Part 1 of this blog explored local and scalable solutions that micro and small-scale enterprises (MSMEs) can use to address the key challenges faced in accessing finance, scarcity of skilled labour, limited marketing knowledge, and capacity building to increase efficiency and boost their competitiveness. In part 2 of the blog, we shift the gears to the structural enablers that can help MSMEs scale sustainably. We will explore how improved infrastructure, smarter use of technology, and a simplified regulatory environment can make MSMEs not just the backbone of the economy but also the engine of growth.
Regulatory Compliance
MSMEs in India are required to adhere to laws, regulations, and standards laid down by government and regulatory bodies. However, the cost and compliance of these regulations can be challenging, mainly for small businesses. A report by TeamLease Regtech reveals that a typical Indian manufacturing firm faces 1,450 regulatory obligations across seven categories of law. Moreover, in FY 2024-25, there were 9,331 regulatory changes across different ministries, departments, and authorities, directly impacting 90% of the MSMEs.
To improve regulatory compliance among MSMEs, a Regulatory Compliance ‘Passport’ or a Tiered Certificate System can be introduced. In this approach, MSMEs can be graded as Basic, Intermediate, and Advanced based on the extent to which they comply with the laws, regulations, and standards. To encourage enterprises to move up the tier, they can be incentivised by providing easier access to procurement, credit, subsidies, and lower inspection frequencies. This rewarding system can help improve compliance, reduce fear of regulatory burden, give recognition, and build reputation.
The Zero Effect Zero Defect (ZED) certification program launched by the central government is similar to this approach. The program encourages manufacturing firms to manufacture products that meet national and international standards (zero defect) and have no negative environmental impact i.e. zero effect. It offers financial and other assistance, like testing, quality, and technology upgradation, based on certification level.
While ZED focuses on enhancing the environment and quality aspects, the Regulatory Compliance Passport can be expanded to include all industries and cover all regulatory areas. To make the approach effective, efforts should focus on inter-agency coordination and strong digital infrastructure.
Technology and Innovation
Research highlights the importance for MSMEs to invest in research and development, enhance quality control processes, foster innovative systems, and adapt digitisation & automation to compete effectively in both domestic and global markets. However, many MSMEs in India are engaged in traditional & labour-intensive sectors and often struggle with a lack of awareness, limited technological expertise, and high investment costs. A study by CyberMedia Research (CMR) states that 56% of MSMEs lack the technical skills to adopt modern solutions, and only 84% struggle to see value in technology investments.
One possible solution could be the Tech Access Vouchers. These vouchers can enable an MSME to access specialised machinery or advanced facilities, such as precision manufacturing units and R&D centres, at partially or fully subsidised costs, located anywhere in India. For instance, if an MSME located in Arunachal Pradesh wants to access a specialised machinery based in Mumbai, the voucher can be used to subsidise the inter-state rental of that equipment. An MSME can access the voucher by submitting a request outlining the purpose, timeline, and expected outcome to the central or state government, who will issue these vouchers, which will then be allocated after considering the size, location, sector, and growth potential. This approach can boost productivity, innovation, enhance the quality of goods and services, and promote export across geographies.
A similar approach is implemented by The Henry Royce Institute (Royce). The institute offers SMEs access to its state-of-the-art materials research facilities, expertise, and equipment. This allows them to explore, test, and develop advanced materials without the high cost of purchasing specialized machinery. It must be ensured that there is a transparent allocation of vouchers to prevent any misuse and verify that facilities meet minimum quality and safety standards.
Infrastructure:
Robust infrastructure is crucial for the growth and competitiveness of the MSMEs in India as it reduces operational costs, boosts efficiency, and expands market access. However, MSMEs continue to face a lack of essential infrastructure including power, roads, and communication services. According to Motor India Magazine, expenses incurred due to logistics stand at around 13-14% of the country’s GDP, while the global average is much lower at 8%.
One possible solution could be Shared Infrastructure Clusters. Similar to plug-and-play industrial parks, the clusters can offer shared facilities such as advanced machinery, quality testing labs, logistics services, and marketing support. These clusters can also integrate sustainable systems, such as bio-digesters, community water recycling units, and zero-liquid discharge systems, to manage waste appropriately. On the logistics front, last-mile connectivity can be achieved by sharing e-cargo platforms and delivery drones. This will not only reduce the capital burden on enterprises but also foster collaboration among diverse businesses, driving innovation and ecosystem development. The clusters can be developed through public-private partnerships.
A similar solution is already being implemented as Common Facility Centres (CFCs) where the government provides financial assistance to set up the centres to set-up infrastructure for businesses operating in the same industry. For instance, the Integrated Apparel Technology & Facilitation Centre (IATFC) in Ludhiana, Punjab, provides access to knitting, stitching, laser engraving, and computer-aided manufacturing at subsidised rates. However, these CFCs serve only the specific needs of the community and do not provide logistical support.
Implementing Shared Infrastructure Clusters requires strengthening governance, accountability mechanisms, and grievance redressal systems to enhance the approach.
Imagine a weaver from a remote village of Jharkhand using digital payments for transactions, honing skills through a mobile training van, and purchasing goods using tokens. Moreover, she has partnered with urban boutiques to sell her handwoven sarees globally, holds a basic level compliance passport, and uses tech vouchers to access advanced design tools from anywhere in India. She operates from the Shared Infrastructure Cluster of her district, where she benefits from modern machinery and logistics.
Indian MSMEs can be engines of inclusive growth, innovation, and resilience. To empower them, the focus needs to shift from support to strategy, from aid to access, to make a survival story into a success story.
Ishita Narvekar
