MSMEs Struggle with High Compliance Costs Amidst Over 1,450 Challenges
India’s manufacturing micro, small, and medium enterprises (MSMEs) are grappling with a daunting regulatory landscape, as highlighted in a recent report by TeamLease RegTech. The study reveals that compliance costs for these businesses range from Rs 13 to Rs 17 lakh annually. With over 1,450 regulatory obligations to meet each year, MSMEs face significant challenges that threaten their growth and sustainability. The report calls for urgent regulatory reforms to alleviate the burdens on these vital contributors to the Indian economy.
High Compliance Costs and Regulatory Obligations
The report titled “Decoding Compliance for Manufacturing MSMEs in India” underscores the complexity and financial strain of adhering to India’s regulatory requirements. Manufacturing MSMEs operating in a single state must navigate a staggering array of compliance obligations, which include managing 48 different registers and dealing with 59 types of inspectors. Additionally, they must contend with 486 imprisonment clauses, many of which are tied to procedural violations. The report indicates that labor laws account for a significant portion of these legal risks, contributing to 66% of all imprisonment-related clauses. This intricate web of regulations not only imposes high costs but also exposes MSMEs to severe legal repercussions for minor infractions.
Dynamic Regulatory Environment
The regulatory landscape for MSMEs in India is not static; it is characterized by rapid changes. The report notes an average of 42 legal updates per day, with a staggering 9,331 regulatory changes recorded in the fiscal year 2024-25 alone. Approximately 90% of these changes directly impact MSMEs, which comprise around 6.45 crore enterprises across the country. This constant flux creates an environment where compliance becomes increasingly challenging, further complicating the operational landscape for small businesses. Entrepreneurs have expressed concerns about the overwhelming nature of these regulations, emphasizing the need for a more streamlined and supportive regulatory framework.
Industry Voices on Challenges and Solutions
During MSME Day, celebrated on June 27, industry leaders voiced their concerns regarding the obstacles faced by MSMEs. Vasu Naren, CMD of Sona Machinery, highlighted issues such as poor supply chains, low-quality output, and inadequate digital connectivity, particularly in sectors like food processing. He advocated for the establishment of smart trade infrastructure and real-time electronic platforms to enhance the MSME sector’s efficiency. Other entrepreneurs echoed similar sentiments, with Shabnum Khan from 750AD Healthcare stressing the necessity for research and development support, while Dinesh Chandra Pandey of Shankar Fenestrations pointed to the challenges of finding skilled labor and rising raw material costs.
Call for Regulatory Reform
The cumulative feedback from industry experts paints a picture of a sector brimming with potential yet hindered by outdated processes and excessive regulatory burdens. The report emphasizes that these challenges restrict formalization, limit employment growth, and stifle innovation within the MSME sector. Rishi Agrawal, CEO of TeamLease RegTech, called for a reimagining of compliance to empower India’s MSME entrepreneurs. He suggested integrating compliance into India’s Digital Public Infrastructure (DPI) framework, similar to the successful transformation seen in payment systems. As the sector continues to navigate these challenges, there is a growing consensus among entrepreneurs and industry experts that policymakers must take decisive action to streamline regulations and foster a more enabling environment for MSMEs to thrive.
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