Unlock India’s MSME Export Power

• High compliance costs hinder small firms before exports begin.

• India lags China and Vietnam on ease of starting businesses.

• 64 million MSMEs exist, but few export directly.

• 14% of Indian firms cite permits as a major constraint.

• NITI urges simpler rules, digital portals and better export finance.

India’s ambition to transform millions of small businesses into global exporters may be facing a fundamental hurdle: the difficulty and expense of simply starting and running a business.

A recent report by NITI Aayog titled “Boosting Exports from MSMEs”, prepared with the Foundation for Economic Development (FED), argues that regulatory complexity — rather than global competition — is one of the biggest barriers to India’s export growth. The findings suggest that before small firms can think about overseas markets, many are already weighed down by procedural burdens at home.

Entry Barriers Remain High

The report compares India’s business environment with other manufacturing hubs such as China, Vietnam, Bangladesh and Indonesia. The comparison highlights a structural disadvantage.

Measured as a share of per capita income, the cost of starting a business in India is higher than in many competing economies. While countries like Vietnam and China have streamlined processes to encourage entrepreneurship, India’s compliance requirements remain relatively demanding.

But registration fees are only part of the story.

Entrepreneurs must secure multiple licences, tax registrations, environmental clearances, labour approvals and factory permits — often from different agencies. Each requirement involves paperwork and, in many cases, procedural delays. For large corporations, these are routine operating costs. For micro, small and medium enterprises (MSMEs), they can stall expansion plans entirely.

Regulatory Time Burden

Global surveys reinforce these concerns. According to the World Bank Enterprise Survey, Indian firms spend significantly more time dealing with licences and regulatory compliance than their peers in competitor nations.

Around 14% of businesses in India identify permits as a constraint. By contrast, the figure stands at 1.8% in Vietnam and 1.4% in China. For MSMEs with limited capital and manpower, navigating such a system can be particularly taxing.

The NITI report also notes that entrepreneurs must secure numerous no-objection certificates and approvals before commencing operations. Non-compliance risks can extend to personal liability for promoters, further increasing the perceived risk of starting a business.

India’s regulatory framework reflects a balancing act between encouraging investment and protecting labour rights, environmental standards and property laws. Initiatives such as the National Single Window System (NSWS) have already been introduced to digitise and streamline approvals.

While these measures signal progress, India’s governance model inevitably involves multiple institutional checks and safeguards. That may make processes appear slower compared to more centralised systems, but it is also embedded in the country’s democratic structure.

Competitiveness Begins at Home

The report emphasises that reducing compliance friction is not solely about improving global ease-of-doing-business rankings. It is fundamentally linked to export competitiveness.

MSMEs typically operate on thin margins. Every additional permit, delay or regulatory obligation raises pre-production costs. Those expenses eventually influence pricing, profit margins and the ability to compete in international markets.

India is home to approximately 64 million MSMEs. Collectively, they account for nearly 45% of the country’s exports. Yet only a small percentage of these enterprises export directly. The report argues that unlocking broader participation requires simplifying business formation rather than depending primarily on subsidies.

A Reform Blueprint

To strengthen MSME exports, the report outlines several recommendations:

• Establish a unified AI-powered portal providing exporters with information on tariffs, documentation, incentives, financing and target markets.

• Expand e-commerce export channels by simplifying rules for small sellers.

• Enhance access to export finance and promote wider use of Export Credit Guarantee Corporation (ECGC) schemes.

• Develop an integrated export credit marketplace to reduce borrowing costs.

• Link government databases to improve tracking of MSME export performance.

• Continue trimming procedural requirements related to merchandise exports.

The central message is clear: export growth begins with easier entrepreneurship. Unless starting and operating a business becomes more affordable and efficient, many small enterprises may never progress to the stage of selling abroad.

In short, India’s export ambitions may depend less on global demand and more on domestic reform. Simplifying the path from startup to scale could be the key to turning millions of MSMEs into global players.