TeamLease Regtech Releases Report on MSME Compliance Burden

TeamLease Regtech, India’s leading Regulatory Technology (Regtech) solutions company, has released its report titled ‘Decoding Compliance for Manufacturing MSMEs in India.’ Micro, Small and Medium Enterprises (MSMEs) are the backbone of the Indian economy. They contribute over 30% to the GDP and 45% to the total manufacturing output. These generate employment and foster entrepreneurship at comparatively lower capital cost, next only to agriculture. However, despite their significant contribution to the economy, they face a lot of challenges compounded by regulatory factors. This report provides an overview of the regulatory cholesterol entailing several compliance requirements, licenses, approvals, registrations, and permissions to be obtained by an MSME before establishing and managing and after closing the operations. It also quantifies the amount of criminality these compliance requirements subsume and recommends some stepping stones as solutions to all of these challenges. Additionally, it enlists the steps being taken by the government to enable Ease of Doing Business in the country for these enterprises.  

The inspection burden is another pressing concern. 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. Of these, 21 are labour-related, involving multiple agencies such as the Labour Commissioner’s Office, EPFO, and 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 addition to these operational challenges, MSMEs face significant entry-level regulatory friction. A manufacturing enterprise must secure up to 77 different approvals, licenses, and registrations just to begin operations, including those from local, state, and central bodies. This regulatory cholesterol not only delays business activity but also discourages formalisation.

Rishi Agrawal, Co-Founder and CEO, TeamLease RegTech “The data reflects an urgent need for reimagining compliances for unshackling 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”.

To ease the burden, the report proposes digitisation of compliance workflows, a unified one-date-one-application framework for regulatory changes, and greater reliance on third-party inspections. It also strongly supports rationalisation of redundant compliances, decriminalisation measures under Jan Vishwas 2.0, highlighting over 216 compliance-related clauses carry imprisonment risks even for procedural defaults.

Government initiatives and targeted infrastructure development schemes are helping formalise MSMEs and improve access to credit. Budgetary support to the sector has grown significantly, with Rs. 23,168 crore allocated for FY 2025-26 alone. However, the report concludes 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 limited manpower.