MSMEs need regulatory push to enter formal sector: secretary

Mumbai: Simplified regulations are needed to ensure more small and medium enterprises get aligned to the formal sector which will enable them to access bank finances on beneficial terms, a top government official said today.

Absence of conducive regulatory environment and improper implementation of laws are acting as stumbling blocks for the sector to enter into formal segment, Micro, Small & Medium Enterprises (MSME) secretary Madhav Lal said.

Ministry of Micro, Small and Medium Enterprises, secretary, Madhav Lal. Image courtesy PIB

"It's high time that local authorities simplified the laws and regulation regarding MSMEs. We need an ecosystem in which MSME units are encouraged to come into the organised space," he said.

These units, once they get into the organised sector, can enjoy many advantages on the taxation front apart from easy access to credit which will help in achieving higher growth and improve productivity, he said.

Lal, however, noted that the informal segment of MSMEs has actually been growing at a rate which is five to eight times faster than the formal segment.

However, a whopping 95 percent of these units are in the unorganised segment which is a cause of concern, he said.

Lal said laws made by the local/state authorities are complex and do not take into consideration the requirement of MSMEs, thus keeping the unregistered entities away from the formal segment.

"I don't think it is the absence of laws but implementation of laws which is a problem. Sometimes local regulations also come into play," the official said.

If separate space is not earmarked for manufacturing activity in the urban planning then MSMEs would have to take a place on rent which may not have proper electricity/water connection and a proper address which is required by financial institutions for giving credit, the secretary said.

Sometimes labour laws force an individual starting an industrial enterprise to remain outside the organised space, he added.

PTI