Ease of Doing Business (EoDB) refers to the level of simplicity, efficiency, and friendliness of the regulatory and administrative environment in a particular country or region for businesses to operate. It is a critical factor for businesses to flourish. The Ease of Doing Business index is a grading system created by the World Bank Group, according to the Indian Embassy in the Netherlands. Higher rankings in the EODB index (a lower numerical number) denote better, usually more specific business regulations and more robust property rights protections. A high EoDB grade also indicates that the regulatory environment is more favorable for establishing and operating businesses.
Out of 17 economies in the Asian region, India is ranked 10th in the 2023- 27 forecast period, up from 14th in 2018-22 period. The Indian government has been making strides in the right direction. As of January 17, 2023, the Economic Survey 2022-23 reports that numerous administrations at both the national and regional levels, encompassing union ministries, state governments, and union territories, have collectively decreased over 39,000 regulatory requirements to promote a more business-friendly environment.
The adoption of digitization, the availability of information on business procedures and compliances, processes and procedures for starting a business, the availability of an adequate power supply, and the process of tax registration and tax compliance are the top five scoring parameters for ease of doing business for MSMEs. On the other hand, the government’s support for marketing, the amount of time it takes to get credit, and the overall cost of doing business were the least significant parameters. Let’s take a look at what improved ease of doing business can help the MSME sector.
Ease of doing business has favorably impacted the MSME sector. However, there is a lot to do to ramp up the contribution of this sector to the economy. Ease of doing business is predominantly crucial for the MSME sector which can lead to India’s economic growth and generate employment for millions across the country and contributes about 30% to the country’s GDP.
The government needs to put more attention into solving the urgent needs at the grassroots level, which are represented by MSMEs, to move up from the current 63rd rating to within the top 50. The Indian government has recently made a number of announcements to change policies to support MSMEs and make running them relatively simpler. However, despite these changes and improvements as well as the overall increase in the Ease of Doing Business Index, Indian small business entrepreneurs still deal with numerous hurdles sue to the challenges faced by MSMEs, which are keeping them from reaching their full potential.
To further boost the EoDB quotient and lend MSMEs the support they need to truly flourish, several measures can be undertaken at the policy and services levels. A single-window service should be established to provide clearance for all permissions along with contract enforceability, other legal reforms, flexible labor laws, and reforms like digitizing land records, building new industrial infrastructure, and making land available for setting up new enterprises in the MSME Sector.
A significant step forward has been made by the government with its efforts to codify 44 Central Labor Laws into 4 Codes covering Wages, Industrial Relations, Social Security, Welfare and Safety, and Working Conditions. Reforms in labor laws must, however, result in opportunities for the industry in terms of employee engagement, in addition to providing protection for workers. A complex regulatory environment and rigid labor markets currently impose restrictions on MSMEs, making it difficult for them to do business and limiting their ability to expand.
The Indian MSME sector requires about Rs. 32.5 trillion in financing, according to the International Financial Corporation (IFC). Despite this enormous need, less than 5 million of India’s existing 63.3 million MSMEs have access to formal credit. A dismal reality that might be rectified by easing loan availability to the MSME Sector, especially for micro-enterprises. The excessive cost of lending in India should also be significantly decreased by passing through the whole repo rate reduction that the Reserve Bank of India announced over the past year.
A one-time loan restructuring is necessary since it will not only help struggling MSMEs by providing them with a new lifeline, but it will also enable them to restructure their businesses and expand in the future without having to worry about the bank’s collection issues. In light of an improved balance sheet following the reorganization, which would eventually contribute to economic growth, they can raise the required funds.
The Indian government has made multiple announcements to address the issue of late payments, but the actual issue still exists, and MSMEs still have a significant amount of payment due to them from customers including the government and PSUs. This issue needs to be resolved to truly improve the ease of doing business for MSMEs.
The MSME sector contributes significantly to India’s economy by creating a lot of job opportunities and assisting in the industrialization of rural and underdeveloped industries. It ensures a more equitable distribution of national income and wealth while reducing regional disparities.
MSMEs serve as ancillary units to large enterprises and make significant contributions to the socioeconomic growth of the nation. By fostering the sector’s expansion and development, helping already-existing businesses, and encouraging the formation of new businesses, MSME hopes to create a thriving MSME sector.
If your small business is having financial problems, Kinara Capital can assist in realizing the goals by giving a financial boost, assisting with renovations, and helping scale new heights. One of the top fintech companies in Bengaluru, Kinara offers collateral-free business loans to MSME entrepreneurs. You can quickly check the eligibility of your business through the myKinara digital app available for download in the Google Play Store.
