For MSMEs, compliance is becoming a test of operational readiness, not just paperwork

For Indian businesses, especially micro, small, and medium enterprises (MSMEs), the compliance challenge is increasingly moving beyond filing returns and renewing licences. However, a deeper problem lies in the architecture of regulation itself, with thousands of obligations spread across central, state, and local authorities, as per TeamLease RegTech, a leading digital compliance and regulatory technology firm.

Currently, Indian firms navigate more than 1,530 Acts and Rules and over 69,000 compliance obligations to operate in the country. Additionally, they also deal with around 13,000 changes every year across nearly 3,750 government websites due to regulatory changes, according to TeamLease RegTech.

The scale and fragmentation of these obligations make non-compliance difficult to detect even in organisations that have established compliance teams and monitoring systems, says Rishi Agrawal, Co-founder & CEO, TeamLease RegTech,


Speaking to the Economic Times Digital about the company’s recent pan-India compliance assessment, Agrawal says, “Thousands of obligations, multiple laws, endless filings, licences, registers, inspections, and deadlines make it easy to assume that everything is under control. But hope is not a strategy, and ignorance is not a solution. The real problem is that non-compliance is often invisible.”

This notion of invisibility Agarwal referred to becomes more significant as companies expand across locations. Unlike financial compliance, where payments and returns can largely be monitored centrally, TeamLease’s assessment flags that many business regulations are location-specific. A manufacturing company can simultaneously face central legislation, state rules, pollution-control requirements, municipal regulations, and factory-level conditions.

What is compliant at a plant in Maharashtra may not necessarily satisfy requirements at another facility in Tamil Nadu without a fresh applicability assessment, according to Agrawal. Regulators also enforce locally, making a national compliance dashboard an imperfect measure of what is happening at individual plants and warehouses, he adds.

TeamLease’s assessment also highlights another layer of complexity: India’s compliance framework has evolved over different periods rather than emerging as one integrated regulatory architecture.

According to TeamLease, businesses today operate under a mix of decades-old statutes and newer regulatory regimes. Companies can simultaneously encounter statutes such as the Indian Contract Act, 1872, the Drugs and Cosmetics Act, 1940, and the Factories Act, 1948, while adapting to newer regulatory regimes covering data protection, environmental responsibility, and digital disclosures.

The consequences of this layered framework extend beyond the administrative cost of tracking more rules, as per TeamLease. Some provisions can expose senior management to ramifications extending beyond monetary penalties, turning an operational or procedural lapse into a governance issue.

TeamLease’s assessment points out that over 26,000 statutory clauses contain imprisonment provisions. Around 68% are under labour laws, while nearly 80% of such provisions reside in state-level legislation. “An inspection, notice or incident can suddenly lead to financial loss, operational disruption, reputational damage and sometimes even personal liability for management. Today, boards and leadership teams cannot afford to look away. They are expected to know what is happening on the ground, not just what appears in reports,” Agrawal says.

Notably, the government has undertaken a broader effort to decriminalise business laws and remove outdated requirements. The Jan Vishwas (Amendment of Provisions) Act, 2026, decriminalised 717 provisions and amended 784 provisions across 79 Central Acts administered by 23 ministries. This followed the Jan Vishwas Act of 2023, which decriminalised 183 provisions across 42 Central Acts.

The government has repealed more than 1,500 archaic laws and reduced over 45,000 compliance burdens across central and state governments as part of its broader ease-of-doing-business push. Agrawal’s contention, however, is that significant exposure remains, particularly where compliance depends on state-level requirements, local interpretation, and conditions at individual operating locations.

For MSMEs, compliance is becoming an operational challenge

For smaller businesses, the compliance burden is increasingly extending beyond filing returns and maintaining statutory records. Audits by TeamLease RegTech reveal that MSMEs usually have the necessary paperwork for everyday tasks, but they often lack proper documentation in areas that require continuous operational oversight, such as contractor compliance, licence renewals, workplace safety, applicability assessments and inspection readiness.

“The biggest lesson emerging from compliance audits is that MSMEs rarely fail because they ignore the law. They struggle because compliance has become increasingly complex and operational,” says Agrawal.

According to him, audits have the potential to expose expired safety equipment, outdated statutory registers, incorrect forms, missing workplace safeguards, and gaps in contractor records, despite the completion of routine filings. For MSMEs, the cost of addressing these issues can also extend well beyond consultant fees and filing charges. TeamLease estimates that for a representative manufacturing MSME, combined compliance costs, including documentation, training, software, inspection responses, internal manpower, and corrective actions, can range from Rs 13 lakh to Rs 17 lakh annually.

The complexity is also significant for a business operating a single manufacturing unit. Such an MSME may need to manage around 1,450 compliance obligations annually, 998 unique requirements, 77 licences, registrations and approvals, and potentially deal with 59 inspection authorities, according to TeamLease’s assessment.

Further, labour compliance accounts for a large share of audit findings, with issues ranging from incomplete employee records and outdated registers to contractor wages and social-security gaps. According to TeamLease’s analysis, a common finding is that businesses are well-prepared for filings but are less prepared for inspections, and most of such firms belong to the MSME category. “For many MSMEs, the response is, therefore, shifting from simply maintaining compliance calendars to strengthening audit readiness, assigning clearer ownership and using technology to track regulatory changes, licence expiries and event-driven obligations,” Agrawal says.

When compliance systems fail to capture ground reality

Even as rationalisation reduces parts of the historical compliance burden, TeamLease’s analysis points to another challenge: the speed at which the remaining regulatory environment is changing. Agrawal points to a mismatch between compliance systems built around periodic reviews and an enforcement architecture that is becoming increasingly digital, data-driven and real-time.

TeamLease’s findings further reveal that an annual review can potentially encounter around 13,000 regulatory changes between two assessment cycles, while even a quarterly cycle could see roughly 3,250 changes. “Regulations evolve continuously from a regulator’s standpoint, but inside the organisation, compliance stays frozen at the point someone last looked at it. Nobody updates it, nobody tracks it until a regulator or inspector shows up. The organisation discovers, often in real time, that it has been operating in violation,” Agrawal says. For example, an expired fire extinguisher, a blocked emergency exit, an unguarded machine, missing personal protective equipment, or an earthing pit that has not undergone mandatory testing can constitute immediate non-compliance irrespective of what a company's documentation says, the assessment notes.

TeamLease's representative audit data showed compliance at 79% for manufacturing plants but only 61% at warehouses. “Compliance today is no longer just a checklist activity. It has become a core business risk. More importantly, audits help uncover hidden gaps, test ground reality and fix issues before regulators find them,” Agrawal says.

TeamLease's assessment also identifies physical infrastructure as only one part of the risk outside the direct line of sight of headquarters. A similar issue can arise when operations are carried out through contractors, even though statutory responsibility for some of their actions can continue to travel back to the principal employer. Contract workers can represent 40-70% of the workforce at industrial establishments, TeamLease estimates. Yet companies frequently treat provident fund, ESIC, wage, and documentation compliance of contractors primarily as a vendor-management issue, according to its assessment.

Under applicable laws, the principal employer can retain statutory liability even where contractors have contractually undertaken to meet those obligations. Corporate indemnities, therefore, cannot necessarily eliminate statutory or criminal exposure, according to Agrawal. TeamLease’s analysis highlights that the combination of multiple facilities, state-level variations, and contractor relationships can cause compliance complexity to rise much faster than the physical footprint of a business. Each new location can introduce another set of applicability assessments, licenses, operating conditions, and third-party obligations. “The good news is that most compliance failures are preventable. The right digital guardrails, trained people, strong management oversight, and regular compliance audits can significantly reduce risk. Because in compliance, what you cannot see is often what hurts the most,” Agrawal says.