Regulatory overload: MSMEs face Rs 13 lakh yearly compliance costs, over 1,000 regulations and high jail risk, says report
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Synopsis
TeamLease Regtech’s latest report highlights that a single manufacturing unit of an MSME is required to adhere to 998 unique obligations, totalling over 1,450 obligations each year.
By Neha Dewan, ET Online
Last Updated:
A single manufacturing unit of an MSME is required to adhere to 998 unique and 1,450 total obligations annually to run smoothly in the country; these also encompass over 480 imprisonment clauses, primarily related to procedural lapses, according to a report by regulatory technology firm TeamLease Regtech.
The report further observed that the inspection burden is another pressing concern, making ease of doing business a challenging task for the MSME sector. MSMEs with both a factory and a corporate office may be subjected to as many as 59 different inspectors coming at different intervals with different requirements, the report stated. Of these, 21 are labour-related and involve multiple agencies, such as the Labour Commissioner’s Office, the Employees’ Provident Fund Organisation (EPFO), and the Employees’ State Insurance Corporation (ESIC). These inspections may often be uncoordinated, repetitive, and time-consuming. At the same time, MSMEs must contend with an overwhelming volume of regulatory updates, averaging 42 regulatory changes per day, which makes real-time compliance nearly impossible without technological assistance.
In terms of labour law compliance, the report stated that labour laws form the single largest component of compliance obligations, accounting for roughly 45% of all requirements. “Manufacturing MSMEs must contend with a host of labour laws and regulations at both the central and state levels. These include requirements for registering establishments, maintaining extensive records and returns, adhering to rules on wages, working hours, and worker benefits, etc.,” it elucidated.
Highlighting the element of criminality that looms large over entrepreneurs, the report said that it is startling to note the number of jail provisions woven into the fabric of India’s business laws. “Currently, 26,134 imprisonment clauses are contained in 843 (or 54.9%) of these laws. Almost 80% of the total criminality in India’s business laws is contained in 20,895 jail provisions spread over 599 state laws, while the other 20% falls within 5,239 imprisonment clauses under 244 union laws,” the report stated.
It further noted that overall, almost two out of every five compliances carry jail terms for violations. “As a result of this hostility in an already overregulated space, the steady creation of new enterprises and the organic growth of existing businesses have been restricted to a considerable extent,” it added.
As per the report, the final compliance cost for manufacturing MSMEs can vary within a range of Rs 13 lakhs to Rs 17 lakhs.
Rishi Agrawal, Co-founder and CEO of TeamLease RegTech, stated that the data reflected an urgent need for reimagining compliances to unshackle India’s MSME entrepreneurs. “The country’s policymakers need to reduce the disproportionately high compliance burden, deeply entrenched hostility, and the menace of inspector raj. The country has witnessed the power of DPI (Digital Public Infrastructure) transforming digital payments. We need to add compliance to India’s DPI stack,” he said.
To ease the burden, the report proposed the digitisation of compliance workflows, a unified one-date application framework for regulatory changes, and greater reliance on third-party inspections. It also strongly backed simplifying unnecessary compliance rules, reducing penalties under Jan Vishwas 2.0, and pointing out more than 216 compliance-related clauses that could lead to jail time for minor mistakes.
It also proposed a buffer period for implementation, allowing organisations to transition after the introduction of changes. The report stated that this approach would prevent the retrospective implementation of changes, thereby avoiding potential financial or reputational losses for organisations.
Even though government initiatives and targeted infrastructure development schemes are helping formalise MSMEs and improving their access to credit, the report concluded that more structural reform is needed to reduce regulatory cholesterol and create an enabling environment for India’s 63 million MSMEs, many of whom operate on razor-thin margins and with limited manpower.
TeamLease Regtech offers a cloud-based, multi-tenant, web and mobile compliance SaaS solution that tracks all compliances. A subsidiary of TeamLease Services, TeamLease Regtech envisions a national open compliance grid towards cashless, paperless, and presence-less compliance in digital India.
The ET MSME Awards, India's most coveted awards programme celebrating the achievements of the MSME sector, is back with its sixth edition. Register here to be recognised as India's top MSME.
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In its latest report, ‘Decoding Compliance for Manufacturing MSMEs in India,’ TeamLease Regtech highlighted various compliance requirements, licenses, approvals, registrations, and permissions that an MSME in the country must secure before establishing, managing, and ultimately closing operations.The report further observed that the inspection burden is another pressing concern, making ease of doing business a challenging task for the MSME sector. MSMEs with both a factory and a corporate office may be subjected to as many as 59 different inspectors coming at different intervals with different requirements, the report stated. Of these, 21 are labour-related and involve multiple agencies, such as the Labour Commissioner’s Office, the Employees’ Provident Fund Organisation (EPFO), and the Employees’ State Insurance Corporation (ESIC). These inspections may often be uncoordinated, repetitive, and time-consuming. At the same time, MSMEs must contend with an overwhelming volume of regulatory updates, averaging 42 regulatory changes per day, which makes real-time compliance nearly impossible without technological assistance.
In terms of labour law compliance, the report stated that labour laws form the single largest component of compliance obligations, accounting for roughly 45% of all requirements. “Manufacturing MSMEs must contend with a host of labour laws and regulations at both the central and state levels. These include requirements for registering establishments, maintaining extensive records and returns, adhering to rules on wages, working hours, and worker benefits, etc.,” it elucidated.
Highlighting the element of criminality that looms large over entrepreneurs, the report said that it is startling to note the number of jail provisions woven into the fabric of India’s business laws. “Currently, 26,134 imprisonment clauses are contained in 843 (or 54.9%) of these laws. Almost 80% of the total criminality in India’s business laws is contained in 20,895 jail provisions spread over 599 state laws, while the other 20% falls within 5,239 imprisonment clauses under 244 union laws,” the report stated.
It further noted that overall, almost two out of every five compliances carry jail terms for violations. “As a result of this hostility in an already overregulated space, the steady creation of new enterprises and the organic growth of existing businesses have been restricted to a considerable extent,” it added.
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As per the report, the final compliance cost for manufacturing MSMEs can vary within a range of Rs 13 lakhs to Rs 17 lakhs.
Rishi Agrawal, Co-founder and CEO of TeamLease RegTech, stated that the data reflected an urgent need for reimagining compliances to unshackle India’s MSME entrepreneurs. “The country’s policymakers need to reduce the disproportionately high compliance burden, deeply entrenched hostility, and the menace of inspector raj. The country has witnessed the power of DPI (Digital Public Infrastructure) transforming digital payments. We need to add compliance to India’s DPI stack,” he said.
ADVERTISEMENT
To ease the burden, the report proposed the digitisation of compliance workflows, a unified one-date application framework for regulatory changes, and greater reliance on third-party inspections. It also strongly backed simplifying unnecessary compliance rules, reducing penalties under Jan Vishwas 2.0, and pointing out more than 216 compliance-related clauses that could lead to jail time for minor mistakes.
It also proposed a buffer period for implementation, allowing organisations to transition after the introduction of changes. The report stated that this approach would prevent the retrospective implementation of changes, thereby avoiding potential financial or reputational losses for organisations.
ADVERTISEMENT
Even though government initiatives and targeted infrastructure development schemes are helping formalise MSMEs and improving their access to credit, the report concluded that more structural reform is needed to reduce regulatory cholesterol and create an enabling environment for India’s 63 million MSMEs, many of whom operate on razor-thin margins and with limited manpower.
TeamLease Regtech offers a cloud-based, multi-tenant, web and mobile compliance SaaS solution that tracks all compliances. A subsidiary of TeamLease Services, TeamLease Regtech envisions a national open compliance grid towards cashless, paperless, and presence-less compliance in digital India.
The ET MSME Awards, India's most coveted awards programme celebrating the achievements of the MSME sector, is back with its sixth edition. Register here to be recognised as India's top MSME.
