Need enhanced deregulation for MSMEs; regulatory challenges persist: Economic Survey

Highlighting the need for enhanced deregulation for micro, small and medium enterprises, the Economic Survey 2024-25 on Friday said some challenges remain in the regulatory environment.

The regulatory compliance burden holds back formalisation and labour productivity, limits employment growth, chokes innovation and depresses growth, according to the survey tabled in Parliament by Finance Minister Nirmala Sitharaman.

"The faster economic growth that India needs is only possible if the union and state governments continue to implement reforms that allow small and medium enterprises to operate efficiently and compete cost-effectively," it stated.

Without deregulation, other policy initiatives will not deliver on their desired goals, emphasised the economic survey, adding that by empowering small businesses, enhancing economic freedom, and ensuring a level playing field, governments can help create an environment where growth and innovation are not only possible but inevitable.

It further stressed that Ease of Doing Business (EoDB) 2.0 should be a state government-led initiative focusing on fixing the root causes behind the unease of doing business. In the next phase for EoDB, it added, states must break new ground on liberalising standards and controls, setting legal safeguards for enforcement, reducing tariffs and fees, and applying risk-based regulation.

Citing examples from other countries, the survey stated, "The need to find growth avenues in an export-challenged, environment-challenged, energy-challenged, and emissions-challenged world means we need to act on deregulation with a greater sense of urgency."

It also outlined a three-step process for states to review regulations for their cost-effectiveness systematically. The steps include identifying areas for deregulation, thoughtfully comparing the regulations with other states/countries and estimating the cost of each of these regulations on individual enterprises.

Recognising that the government has implemented several policies and initiatives over the last decade to support and promote the growth of MSMEs, the survey said, "some challenges in the regulatory environment remain".

It observed the tendency for firms in India to remain small and the logic for it often is to be under the regulatory radar and steer clear of the rules and labour and safety laws, adding that the biggest casualties of this are employment generation and labour welfare, which most regulations were originally designed to encourage and protect, respectively.

The survey said governments can help businesses become more efficient, reduce costs, and unlock new growth opportunities by reducing excessive regulatory burdens. Regulations increase the cost of all operational decisions in firms.

The Union government has undertaken deregulation by implementing process and governance reforms, simplifying taxation laws, rationalising labour regulations, and decriminalising business laws.

"On their part, states have also participated in deregulation by reducing compliance burdens and simplifying and digitising processes," the survey said. The assessment of states as per the Business Reform Action Plan (BRAP) formulated by DPIIT shows that deregulation helps spur industrialisation.