Inspector Raj in MSMEs

Confederation of Indian Industries (CII) has released its white paper titled ‘Inspections and Regulatory Enforcements for Micro Small and Medium Enterprises (MSMEs) in India.’

What has the CII said?
In its report, the CII notes that the factory inspection system in India needs a complete overhaul to bring India among the top 50 countries in terms of ‘ease of doing business’ in the next two years.
According to the report, the excessive number of inspections in India weighs down on the competitive advantage and the ‘ease of doing business’ of Indian businesses.
What are the challenges faced by MSMEs in India, according to the report?
  • A manufacturing company in India has to comply with around 70 laws and regulations.
  • Besides, 40 inspectors and government officials visit factories on an average with the ulterior motive to fleece the company promoters and owners. Most of the inspections conducted are related to environment or labour law compliances.
  • Apart from multiple inspections, a company has to file around 100 returns every year.
  • Inspections in India have also been found to be excessive, duplicate and complicated, imposing significant costs on businesses, especially MSMEs. While most inspections are selected locally, without any objective criteria, inspectors act over-zealously and make extortionist demands from factories.
  • There are also variations in inspections conducted on small factories across the country. While inspectors for labour compliances visit most SMEs once or twice a year, it has been observed that in Jammu and Kashmir and Uttarakhand, SMEs are visited by labour inspectors once every month.
What needs to be done?
  • CII has called for an integrated inspection system and highlighted the need for inculcating a risk-based approach in the inspection system which will rationalise the number of inspections and weed out the redundancy and duplicity.
  • A portal could be created for automatically updating invoices related to excise, sales tax, customs and the like by SMEs and this could be used by regulators and inspectors in lieu of physically visiting the factory premises. Audited accounts of SMEs could be used by inspectors while performing verification.
  • CII has also urged the central government to encourage the states to pursue a process for simplification of labour laws and compliance.
India is currently placed at 130 out of 189 countries in the ‘ease of doing business’ rankings.



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