Institute new classification
Micro-MSMEs are categorised as having less than Rs. 5 crores in turnover, however, over half of micro-MSMEs have less than Rs. 50 lakhs in turnover with 2-3 workers, often family members. These types of outfits must have policies supporting their needs that do not equate them to the regulations applicable for a nearly 5 crore type of a business.The challenges faced by an entrepreneur who is in a single location with just two employees is very different from the multi-location entrepreneur with more than 100 workers. Their scale of operations, resource constraints, and growth potential differ significantly from small and medium enterprises requiring tailored support that addresses their specific needs. There is a need for further classification within the micro enterprise segment.
This sub-categorisation would differentiate micro enterprises based on their specific industries, such as manufacturers, ancillary units, exporters, and service providers. This approach would enable the development of targeted incentive packages and support measures tailored to the distinct needs of each sub-category and drive last-mile financial inclusion of aspiring local entrepreneurs.
Increase formalisation
Micro-MSMEs lack the administrative bandwidth and resources to navigate complex regulatory frameworks. With over 90% of the MSME sector in the informal category, most of the micro-enterprises are unable to access formal credit or other government schemes or benefits. Udyam Registration is a positive initiative in this regard with more than 13 lakh informal micro-enterprises that have now become formalised and there is room to expand this broadly across the MSME sector.Improve ease of doing business
India’s business environment is burdened with a vast number of laws, compliances, and filings. According to data from TeamLease, the regulatory complexity is compounded by frequent changes, to the tune of 1,536 laws, 69,233 compliances, and 6,618 annual filings. In 2021 alone, there were over 3,500 updates, averaging 10 compliance changes per day. Compliance with multiple regulations, such as licensing, GST, and labor laws, can be overwhelming for micro-enterprises. Simplified and streamlined regulatory processes specifically designed for micro-MSMEs can help reduce their compliance burden, allowing them to focus on their core business activities.
Initiate support for women-owned MSMEs
With only 18% of registered MSMEs that are women-owned, there is vast unrecognised potential remaining untapped due to systemic gender discrimination. Majority of women entrepreneurs remain in micro-MSME strata and over 3,057 women-owned MSMEs closed post-pandemic. Implementing policies that promote women entrepreneurship and provide dedicated support, such as access to capital, training, and networking opportunities, will empower women-led micro MSMEs and contribute to inclusive economic growth.
Introduce separate micro-MSME division
Recognising the need for a more targeted approach, the recent suggestion by the parliamentary panel to establish a separate Division for micro-enterprises within the MSME ministry is a welcome development. This Division will focus on the unique needs faced by micro-enterprises, enabling them to access specialised support and services. The panel emphasised the need for targeted support and policies to help micro enterprises grow and eventually transition into small and medium enterprises, contributing to the overall strengthening of the MSME sector.
One of the primary objectives of the proposed Division should be to facilitate further democratising access to formal credit, technology, marketing, and business development opportunities. By providing specialised support and services, the Division can act as a lever that enables micro-enterprises to scale up and compete with larger players in their industries. Additionally, the Division should assist micro-enterprises in participating more effectively in government schemes, such as the PMEGP, which provides financial assistance for setting up new enterprises.
With economists projecting that India’s MSME sector is likely to reach a valuation of Rs. 1 trillion by 2028, now is the time to pull out all the stops in facilitating the success of every segment. Separating micro-enterprises from a policy perspective has the potential to give them the boost they need. By concentrating on supporting the micro-enterprises sector with tailored regulatory support, can drive massive growth across local economies in India.
The writer is the Founder & CEO of Kinara Capital.
