What’s in Today’s Article?

• MSME Reclassification Latest News
• Overview of the Classification Changes
• Support for the Revised Norms
• Concerns Raised by Micro and Small Enterprise Bodies
• Broader Implications for the MSME Sector
• Future Considerations
• MSME Classification 2025 FAQs

MSME Reclassification Latest News 

• The Union Budget 2025 introduced a significant revision in the classification criteria for micro, small, and medium enterprises (MSMEs), triggering strong reactions from various industry stakeholders.

Overview of the Classification Changes

• Effective April 1, 2025, the investment and turnover limits for all MSME categories have been increased substantially. 
• Specifically, the investment cap has been raised by 2.5 times, while turnover thresholds have been doubled. This means:
  • Micro enterprises: now include firms with investment up to ₹2.5 crore (from ₹1 crore) and turnover up to ₹10 crore (from ₹5 crore)
  • Small enterprises: ₹25 crore investment (up from ₹10 crore), ₹100 crore turnover
  • Medium enterprises: ₹125 crore investment (up from ₹50 crore), ₹500 crore turnover
• The government believes these changes will help businesses scale operations, access capital more easily, and contribute to employment generation.

Support for the Revised Norms

• Industry groups such as the Federation of Indian Micro and Small & Medium Enterprises (FISME) have welcomed the revised limits. 
• FISME Secretary General argued that the revision was necessary to:
  • Reflect inflationary pressures and rising input costs
  • Allow medium enterprises to grow vertically rather than duplicating operations horizontally
  • Attract greater foreign investment in MSMEs without losing access to government benefits
• He also noted that Indian businesses often avoid growth beyond small-scale classification due to fear of losing incentives. 
• The revised norms aim to counter this trend by making the classification more inclusive.

Concerns Raised by Micro and Small Enterprise Bodies

• On the other hand, various organisations representing micro and small enterprises, have voiced strong opposition to the move. 
• In a letter to the Ministry of MSME, the organizations warned that:
  • Medium enterprises, which constitute less than 0.01% of the MSME base, might monopolize benefits meant for the 99.99% micro and small units.
  • Public procurement quotas (25% for micro and small units) and credit access under priority sector lending will disproportionately favour larger players.
  • Micro units already struggle to access credit, as banks often prefer lending to medium units to meet their targets with fewer clients.
• Organisations have also demanded that the earlier classification be restored or a separate department be created for micro and small enterprises to safeguard their interests.

Broader Implications for the MSME Sector

• The revised classification is expected to significantly affect the structure and support systems within the MSME ecosystem. Key issues at stake include:
• Public Procurement Access
  • With medium enterprises now falling into the "small" bracket, competition for public contracts under the mandated 25% procurement quota may become more intense, potentially side-lining micro units.
• Credit Distribution
  • Despite formal provisions for microenterprise credit (8% of total priority sector lending), practical access remains limited. Larger units are more attractive to banks due to lower risk and higher ticket sizes.
• Post-Pandemic Recovery Challenges
  • Stakeholders contend that recovery from the COVID-19 impact remains uneven, and the timing of the revision is premature. 
  • The last National Sample Survey data on MSMEs dates back to 2015-16, raising concerns about policy decisions being made without updated evidence.
• Missing Middle Problem
  • The policy aims to bridge the “missing middle” by encouraging small firms to scale up. Many firms have historically stayed small to retain government benefits, leading to inefficient horizontal expansion. The new limits intend to reverse that trend.

Future Considerations

• As India pushes for a robust and globally competitive MSME sector, periodic policy recalibrations are inevitable. 
• However, it remains crucial that the voices of micro and small businesses, the backbone of India’s industrial landscape, are not drowned out by the louder voices of larger firms.
• The success of the reclassification will depend on how equitably the benefits are distributed and whether genuine efforts are made to address access to credit, market linkages, and ease of doing business at the grassroots level.

MSME Classification 2025 FAQs

Q1. What are the new thresholds for MSME classification in 2025?

Ans. The investment and turnover limits have been raised by 2.5 times and 2 times, respectively, across all MSME categories.

Q2. Why are micro and small enterprises opposing the new classification?

Ans. They fear that medium enterprises will capture benefits meant for smaller firms, including credit and public procurement opportunities.

Q3. What benefits do MSMEs receive under the current policy?

Ans. MSMEs enjoy priority sector lending access, public procurement quotas, and various subsidies.

Q4. How does the new classification impact credit availability?

Ans. Smaller firms worry that banks will prefer lending to larger firms within the MSME definition to meet lending targets efficiently.

Q5. What is the “missing middle” in India’s MSME ecosystem?

Ans. It refers to the lack of medium-sized enterprises, as firms avoid vertical growth to retain MSME benefits, leading to fragmentation and inefficiency.

Source: IE

What’s in Today’s Article?

• Governor’s Assent to Bills Latest News
• Constitutional Role of the Governor in Assenting to Bills
• Earlier Judgements of SC on Governors Power to Withhold Assent
• Supreme Court’s Ruling in Tamil Nadu Governor Assent Case
• Governor’s Assent to Bills FAQs

Governor’s Assent to Bills Latest News

• In a landmark judgment, the Supreme Court struck down Tamil Nadu Governor R N Ravi’s decision to withhold assent to 10 Bills, declaring it illegal and contrary to constitutional provisions. 
• The ruling reasserts the limited discretionary powers of Governors and reinforces the primacy of elected state governments in the legislative process.
• This verdict is especially significant in the context of Opposition-ruled states, where Governors are often seen as aligned with the Centre, leading to political tension and legislative gridlocks. 
• The Court's decision is likely to influence ongoing and future disputes, including a similar case concerning delays by the Kerala Governor in assenting to state Bills, which is currently under judicial consideration.

Constitutional Role of the Governor in Assenting to Bills

• Article 163 outlines the general powers of the Governor, requiring them to act on the advice of the Council of Ministers except in certain discretionary matters.
• Article 200 specifically deals with the Governor’s options when a Bill is presented after being passed by the State Legislature.

Governor’s Four Options Under Article 200

• Grant Assent to the Bill.
• Withhold Assent to the Bill.
• Return the Bill (except Money Bills) for reconsideration.
• Reserve the Bill for the President’s consideration.

Key Proviso in Article 200

• The Governor may return a non-money Bill “as soon as possible” with a message for reconsideration.
• If the Bill is passed again by the legislature, the Governor is bound to grant assent.
• However, no specific timeframe is defined for the Governor to act, creating a loophole.

Issue of Delay

• Governors, particularly in Opposition-ruled states, have used this ambiguity to delay assent indefinitely, leading to legislative deadlocks and Centre–State tensions.

Impact of Indefinite Delay

• An open-ended delay in granting assent can paralyse the functioning of an elected government.
• This tactic is often equated to a “pocket veto”, where the Governor neither assents nor returns the Bill, effectively stalling legislation.

Governor Power to Sit on a Bill Indefinitely

• Article 200 uses the word “shall”, indicating a mandatory obligation on the Governor to act.
• This reflects the Constitution’s intent that the Governor should not indefinitely withhold assent but act within a reasonable time frame.

Earlier Judgements of SC on Governors Power to Withhold Assent

• Nabam Rebia Case (2016): Arunachal Pradesh Assembly Ruling
  • In the Nabam Rebia & Bamang Felix vs Deputy Speaker case, the Supreme Court emphasized that:
    • The Governor cannot withhold assent indefinitely.
    • If the Governor has concerns, they must return the Bill with a message, which may include recommended amendments.
  • The Court cited Rules 102 and 103 of Assembly procedures, mandating the Speaker to read or circulate the Governor’s message when a Bill is returned.
• State of Punjab vs Principal Secretary to the Governor (2023)
  • The dispute involved the Punjab government and Governor Banwarilal Purohit, who refused assent to certain Bills, citing procedural irregularities in reconvening the Assembly.
  • The Governor claimed the session was illegal, as it was resumed after an adjournment sine die without formal prorogation.
  • The Supreme Court ruled in favour of the Punjab government, stating:
    • A Governor is an unelected Head of the State and must not obstruct the legislative process.
    • If the Governor chooses to withhold assent under Article 200, they must follow the first proviso — i.e., return the Bill for reconsideration, not stall it indefinitely.

Supreme Court’s Ruling in Tamil Nadu Governor Assent Case

• The Court relied on its 2023 ruling in the Punjab case but went a step further by introducing specific time limits for the Governor's actions under Article 200.

Time Limits Prescribed

• Timely Action When Acting on Ministerial Advice
  • If the Governor decides to withhold assent or reserve a Bill for the President, they must take action within a maximum of one month, provided it is based on the advice of the State Council of Ministers.
• Return of Bill When Acting Contrary to Advice
  • When the Governor withholds assent contrary to the advice of the Council of Ministers, they are required to return the Bill with a message for reconsideration within a period of three months.
• Reservation for the President Against Ministerial Advice
  • If the Governor chooses to reserve the Bill for the President despite the contrary advice of the State Council, such reservation must also be made within a maximum of three months.
• Assent to Reconsidered Bill
  • In cases where the Bill is re-presented after reconsideration by the legislature, the Governor must grant assent within a maximum period of one month.
  • Failure to act within these timelines would make the Governor’s inaction subject to judicial review, reinforcing democratic accountability and ensuring that the legislative process is not obstructed arbitrarily.

Use of Article 142 – “Complete Justice”

• The Court invoked Article 142 to directly deem the 10 pending Bills as assented to.
• Reason: The Bills were kept pending for an unduly long period, showing “scant respect” by the Governor for earlier judicial guidance.
• Article 142 empowers the Court to go beyond technicalities and deliver complete justice, especially where no legal remedy otherwise exists.

Governor’s Assent to Bills FAQs

Q1. What did the Supreme Court rule on Tamil Nadu Governor’s actions?

Ans. The Court declared withholding assent to 10 Bills illegal and laid down strict timelines for gubernatorial decisions under Article 200.

Q2. What are the Governor’s four options under Article 200?

Ans. Grant assent, withhold assent, return for reconsideration, or reserve the Bill for the President’s consideration.

Q3. What key change did the Court introduce in this ruling?

Ans. It imposed specific time limits for each action a Governor may take on a Bill to avoid indefinite delays.

Q4. Why is the ruling significant for Opposition-ruled states?

Ans. It curbs the Governor's arbitrary powers, protecting elected governments from legislative deadlocks caused by political interference.

Q5. What is Article 142 and how was it used here?

Ans. Article 142 empowers the Court to ensure complete justice; it was used to deem the 10 Bills as assented.

Source: IE

What’s in Today’s Article?

• Trump’s Tariff Standoff Latest News
• Japan's Negotiated Approach Gains Traction Amid Tariff Tensions
• EU's Balanced Approach: Negotiation and Retaliation Options
• India's Quiet Diplomacy Amid Tariff Concerns
• China's Firm Stance Amid Escalating Tariff War
• Trump’s Tariff Standoff FAQs

Trump’s Tariff Standoff Latest News

• Countries are responding to Trump’s retaliatory tariffs with three distinct strategies. One approach is the Chinese strategy of "resolute opposition" and tit-for-tat retaliation. 
• China’s Commerce Ministry has vowed to take countermeasures to protect its interests, responding to Trump's threat of imposing a 50% tariff on Chinese imports if Beijing doesn't retract its 34% tariff on American goods.

Japan's Negotiated Approach Gains Traction Amid Tariff Tensions

• Japan is taking a diplomatic route to resolve tariff issues with the U.S., sending a team to negotiate with Washington. 
• This move follows discussions between U.S. President Trump and Japanese Prime Minister Shigeru Ishiba. 
• Japan’s stock markets reacted positively, with significant gains in the Nikkei 225 and Topix, driving optimism across Asian markets.

Asian Markets Hopeful for Diplomatic Resolution

• Asian markets are buoyed by the belief that Japan’s approach may lead to a successful negotiation, potentially easing U.S. tariffs. 
• Other nations, such as Bangladesh, Cambodia, and Vietnam, are also adopting a conciliatory stance to avoid retaliatory tariffs. 
• Whether this diplomatic strategy will gain traction in Europe and the U.S. remains a key factor for market sentiment.

EU's Balanced Approach: Negotiation and Retaliation Options

• The European Union is taking a middle ground in its response to U.S. tariffs, expressing a preference for negotiations while preparing a potential retaliation list. 
• With the trans-Atlantic trade relationship valued at 1.5 trillion Euros, EU officials are keen to resolve the issue diplomatically. 
• However, they are ready to retaliate if needed.

India's Quiet Diplomacy Amid Tariff Concerns

• India has remained largely silent on the issue of U.S. tariffs, offering only basic statements and downplaying the impact. 
• Privately, officials suggest that India prefers a diplomatic approach over retaliation, a shift from its previous strategy under the first Trump administration when it took countermeasures against U.S. steel and aluminum tariffs.

China's Firm Stance Amid Escalating Tariff War

• China is responding to the U.S. tariffs with resolute opposition, facing deep losses in its markets, especially with the Hang Seng Index plunging. 
• The series of escalating tariffs, including the latest threat of a 50% levy, has raised concerns about an economic blockade between the two largest economies. 

China's Strategic Advantage in the Tariff Standoff

• China holds significant leverage in the ongoing trade conflict, with more staying power due to its fiscal stimulus package and a strong domestic consumption market. 
• President Xi Jinping faces no major political opposition and can continue managing economic policies, giving China a potential advantage in the long run.

U.S. Faces Economic Constraints in Ongoing Tariff Conflict

• The U.S. may struggle to sustain its position in the trade war, lacking significant fiscal options and facing an impending conflict with the Federal Reserve over interest rate cuts. 
• This could make it harder for the U.S. to engage in a prolonged tariff standoff with China.

Trump’s Tariff Standoff FAQs

Q1. How is China responding to Trump’s tariff standoff?

Ans. China is retaliating with tariffs, leveraging fiscal stimulus and strong domestic demand to endure a prolonged trade war.

Q2. What strategy is Japan using in response to U.S. tariffs?

Ans. Japan is using diplomacy, sending negotiators to Washington, which boosted investor confidence and lifted Asian stock markets.

Q3. How is the EU reacting to Trump’s tariff moves?

Ans. The EU seeks negotiations but is preparing a retaliation list to defend its massive 1.5 trillion Euro trade interests.

Q4. What is India’s approach to the U.S. tariff conflict?

Ans. India prefers quiet diplomacy over public retaliation, signaling a strategic shift from its earlier counter-tariff stance.

Q5. Why could the U.S. face challenges in the tariff standoff?

Ans. The U.S. faces limited fiscal tools and potential clashes with the Federal Reserve, weakening its long-term trade war position.

Source: IE | IE