Tamil Nadu: Perverse Incentives Prevent Micro And Small Firms From Growing Up

“About 99 per cent of MSMEs are micro enterprises because the cost of regulation is tremendous the moment you cross the threshold from micro to small. All these inherent perverse laws that are there, perverse incentives that are in the system that need to be withdrawn allowing or facilitating a natural growth from micro to small and small to medium enterprises,” said Anil Bharadwaj, Secretary General · Federation of Indian Micro and Small & Medium Enterprises (FISME).

“In case of delayed payments, if I am a micro or small company and if my buyer doesn't pay me, then I can at least take them to the MSME Facilitation Council and some kind of mechanism is available. But the moment I cross the small and become medium, I am out of the system,” he said.

“Similarly in labour laws, if you employ 10 people, less than 10 people, so you don't have to be included in the ESI and PF. The moment you start employing more people, then suddenly the weight of compliance becomes enormous for a small sized company,” he added.

Several supportive schemes which are available to micro small enterprises suddenly are denied to medium enterprises and this is specifically written in the norms. This dichotomy between micro and small on one side and the medium size on the other somehow gives a message that the moment you go out from small to medium, then all these benefits would be withdrawn and creates a glass ceiling.

Hence, the moment an enterprise starts touching the turnover of small enterprises, instead of growing upwards vertically, it puts up another small factory and another small factory over the years, rather than having a vertical mid-size factory.