MSMEs continue to face challenges in regulatory framework: Economic Survey

Economic Survey highlights challenges faced by MSMEs in India, government initiatives to support growth, innovation, and formalization.

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.