Tributes paid to India’s micro, small and medium enterprises (MSMEs) are indeed lavish. The sector is hailed as the backbone of the economy, driving growth and employment through as many as 6.3 crore units. The praise is not without reason. MSMEs contribute nearly 40 percent of the country’s gross domestic product, account for 40 percent of manufacturing output and 45 percent of exports. Yet, they are often the hardest hit when unexpected shocks rattle the economy. The 2016 demonetisation, the 2020-21 Covid pandemic and the recent Trump tariffs triggered large-scale closures of MSMEs, throwing tens of thousands out of work. It is in this context that a Niti Aayog committee set up last October recommended as many as 38 reforms to ease regulatory burdens and rejuvenate the sector.
The Rajiv Gauba committee rightly identified the burden of about 1,400 annual compliances as a major drain on these units’ resources. It suggested simplifying government processes, including exempting micro and small units from corporate social responsibility requirements, redefining small companies as those with an annual turnover of up to ₹100 crore, and easing auditing norms. It also proposed that minor defaults be decriminalised with warnings or monetary penalties, while safeguarding financial health through mandatory upfront payments and time-bound release of dues. However, some proposals—such as reducing mandatory board meetings from four a year to one and diluting audit rigour—could compromise governance and, in the long run, weaken MSMEs’ already tenuous relationships with lenders.
The Union government is, unfortunately, dragging its feet on implementing these reforms, though the recent Budget indicates it is alive to the sector’s concerns. The proposals include a new ₹10,000-crore SME Growth Fund and a ₹2,000-crore top-up to the Self-Reliant India Fund to support micro enterprises. However, given the repeated shocks India’s manufacturing “backbone” has endured in recent years, these allocations appear to be a drop in the ocean.
One substantive positive is the Budget’s decision to make it mandatory for central government units to use the RBI-backed Trade Receivables Electronic Discounting System (TReDS) for payments to MSMEs, enabling them to convert receivables into immediate cash. However, the larger issues—limited access to formal finance due to lack of collateral and the inability to scale up because of technological obsolescence—remain unresolved.