Archive · 25 Jul 2026
Perverse Incentives Stunt Growth of MSMEs in Tamil Nadu
In Tamil Nadu, micro and small enterprises face a problem where they get benefits up to a certain size, but once they grow bigger, these benefits are taken away.
This makes it hard for them to grow into medium or large enterprises.
Experts say that the rules and incentives need to be changed so that these businesses can grow naturally without facing a glass ceiling.
Currently, many businesses prefer to stay small or open new small factories instead of growing into a bigger, single factory.
This is because the rules make it expensive and difficult to comply once they reach a certain size.
Experts like Anil Bharadwaj from FISME suggest that these rules should be changed to encourage growth.
99% of MSMEs in Tamil Nadu are micro enterprises due to perverse incentives.
Benefits are withdrawn once enterprises grow into medium size, creating a glass ceiling.
Heavy regulatory compliance costs discourage growth into medium enterprises.
Support schemes available to micro and small enterprises are denied to medium enterprises.
Enterprises prefer horizontal expansion over vertical growth due to current policies.
- Who
- Micro and small enterprises in Tamil Nadu
- What
- Perverse incentives preventing growth into medium and large enterprises
- When
- Ongoing issue
- Where
- Tamil Nadu, India
- Why
- Current policies withdraw benefits and impose heavy regulatory compliance costs on medium enterprises
Current MSME Policies
Proposed MSME Policies
Growth Incentives
Current MSME Policies
Current policies provide benefits to micro and small enterprises but withdraw them once they grow into medium enterprises, creating a glass ceiling.
Proposed MSME Policies
Proposed policies should facilitate natural growth by removing perverse incentives and providing continuous support.
Regulatory Compliance
Current MSME Policies
Current policies impose heavy regulatory compliance costs on medium enterprises, discouraging growth.
Proposed MSME Policies
Proposed policies should ease regulatory compliance to encourage vertical growth.
Access to Support Schemes
Current MSME Policies
Current policies deny several supportive schemes to medium enterprises, creating a dichotomy between micro/small and medium enterprises.
Proposed MSME Policies
Proposed policies should provide continuous access to supportive schemes to encourage growth.
- Percentage of Micro Enterprises
- 99%
- Regulatory Compliance Threshold
- 10 employees
- Support Schemes Availability
- Denied to medium enterprises
- Growth Pattern
- Horizontal expansion instead of vertical growth
- Expert Opinion
- Anil Bharadwaj, Secretary General, FISME