MSMEs continue to face challenges in regulatory framework: Economic Survey

Micro, Small and Medium-scale Enterprises (MSMEs) that employ 23.24 crore people in the country continue to face challenges in the regulatory environment, noted the Economic Survey tabled on Friday (January 31, 2025).

“Regulatory compliance burden holds back formalisation and labour productivity, limits employment growth, chokes innovation and depresses growth,” it said.

MSMEs create a large number of jobs at relatively low capital costs and hence play a crucial role, second only to agriculture. They drive economic growth, employment generation, and innovation.

Yet, there is an “observed tendency for firms in India to remain small.” So, they lose access to institutional capital, skilled talent, and technology infusion and often operate outside the formal supply chains. This creates a parallel, informal economy and contributes to low labour productivity, the Survey noted.

“The logic for staying small often is to remain under the regulatory radar and steer clear of the rules and labour and safety laws. Ironically, the biggest casualties are employment generation and labour welfare, which most regulations were originally designed to encourage and protect, respectively,” it said.

The efforts of the government in the last 10 years focused on improving access for the MSMEs to finance, enhancing technological capabilities, providing market linkages, and addressing structural challenges.

In a move to formalise the informal micro enterprises, the government in collaboration with SIDBI, introduced the Udyam Assist Platform (UAP) in 2023. Over 2.39 crore informal micro enterprises have been formalised through the platform.

Goa, T.N. example

The launch of TReDS aims to help the MSMEs realise their receivables in a time-bound manner at a relatively lower financing cost. The governments of Goa and Tamil Nadu have set an example by adopting the TReDS platform. Goa, which is largely reliant on tourism, leveraged TReDS during the COVID-19 disruption to enhance supplier liquidity, facilitating payments for over 250 MSMEs since October 2020, with invoice discounts. Tamil Nadu joined TReDS in 2022 under the Raising and Accelerating MSME Performance (RAMP) programme, supporting MSMEs in significant numbers.

To provide equity funding to MSMEs with the potential to scale up, the government launched the Self-Reliant India (SRI) Fund with a corpus of ₹50,000 crore. The fund has a provision of ₹10,000 crore from the government and ₹40,000 crore through private equity/venture capital funds.

The government has introduced measures such as MSME Samadhan and the CHAMPIONS (Creation and Harmonious Application of Modern Processes for Increasing the Output and National Strength) portal, and a portal that gives information about individual CPSEs, Central ministries, State governments, and other buyers regarding the payments pending with them in respect of the MSMEs. The portal also facilitates MSEs to file their delayed payment-related complaints online. From the date of launch of the MSME Samadhaan portal, 2.2 lakh applications have been filed by MSEs, of which 20,652 have been mutually settled.

The government is also implementing the Micro and Small Enterprises-Cluster Development Programme (MSE-CDP) across the country. Under this, Common Facility Centres (CFCs) are developed to address common issues, such as improvement of technology, skills, quality, etc. As per the report of the evaluation study of MSE-CDP conducted by the National Productivity Council, the scheme has been able to improve the efficiency of the value chain of the units in the cluster, resulting in overall productivity growth of around 10-15 % and growth in turnover in the range of 20-30 %.