In spite of many policy interventions and proactive legislations by the Central Government aimed at encouraging Urban Local Bodies (ULB) to play an active role in promoting orderly growth of the Micro Enterprise Sector in India, the ground reality is that most ULBs have not accepted the new mandate. Even though the sector is important contributor to the economy, particularly towards the growth of employment, there is little focus on the wellbeing of the sector by the ULBs which are responsible for the regulation and growth of the sector.
The law requires that all micro enterprises-shops, establishments, and hawkers need to register themselves with the local government. The intent of the law is that the ULBs can plan for an orderly growth of the sector as well as regulate the sector. However, it is universally accepted that there is virtually no compliance of the law. As a result there are hardly any promotional/developmental activities that are carried out by the ULBs to help MEs to grow. Since the law is transgressed so openly, there is a large scope for harassment of MEs at the hands of a number of regulatory agencies leading to extortion of bribes.
This paper explores the reasons for non-compliance by the MEs. Analysis of survey results and case studies are used to understand the reasons. The main reason is that the cost of obtaining a registration far outweighs the benefits derived from being registered. It appears that there is virtually no benefit provided by the ULBs. The expected immunity against harassment also does not exist as bribes are extracted on some pretext or the other.
The paper makes suggestions on strengthening the role of local governments in planning the growth and regulation of the ME sector. ULBs need to ensure that the cost of registration is minimized and some benefits are provided to registered MEs as an incentive for registration. In the short term, many procedural improvements in the registration process can minimize the cost and inconvenience. In the medium term, ICT can be used to register ME enterprises at their door step. This would increase compliance and ensure an error free data capture which can be used for spatial planning for urban areas. The paper highlights the potential for using data collected through registration for spatial planning, so that ULBs pay attention to reform of the registration process. ULBs normally pay attention to activities that generate significant revenues and registration does not qualify on that count.
Improving the provision of basic services to poorer areas of a city where most MEs live and work can help in the growth of the sector. The paper argues that facts about provision of basic services to different areas of a city be published on web sites. Such transparency can lead to a more equitable provision of services.