Experts Call For MSME–State Compact Reforms, Faster Dispute Resolution And Trust-Based Regulation

New Delhi, Jan 7 (KNN) Federation of Indian MSMEs (FISME), in collaboration with Friends of MSMEs in Parliament, organized a national conference on ‘Strengthening the Legal and Regulatory Architecture for Growth of MSMEs’ in New Delhi on Tuesday.

The conference brought together legal experts, policymakers and industry representatives, who urged a revamp of India’s MSME regulatory framework, calling for quicker dispute resolution, trust-based compliance and better Centre–state coordination to support MSME growth and formalisation.

At the panel on Redefining the MSME–State Compact: Laws and Regulations, speakers flagged gaps in law enforcement, delayed payments, heavy compliance requirements and the exclusion of non-corporate entities from insolvency processes.

Sangeeta Khorana, Associate Dean, Aston University said effective MSME compacts globally rely on trust, transparency and accountability, not excessive regulation. 

Citing OECD best practices, she highlighted digitised processes, risk-based enforcement, regional accountability and co-regulation, and advocated "cluster-based compliance, plug-and-play industrial parks and predictable service standards", urging governments to partner with MSMEs rather than raise compliance burdens.

Isha Aggarwal, Legal Consultant at the Ministry of MSME highlighted structural weaknesses in Micro and Small Enterprise Facilitation Councils, including limited legal capacity, inadequate training and inconsistent awards. 

To address this, the ministry has rolled out an online dispute resolution portal and is considering reforms such as changes in council composition, greater flexibility for states, more councils and stronger enforcement mechanisms.

Shantam Sharma of SS Rana & Co said that, "the new labour codes may raise initial compliance costs but will reduce long-term complexity"  by dismantling the ‘inspection raj', promoting facilitation, and enabling single-window clearances. 

He noted that raising the employment threshold to 300 workers gives MSMEs greater growth flexibility, but cautioned that effective state-level implementation remains the key challenge, with many firms still trapped in the ‘missing middle’ between informality and scale.

Anil Bhardwaj, Secretary General of FISME highlighted a gap in the Insolvency and Bankruptcy Code, which excludes proprietorships and partnerships, leaving failed MSMEs without a formal exit mechanism. In liquidation, he added, recoveries often go entirely to financial creditors, with MSME suppliers left unpaid.

Rajya Sabha MP Sujeet Kumar backed bringing non-corporate entities under the IBC and reforming the liquidation waterfall to protect unsecured creditors, including MSMEs. 

He said AI could help governments assess litigation risks, but stressed that technology is only an enabler, with product quality and diligence key to MSME survival. Kumar also urged FISME to play a stronger role in spreading awareness of the MSMED Act, especially in semi-urban and rural areas.

(KNN Bureau)