MSMEs call for reduced data compliance as India’s data protection regime takes shape

The MSME industry body India SME Forum on Wednesday called for reduced data compliance for micro, small and medium enterprises that rely on third-party advertising and data analytics as the country's data protection laws take shape.

After startups' resistance to the high cost of compliance with data protection laws, it’s the turn of small and medium businesses to raise concerns about the restrictive impact of these laws.

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India SME Forum surveyed over a thousand small and micro firms and concluded that heightened compliance related to consumer data would be detrimental to the sector, which relies heavily on digital tools for business expansion, as per a press release on Wednesday.

Based on the survey’s findings, the forum called for reducing the compliance burden on small businesses that rely on third-party advertising and data analytics, ensuring the protection and availability of targeted marketing solutions for MSMEs in India, and adopting a flexible approach for MSMEs to facilitate responsible data use without excessive regulatory overheads, the press release said.

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India SME Forum's survey followed the notification of the draft Digital Personal Data Protection Rules and the draft Digital Competition Bill in 2024. "MSMEs fear that overly restrictive policies may limit their ability to leverage digital tools for marketing, customer engagement, and business growth," the industry body said in the press release.

The survey concluded that a key part of the digital marketing strategy for MSMEs is using digital tools such as Facebook and Instagram to attract and retain customers, and limitations on data sharing may disrupt such strategies.

Additionally, three-fourths of the surveyed firms said receiving less data and fewer insights would hurt their ability to market effectively.

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More likely to be profitable

The survey also found that firms that used digital tools were more likely to be profitable than firms that avoided such tools. One of the survey findings was that 78% of high-adoption MSMEs expect revenue growth in 2025, compared to 70% of lower adopters.

The India SME Forum press release said the country's regulation of data protection could deprive MSMEs of the digital tools they need to scale their businesses, reach new markets, and sustain competitiveness.

According to the survey, about 70% of businesses advertising on Google Search, YouTube and Amazon said losing advertisement targeting would be a significant problem.

Losing WhatsApp data for advertisement targeting would negatively impact the business of 73% of Facebook and 70% of Instagram advertisers, the survey said.

Digital platforms have become a critical solution for low customer attraction and retention in MSMEs, as per the survey. Also, 94% of MSMEs that invest in digital advertising consider it essential for acquiring and retaining customers.