Economic Survey calls for reduced regulatory burden on MSMEs to unlock growth, reduce costs

New Delhi: Reducing the regulatory burden for micro, small and medium enterprises (MSME) will help small businesses become more efficient, reduce costs and unlock new growth opportunities, according to the Economic Survey 2024-25.

“The faster economic growth that India needs is only possible if the union and state governments continue to implement reforms that allow small and medium enterprises to operate efficiently and compete cost-effectively,” the survey, which was tabled in parliament on Friday, said, adding that regulations increase the cost of all operational decisions in companies.

Noting that the government has implemented several policies and initiatives over the past decade to support and promote the growth of MSMEs, the survey said some challenges in the regulatory environment remain. It said the regulatory compliance burden holds back formalisation and labour productivity, limits employment growth, chokes innovation and depresses growth.

The survey pointed out the tendency of companies in India to remain small, often to remain under the regulatory radar and steer clear of rules and labour and safety laws. It said the biggest casualties of this are employment generation and labour welfare, which most regulations were originally designed to encourage and protect, respectively.

According to the Economic Survey, the Ease of Doing Business (EoDB) 2.0 should be a state government-led initiative focused on fixing the root causes behind the unease of doing business. It said that in the next phase of the EoDB, the states must break new ground on liberalising standards and controls, setting legal safeguards for enforcement, reducing tariffs and fees, and applying risk-based regulation.

Growth aspirations

Citing examples from other countries, the survey said: “The need to find growth avenues in an export-challenged, environment-challenged, energy-challenged, and emissions-challenged world means we need to act on deregulation with a greater sense of urgency. Without deregulation, other policy initiatives will not deliver on their desired goals. By empowering small businesses, enhancing economic freedom, and ensuring a level playing field, governments can help create an environment where growth and innovation are not only possible but inevitable. India's growth aspirations require nothing less.”

On 14 January, Mint reported that the Centre has begun talks on reforms to reduce the compliance burden and provide regulatory relaxations for MSMEs in registration, mergers and acquisitions, as well as closures of business, along with a focus on addressing financing difficulties in the sector.

The MSME sector is the second-largest employer in the country, after agriculture. As of 26 November 2024, MSMEs reported employing 232.4 million individuals.

To simplify the process of registering MSMEs and to enable the ease of doing business, the government launched the Udyam Registration Portal in July 2020. Over 23.9 million informal micro enterprises have been formalised through the platform, making them eligible for priority sector lending benefits.