MSME compliance cost: In India’s business-regulatory ecosystem, a persistent paradox has emerged. On the one hand, the department for promotion of industry & internal trade has led multiple reform drives—including the Business Reforms Action Plan, the Reducing Compliance Burden exercise and the national single-window platform. On the other, the hidden, cumulative cost of regulation — especially for micro, small and medium enterprises — remains significant, opaque and uneven across states.
The real challenge today is not simply the number of portals or dashboards, but the underlying design of regulatory interactions. Until we shift from “how many approvals” to “how much cost, how many filings, how many inspections”, the rhetoric of ease of doing business will continue to fall short. There is a need for a fresh regulatory architecture: a compliance cost cap or periodic regulatory-impact audit, aimed at rationalising burdens, cutting redundant processes and boosting the competitiveness of MSMEs.
READ | H-1B visa squeeze pushes Wall Street to India’s GCC Hubs
Ease of doing business: progress and limitations
Reform efforts have made visible progress. DPIIT’s Annual Report 2024-25 highlights that the RCB exercise has identified and cleared over 42,000 compliances, with some 2,875 under review and 7,204 retained. The BRAP, in operation since 2014, has brought labour, land, tax and environmental hurdles into sharper focus.
Yet the core metric still remains process count rather than cost burden. For example, one analysis notes that Indian business is faced with about 1,536 Acts and Rules, 69,233 separate compliances and 6,618 annual filings. Former NITI Aayog chief and G20 Sherpa Amitabh Kant has stated that over 60,000 compliances still exist at central and state levels.
In other words: India is doing better at reform headlines but less well at delivering measurable relief to businesses. The “ease” narrative holds as long as setting-up is smooth; it frays when incremental, banal compliance tasks pile up.
Compliance overload and costs
Especially for MSMEs the burden is unquestionable. A recent report by TeamLease RegTech found that manufacturing MSMEs cope with over 1,450 regulatory obligations annually. These firms face compliance costs of ₹13-17 lakh per year.
While this is a rough estimate, when applied to modest-turnover enterprises the percentage of turnover devoted simply to compliance becomes material. Such hidden costs reduce funds available for expansion, technology, hiring. The Reserve Bank of India in its Economic Survey chapter warned that “further reduction in the compliance burden for MSMEs will considerably improve their growth prospects.”
The impact on investment sentiment and job creation is muted. Compliance overload drives reluctance to scale, particularly among smaller enterprises. The “missing middle” of Indian industry — firms that would grow from small to medium to large — is partly explained by regulatory cost drag.
Digital reforms and gaps
There is ample digital ambition. The National Single Window System (NSWS) is live; the portal lists Know Your Approval (KYA) modules, aims to integrate central and state-level clearances. The RCB exercise points to faceless systems and decriminalisation (for selected offences) as key pillars.
Yet the digital paradox remains: firms still encounter offline verification, repeated filings to different agencies, and overlapping portals. The regulatory burden has shifted form but not substance. Data duplication, inspector-raj practices and cross-filing continue. The infrastructure may be online, but the workflow still demands time, cost and cognitive overhead. The reforms have largely tackled “first mile” (set-up) rather than “life cycle” (ongoing compliance).
States and regulatory divergence
India’s regulatory environment is highly state-specific. Some states have moved ahead; others lag. According to BRAP results, states such as Andhra Pradesh, Gujarat and Telangana are in the “top achiever” category for business reforms. By contrast, states like Bihar and Assam continue to fall in the “aspiring” or “emerging” categories.
The divergence matters because compliance costs are not uniform. States with better single-window systems, simplified labour/land frameworks, inspection rationalisation tend to impose fewer hidden burdens. States still tied to legacy inspectorates, decentralised filings and weak digital infrastructure impose higher cost burdens — especially for out-of-state investors and MSMEs.
This variation acts as a drag on national competitiveness: a company may choose the “good” state for expansion, but potential for scaling in other states remains hindered. The hidden cost of regulation becomes a factor in location decisions — not always visible in headline metrics but felt in time, money, and management attention.
Beyond portals to cap
If reform is to deliver its promise, it must move from “more portals, more dashboards” to measuring and capping the compliance cost. I propose the following policy architecture:
Regulatory-cost audit: Mandate that each ministry/department quantify the annual compliance cost (in ₹ and person-hours) of its regulations for firms, especially MSMEs.
Compliance-cost cap: For each regulatory instrument, set a “cost ceiling” (₹/employee or ₹/turnover) beyond which it must be phased out or replaced.
Cumulative burden review: At state and central level, integrate a “burden-to-benefit” test: multiple filings, repeated inspections, duplicative disclosures to be flagged.
Lifecycle compliance tracking: Move from “how many approvals to start” to “how many filings/inspections/returns/year per firm”. Use digital tracking to monitor friction.
Outcome-based reporting: Departments must publish annual “compliance burden” metrics (average cost per MSME, average filings/returns per year) akin to environmental compliance reports.
State benchmarking and convergence: Use BRAP and other frameworks to benchmark state performance in compliance cost reduction (not just reform count). Reward states that reduce cost burdens, not only those that tick reform boxes.
Such architecture would shift reform focus from portal-roll-out to burden-reduction. It would sharpen accountability. It would also give MSMEs a clearer metric: less time in compliance means more time in growth.
Compliance costs remain high
Despite a decade of “ease of doing business” reforms, India’s compliance burden remains high, uneven and largely hidden. The 60,000+ compliances flagged by Amitabh Kant, the 13-17 lakh ₹ annual cost for manufacturing MSMEs, and the variance across states all point to a trap. The trap is this: We are doing more — more portals, more clearances, more dashboards — yet the fundamental friction remains.
The real reform lies not in adding more systems but in subtracting more burdens. It lies in rationalising overlapping regulation, reducing the frequency of filings, eliminating repeated inspections, and auditing cumulative business costs. A “compliance cost cap” and regulatory-cost audit framework can create a new reform frontier.
For India’s MSMEs — which generate jobs, promote innovation and anchor growth — the hidden cost of regulation is too heavy to ignore. If the vision of a truly competitive, investment-friendly economy is to come alive, the unseen burden must come into plain sight and be capped.