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The government is set to remove the current foreign direct investment (FDI) cap of 24% for all Companies in the small-scale industry (SSI) sector. SSI units will be allowed to raise foreign equity in accordance with caps governing the sectors in which they operate. “At present, no big industrial house, whether domestic or foreign, can have more than 24% in an SSI unit. But that is being removed now.

The notification is under the Industries (Development & Regulation) Act. This needs to be on the table of the House for 30 days. The idea is that SSI units must have access to technology and capital,” said commerce & industry minister Kamal Nath on Wednesday at the Idea Exchange interaction organised by The Indian Express Group.

Under present norms, any small unit with more than 24% FDI loses its SSI status. Once the changes are brought about, the unit would still retain its SSI status with a higher FDI, provided this was within its sectoral cap.

Elaborating on the new provisions, the minister said, “In sectors where most of it (FDI) is free, it will be governed by the investment policy. For instance, if a large industry is allowed 51% in a particular sector, then that becomes the new limit for the SSI unit, too. But, what will remain is the criteria of size of investment in plant and machinery, which is Rs 5 crore.”

According to government data, there are about 12.8 million small & medium enterprises in India, which produce goods worth over $140 billion. These Companies also export goods worth $33 billion, accounting for around a third of India’s total exports.

According to government officials, for equity participation in excess of 24% or in cases where a non-SSI unit wants to manufacture a reserved item, it would have to obtain an industrial licence and also undertake a minimum export obligation of half the production.

Nath said the move was important, as the government wants to modernise SSI units and generate employment. Existing excise exemptions and other benefits would remain. “If someone wants to set up an SSI unit or ancillary, they cannot fund it because it is not allowed. Now there is no limit. They can own an SSI,” he said.

Source: IBEF