subject to the condition that the firm would get itself de-registered as small-scale unit.

Increase FDI inflow
A senior government official said the move will bring in more FDI into the MSE sector which is starved of funds. CII National MSME Council Chairman Salil Singhal said, “this would help the sector obtain equity support and reduce their credit requirement. This will help the small sector pole vault to their next stage of growth and development.”
The new Press Note 6 follows enactment of the Micro, Small and Medium Enterprises Development Act, 2006, which removed ceiling for equity participation, both domestic and foreign, in these units.
The Act defined micro and small enterprises solely on the basis of investment in plant and machinery for units engaged in manufacturing and equipment for those engaged in services.

Go for modernisation
The FDI norms will also help them modernise as overseas investment will bring modern technology with it. There are about 2.61 crore units in the MSME sector employing 5.97 crore people.
As per the 2006 Act, in manufacturing sector micro units are those where investment in plant and machinery does not exceed Rs 25 lakh, while small enterprises are defined as those investing between Rs 25 lakh and Rs 5 crore. In services sector, the investment in equipment up to Rs 10 lakh is defined as micro enterprises, and Rs 10 lakh to Rs two crore as small units. The new Press Note is sixth in a series in 2009. Some of the earlier press notes like 2,3 and 4 raised a controversy relating to the manner of calculating foreign direct investment and downstream investment in subsidiaries.