States should reduce compliance burden of MSMEs

India's micro, small and medium enterprises continue to face "extensive regulation" and compliance requirements, apart from major bottlenecks in access to affordable and timely funding being one of the "core concerns", the Economic Survey said on Monday.

Asserting that further reduction in the compliance burden for MSMEs will considerably improve their growth prospects, the Survey for 2023-24 tabled in Parliament recommended "progressively easing the compliance requirements with a single-window mechanism for clearances, digitisation of processes and equipping MSMEs to handle these processes with ease".

It also called for providing grassroots-level facilitation to ensure market access to MSME products.

The Survey highlighted that the management bandwidth in MSMEs to grow business, seek new markets, get funding, and hire labour is limited, and this limited bandwidth is spent disproportionately on compliance.

"Whereas the Union government frames the rules, the implementation or supervision is in the hands of Inspectors and Supervisors who come from the relevant departments in the states. This is where senior levels of bureaucracies at the Centre and states can and should collaborate to make it easier for businesses to comply without being squeezed out of time and other resources," it asserted.

Emphasising that threshold-based concessions and exemptions create the unintended effect of incentivising enterprises to cap their sizes below the thresholds, the Survey recommended that these must have sunset clauses.

MSMEs continue to face extensive regulation and compliance requirements and face significant bottlenecks with access to affordable and timely funding being one of the core concerns, it stated.

Further, many MSMEs struggle to secure the necessary funds to start, operate, or expand their business due to a variety of reasons including lack of collateral or credit history, high interest rates, complex documentation requirements, and long processing times, etc., the Survey recommended..

Strengthening India's MSME sector is central to the country's growth in the coming years. MSMEs are the backbone of the Indian economy, contributing approximately 30 per cent of its GDP, 45 per cent of manufacturing output, and providing employment to 11 crore of the population.

To boost the growth of the MSME sector, the government has introduced initiatives such as the allocation of 5 lakh crore Emergency Credit Line GuaranteeScheme (ECLGS) for businesses, including MSMEs; equity infusion of 50,000 crore through the MSME Self-Reliant India Fund; New revised criteria for the classification of MSMEs; among others.

These initiatives have been formulated keeping in mind the key challenges the sector faces, primarily for access to timely and affordable credit.