The Centre Government on Friday announced new liberalised Foreign Direct Investment (FDI) norms for micro and small enterprises (MSEs) replacing the current 24 per cent ceiling on foreign holding with sectoral caps. These industries will now be guided like other large enterprises as far as FDI is concerned.

Sectoral caps

“The present policy on FDI in MSEs 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 and 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, the 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 a small-scale unit. The new norms are expected to bring in more FDI into the MSE sector which is starved of funds.

Modern technology

The FDI norms will also help them modernise as overseas investment will bring modern technology. There are about 2.61 crore units in the MSE sector employing 5.97 crore people.

According to the Small and Medium Enterprises Development Act, 2006, in the 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 the services sector, the investment in equipment up to Rs. 10 lakh is defined as micro enterprises, and Rs. 10 lakh to Rs. 2 crore as small units.

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