The document discusses regulatory barriers faced by micro, small, and medium enterprises (MSMEs) in India. It analyzes norms related to business entry, continuance, and exit. Key findings are that MSMEs struggle with greater procedural requirements, lack of access to financing, complex labor regulations, and a burdensome tax structure compared to large enterprises. The paper recommends simplifying regulatory processes, improving access to credit, rationalizing labor laws, clarifying tax policies, and establishing a legal framework for business closure to help MSMEs overcome barriers and realize their growth potential.

1. REGULATORY BARRIERS TO MICRO,
SMALL AND MEDIUM ENTERPRISES

2. ABOUT THE STUDY
Aims and Objectives
o Post- New Industrial Policy (1991) scenario: the
missing boom in the MSME sector- WHY?
o Comparative Evaluation: Business and Regulatory
Environment
Methodology
o Secondary Data Analysis

3. ABOUT THE STUDY
Research Question
o What have been the causes behind the inability
of MSMEs to realise their growth potential?
Hypothesis
o Given business environment; disparate growth…
Regulatory norms
serve as barriers
Business environment:
non-conducive

4. LAYOUT OF THE PAPER/ PRESENTATION
o Introduction
o MSMEs v. Large Scale Industries
o Regulatory Norms
o International Comparison: EoDB Index
o Policy Recommendations

5. DEFINITION
• Basis: investment ceiling.
• Shift: SSIs MSMES: positive shift in policy
perspective and focus. Objective of the MSMED
Act, 2006?
Industry Enterprises engaged in the
manufacture of production
of goods: investment in
plant and machinery
Enterprises engaged in
providing or rendering of
services: investment in
equipment.
Micro Not exceeding Rs. 25 lakh. Not exceeding Rs.10 lakh
Small Between Rs. 25 Lakh and Rs.
5 crore
Between Rs.10 lakh and Rs.2
crore.
Medium Between Rs. 5 crore and Rs.
10 crore.
Between Rs. 2 crore and Rs. 5
crore.

6. CHALLENGES
Significance of study?
• Poor infrastructure
• Finance: lack of adequate and
timely access
• Marketing
• Regulatory norms: 142nd on the
EoDB
• Tax structure: number of
payments, procedure
• Lack of information flow
• Innovation/ R&D: missing
• Labour: Availability of skilled
and productive force
• Corruption
• Lumping MSMEs together:
POLICY PERSPECTIVE
CHALLENGE.

7. LARGE v. SMALL ENTERPRISES: POST 1991
What does liberalisation do?
o Access to capital/ technology + freedom to invest in
domestic industries = increased competition, creative
destruction/ innovation.
o Factors get reallocated as per productivity, with
inefficient firms driving out the inefficient ones- leads to
increased overall productivity and growth in the
economy.

8. LARGE v. SMALL ENTERPRISES: POST 1991
What did liberalisation do for MSMEs?
• Total working MSME units: 105.21 lakh (2001-02) v.
447.73 lakh (2011-12).
• Alteration in institutional arrangement: dereservation of
products for MSMEs; increased competition with the
large scale sector.
• Induction into a competitive environment proved too
sudden for MSMEs (given lack of capital, marketing
opportunities, innovation, skilled workforce); OUTCOME:
Sick units: 0.2 million (1990) v. 0.3 million (2000)/ Rate of
exports: 31% to 18%.

9. Comparative
Overview:
How the 1991
reforms treated and
impacted
SSIs/MSMEs vis-à-vis
Large Scale
Industries.
Years Factories (%
growth rate)
Employees
(% growth
rate)
Gross
Output (%
growth rate)
SSI Large SSI Large SSI Large
1980-81
to 1984-
85
-0.6 11.9 -2.1 2.1 0.6 8.7
1985-86
to 1990-
91
0.7 15.0 1.5 0.5 7.9 9.6
1980-81
to 1990-
91
0.2 13.7 0.1 1.1 5.0 9.3

10. DOCUMENTATION AND ANALYSIS OF
REGULATORY NORMS
Entry Continuance Exit
ENTRY
Registration
• PROCESS: S. 8(1), MSMED Act. Optional. Manufacturing: Memorandum of
Registration is mandatory.
• ADVANTAGE: Registration ensures the minimum financial interest of the seller
(the MSME owner)- that is, the price for his goods.
Licensing
• Licensing Exemption Notification (1991) under the IDR Act, 1951: no industrial
license required except in case of 6 product groups included in the compulsory
licensing group.
• Item groups reserved for exclusive manufacture by MSMEs.

11. PROCEDURAL NORMS (ENTRY)
• More significant than statutory stipulations in
terms of the hindrance they can potentially
pose: tedious and protracted nature.
• Starting a business: 11 associated procedures
(Delhi); 13 (Mumbai).
• Acquiring a construction permit: 27 steps/
procedures.
• Registering property (for the purpose of use as
a warehouse, for instance): 7 steps/ procedures.

12. ANALYSIS OF NORMS (ENTRY)
• Simplification of the registration process;
• Statutory protection to the financial interest of
the MSME owner;
• Minimal licensing obligations;
• Procedural barriers.

13. CONTINUANCE
Financing
• Outstanding credit gap (beginning of the 12th
plan period): 62% of the credit demand; total
credit demand for micro enterprises = INR 7.9
trillion (2012)!
• Availability of bank credit is low; credit to
MSMEs as a % of NBC: 14.6% (2000) to 8%
(2007).
• Master circular, RBI (2010): guidelines for
lending to MSMEs; targets?; specialised
branches.

14. CONTINUANCE
• High credit cost: reported to be an impediment
by 80% of MSME owners (ET).
• Credit Rating of MSMEs: significance? Role of
governmental policy: SMERA.
• FDI into an MSME: ceiling of 24% for equity
participation lifted with the MSMED Act: subject
only to sectoral caps and regulations now.
• Ease of getting credit in India: 36th position/ 189
countries on the EoDB.

15. CONTINUANCE
Labour
• Concurrent List subject- 44 central enactments:
industrial relations, industrial safety and health,
child and women labour, social security, labour
welfare, employment and training, wages,
others.: irrelevant to the MSME sector.
• Lack of skilled labour.

16. CONTINUANCE
Taxation
• Concerns: Number of payments, long
procedure, non-uniformity across states (World
Bank): 33 annual tax payments; 243 hours/ year
spent in filing; tax payment amounts to 61.7% of
profit. India = 156th of 189 countries.
Tax Benefits, Schemes and Incentives for the
MSME Sector
• Deduction in respect of profit and gains:
ambiguity as to definition of SSIs
• Excise exemption
• Presumptive taxation

17. ANALYSIS OF NORMS (CONTINUANCE)
• Increasing availability of credit: positive role of
the RBI
• Betterment in FDI policy towards MSMEs
• Balancing labour interests with regulatory
framework: avoiding ‘over-legislation’
• Redundancy/ Inapplicability of labour laws
• Protracted procedure for tax payments
• Ambiguity as to definition of SSIs for tax
purposes

18. EXIT
• Section 25, MSMED Act: required the central
government to prescribe a winding up scheme/
closing down procedure: no legal framework till
date: implication- wastage of human, capital
and physical resource.
• SICKNESS (associated with exit): “Erosion in the
net worth due to accumulated losses to the
extent of 50% of its net worth”.
• Causes of sickness: lack of demand; shortage of
working capital; non-availability of raw material;
power shortage; labour, marketing, equipment
and management problems.

19. EXIT
• Revival of sick units- not a priority for banks-
conflicting interests.
• Presidency Towns Insolvency Act (1909)/
Provisional Insolvency Act (1920): disregard the
concept of limited liability; focus of litigation:
reovering statutory dues; not revival of the
MSME unit. LLP Act, 2008.

20. ANALYSIS OF NORMS (EXIT)
• Rehabilitation and resolving insolvency
measures to be aimed at revival
• Legal framework for exit

21. INTERNATIONAL COMPARISON
How does the EoDB Index
work?
o A composite of 2 measures:
• DTF Score
• EoDB Ranking
Indicators
• Starting a Business
• Construction Permits
• Getting Electricity
• Registering Property
• Getting Credit
• Protecting Minority
Investors
• Paying Taxes
• Trading Across Borders
• Resolving Insolvency
EoDB: Business
Environment in
India
Comparison with
China, Russia,
Bangladesh
Relevance of the EoDB for MSMEs
A comprehensive measure of how easy/
difficult it is for a local entrepreneur to
open and run a small to medium-sized
enterprise when complying with relevant
regulations.

22. Where does India Stand?
5
5
2
3
1
1
5
2
4
3
DB TOPIC/
PARAMETER
DB RANK
2015/2014
ALONG THE
TOPIC
DISTANCE TO
FRONTIER
SCORES
2015/2014
Starting a Business 158/ 156 (-2) 68.4/ 65.54
(+2.88)
Dealing with
Construction
Permits
184/183 (-1) 30.89/ 29.70
(+1.19)
Getting Electricity 137/ 134 (-3) 63.06/ 62.55
(+0.51)
Registering
Property
121/115 (-6) 60.40/ 60.40 (-)
Getting Credit 36/ 30 (-6) 65.00/ 65.00 (-)
Protecting
Minority Investors
7/ 21 (+14) 72.50/ 65.83
(+6.67)
Paying Taxes 156/ 154 (-2) 55.53/ 55.64 (-
0.11)
Trading Across
Borders
126/ 122 (-4) 65.47/ 64.89
(+0.58)
Enforcing
Contracts
186/ 18 (-) 25.81/ 25.81 (-)
Resolving
Insolvency
137/ 135 (-2) 32.60/ 32.43
(+0.17)

23. POLICY RECOMMENDATIONS
 Drawing up a distinction
between micro, small and
medium enterprises at a policy
level
 Starting a business:
minimisation of procedural
compliances required
 Better monitoring mechanism
with respect to finance for
MSMEs
 Simplification of labour
regulatory framework
 Inclusive method of
checking compliance
with regulatory norms
 Taxation: Need for
simpler procedure and
non-ambiguity in laws
 Addressing lack of
awareness
 Legal framework for an
exit scheme