Micro, small and medium enterprises (MSMEs), at least the ones that rely on microfinance to take them out of financial distress, have a low level of literacy. While our women customers work hard to ensure that their next generation gets a formal education, their formal education was usually cut short.

This translates to a low level of awareness about the compliance measures that they must follow to grow. They cannot employ consultants to understand compliance or make sense of the legalese in the rules. But, if they wish to tap the many incentives that can boost their business, they have to adhere to the compliance norms laid down for the organized sector.

Often, big companies do not enlist businesses that are not compliant with the rules of the Union or state governments. This slows the growth of an MSME that is not compliant, as they have to sell through a trading agency that adds no value but for compliance adherence. To cut off this layer would mean extra gross profit for the SME, which can then be used for further growth.

Parbati Devi Ghosh of Naihati, West Bengal, realized this quite early. She makes plastic bottle caps used in the packaging of homoeopathic and ayurvedic medicines but could not deal with the pharmaceutical companies because she had no idea of compliance issues. She had to deal with a local trading agency. Her husband worked in a jute mill but it shut down during the COVID19 lockdown, leaving him without any income.

Parbati knew that the profit that she was sharing with the trader could help her ease the financial stress on the business and personal fronts. But she had no idea how to cut out the trader and she could not afford a consultant.

Then her son became the light at the end of the tunnel. When he cleared his higher secondary education, Parbati introduced him into the business and handed over the operations to him. Her son repaid her efforts in getting him a decent education as he showed that even a high school graduate is better than complete illiteracy. The business grew and now Parbati delivers the moulded bottle caps to the small pharmaceutical companies without a trader or middleman. Her gross profit has gone up and she has been able to install new machinery. With six moulding machines, she needed operators. She now has four workers.

Parbati’s success validates the hypothesis that compliance is a great influencer in the growth of a business. But not all MSME owners have the luxury of having an educated person in the family. While we have been seeing several measures taken to simplify the rules, there is still scope for more reforms to rationalize the compliance needs of MSMEs. While I am no expert in all compliance requirements by the different departments of the Centre and state, somehow, I get the feeling that the balance between the need for compliance and the overhead it adds to an MSME could be normalized further.