Will the government’s proposal to approve mergers in 60 days benefit MSMEs?

Will the government’s proposal to approve mergers in 60 days benefit MSMEs?

Ease of doing business for MSMEs: The corporate affairs ministry’s notification amending the Companies Rules to expedite the time taken for mergers and amalgamations may not significantly benefit the MSME sector, according to experts. According to a notification by the ministry on May 15, merger or amalgamation will be deemed approved if the government “does not issue the confirmation order within a period of maximum 60 days of the receipt of the scheme.” As of now there is no time period specified for the approval from the Registrar of Companies or official liquidators.

“This will help largely help bigger enterprises, startups and companies in the IT sector. Traditional micro units may not significantly benefit,” Anil Bhardwaj, Secretary General, Federation of Indian Micro and Small & Medium Enterprises (FISME) told FE Aspire.

India’s MSME sector with 6.33 crore enterprises is dominated by micro units with over 99 per cent share and turnover of less than Rs 5 crore, according to the MSME Ministry’s FY23 annual report. 

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“In that space (less than Rs 5 crore turnover enterprises), not many businesses are not interested in merging with another micro enterprise. They would rather buy out another enterprise instead of amalgamating with them. So, the government’s move might not help micro or small units in traditional manufacturing and services space but can support enterprises with turnover upwards of Rs 50 crore or Rs 100 crore,” an MSME expert told FE Aspire on anonymity. 

The remaining, less than 1 per cent of enterprises in the MSME sector comprises small and medium units with turnover up to Rs 50 crore and Rs 250 crore respectively. According to the Udyam portal’s data as of Wednesday, 1.74 crore enterprises registered were micro enterprises out of 1.75 crore total registrations while only 5.46 lakh and 52,068 were small and medium enterprises.

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“The announcement by the government is a positive move and may have good potential for medium enterprises where the owner might want to see an exit route or startups and software companies who ran out of funding and are looking to merge for further expansion,” Ashok Saigal, MD, Frontier Technologies and Co-chairman, CII National MSME Council told FE Aspire.

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The ministry added that if the government believes the proposed merger is not in the public interest or in the interest of creditors, it may file an application with the National Company Law Tribunal within 60 days of receiving the proposal.

Nonetheless, the rule is expected to help enterprises including micro units looking for mergers to grow, especially raising funds through the SME IPO route as it will speed up the process of entity restructuring.

However, mergers are not for the masses and when we see in comparison to the number of enterprises of every size, the number of mergers taking place is always rare, said Amit Kumar, Founder and CEO, MSMEx. “It looks rarer in the MSME space because of the number of the enterprises in the MSME sector which runs into crores versus a few thousands of large corporates and startups.” 

The notification said that the amended rules will come into force with effect from June 15, 2023. 

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