Udyam Registration: A Closer Look at India's MSME Sector

Since its digitisation, there has been a surge in Udyam Registration, which has drawn considerable attention to India’s Micro, Small, and Medium Enterprise (MSME) sector. Launched by the government in July 2020, this initiative aims to streamline the registration process for MSMEs, however, behind the impressive numbers lies a complex reality that deserves closer examination.

Recently, the minister of state for MSMEs reported in the Rajya Sabha that as of March 14, 2024, there were 39 million registered MSMEs. This includes 24 million MSMEs and 15 million Udyam-assisted informal micro enterprises. Additionally, the minister revealed that since the initiation of the Udyam registration post-COVID-19, about 35,680 MSMEs had ceased operations as of February 5, 2024. This figure also includes those that canceled their registration, although canceling registration is neither mandatory nor necessary, especially for informal enterprises. Hence, the actual number of closed MSMEs is likely higher.

At first glance, the registration numbers seem promising, with over 1.5 million enterprises registered under the Udyam, indicating a strong initial uptake among entrepreneurs eager to formalize their businesses. However, on a longer run as most Indian MSMEs are nano -enterprises, they must try to formalize their businesses ensuring their inclusion in the policy framework, and seek the benefits of registering on the Udyam portal.

The ‘Benefits of Udyam registration’ factsheet lists easy access to bank credit and priority sector lending as major advantages. However, MSMEs still face a significant credit crunch despite these purported benefits. 

We delve into some key Points to seriously contemplate -

1. Ease of Registration: The simplicity of the registration process might encourage anyone to register without proper business plans or readiness, potentially diluting the scheme's credibility. Since registration requires just an Aadhaar number, this could inflate the number of registered MSMEs artificially.   

2. Integration with Government Databases: While the integration of the online system with government databases simplifies the registration process, it also causes some MSMEs to fear registration due to lack of clarity as to which firm data to be shared.   

3. Mandatory PAN and GST Numbers: While mandating PAN and GST numbers from a certain date could improve data accuracy and compliance, it poses challenges for smaller enterprises, particularly those in remote areas. Obtaining these credentials can be difficult, potentially excluding deserving enterprises from Udyam registration benefits. However, informal MSMEs can register without a GST number via the Udyam-assisted platform.

4. Permanent Registration: The promise of permanent registration without renewal requirements seems advantageous initially. However, without periodic reassessment, there's a risk of outdated or inaccurate information persisting in the system, leading to a loss of credibility over time.

Although, MSMEs were severely impacted by demonetization, the GST rollout, and the harsh national lockdown during the COVID-19 pandemic. Moreover, the Udyam registration cannot replace the need for these surveys to be made public. It provides initial registration numbers, but that’s not enough for a comprehensive analysis of the sector.