On 28 August 2024, the Ministry of Heavy Industry (MHI) introduced the Machinery and Electrical Equipment Safety (Omnibus Technical Regulation) Order, 2024, which is set to take effect on 28 August 2025. This comprehensive regulation brings in stringent safety standards for machinery and electrical equipment manufactured or imported into India, aimed at aligning Indian safety practices with global norms.
The new regulations require that from August 28, 2025, most machines and electrical equipment cannot be imported or made in India without complying with three stringent machine safety standards. Production and imports will require prior approval from the Bureau of Indian Standards (BIS).
The new rules are expected to have far-reaching consequences for manufacturers, particularly micro, small and medium enterprises (MSMEs), which make up 90 per cent of the estimated 150,000 manufacturers that will be affected, according to a report by the Global Trade Research Initiative (GTRI), a think-tank and consulting firm.
GTRI report added, “This mandatory technical regulation will affect domestic production and delay the import of essential equipment.”
The regulation covers more than an estimated 50,000 types of machinery, including key industrial equipment like pumps, compressors, centrifuges, cranes, looms, metal-cutting tools, transformers, and switchgear, which fall under 463 tariff lines. In FY 2024, India's imports in these tariff lines amounted to USD 25.0 billion, with China accounting for 39.1 per cent of that value. India also exported USD 17.7 billion worth of machinery in the same period.
These regulations apply to both machinery and their parts or subassemblies and will require manufacturers to comply with the safety and conformity standards set forth by the Bureau of Indian Standards (BIS). Although the MHI order does not apply to export-oriented machinery, this exemption may not be helpful in practice, as most firms manufacture goods for both domestic and export markets. Therefore, businesses will still need to meet full BIS certification requirements for their entire product range.
Adding Complexity To Compliance
In India, most MSMEs adhere to ISO 9001, a management-focused standard that does not address specific safety concerns in manufacturing. Adapting to the three levels of machine safety standards within the one-year timeframe presents a near-impossible challenge for these smaller firms. The highly technical language of the order, coupled with the lack of detailed implementation guidelines from BIS, adds further complexity to compliance, the report stated.
It further stated that the financial and technical barriers will pose significant hurdles for MSMEs, with compliance costs ranging from Rs 50,000 to Rs 50,00,000 depending on the type of machinery and the standards required. Notably, many smaller firms lack access to the advanced machinery or technology needed to meet these new safety standards, further exacerbating the challenge.
"The government should delay implementation and help the industry prepare. Without support, most MSMEs may struggle to comply and be forced to close," GTRI mentioned in the report. While export-oriented machinery is exempt from the order, the exemption provides little relief. Most companies produce for both domestic and export markets, meaning they will still need full BIS certification across their entire product range, increasing the regulatory burden on MSMEs.
Difficult Road Ahead For MSMEs
While large corporations may have the resources to meet new safety standards, MSMEs face unique challenges in complying with the Ministry of Heavy Industry's (MHI) order. These challenges include financial, technical, and infrastructural constraints, making compliance a significant burden for smaller businesses.
After dealing with the deadly impact of Covid-19, currently, Indian MSMEs are facing issues such as debt and delayed payments. In India, MSMEs play a vital role in India's ambition to achieve a USD 5 trillion economy by 2030, especially by leveraging ecommerce for global competitiveness.
The compliance costs for MSMEs are substantial, ranging from Rs 1,00,000 to Rs 50,00,000 depending on the complexity of the machinery and the type of safety standards (Type A, B, or C). These expenses, covering certification, safety upgrades, and maintaining technical files, could deter smaller businesses from prioritizing safety, as they are already struggling with operational costs and other regulations.
MSMEs often lack the skilled workforce needed to understand and implement new safety regulations. Hiring or training staff to meet Type A, B, and C standards adds another financial strain, making compliance even harder, the report added. Many do not have access to advanced machinery or technology needed to comply with the new safety standards. Retrofitting existing equipment or buying new machinery will require significant investment, which may be unaffordable for smaller businesses.
Almost 60 per cent of MSMEs plan to digitise their business processes and 43 per cent to increase their overall digitalisation budget by 2025, a Vi Business study on mapping the digital maturity of MSMEs revealed. Despite challenges like knowledge gaps and financial constraints, MSMEs increasingly used technologies like cloud computing, loT, and advanced workspace tools to boost productivity, collaboration, and market reach, with 40 per cent of MSMEs from IT & ITeS, retail, and construction adopting loT solutions in business.
Overall Industry
The growth of MSMEs slowed to 5.4 per cent for the December to June period compared to the growth of 7.0 per cent for the same period last year, CareEdge Ratings said in a report. However, if the merger impact had been excluded, growth would have been slower at 7.7 per cent in June 2024. Industry growth declined to 8.1 per cent year-on-year (YoY) in June 2024 compared to 9.4 per cent YoY in May 2024, but increased from 7.4 per cent in June 2023 as the measured growth in large corporates was partially offset by growth in MSME, the report added.
There have been various reports on the whopping Rs 10.7 lakh crore working capital locked up in the delayed payment from buyers to suppliers – an estimated 7.8 per cent of the gross domestic product (GDP). About 80 per cent of this amount is owed to the MSMEs in the country, totalling Rs 8.55 lakh crore.
India’s 64 million MSMEs have had a major role to play in supporting domestic demand growth with a steady supply of goods and services to various major industries. Despite the challenges, it continues to remain one of the biggest sources of employment and it contributes about 29 per cent to the gross domestic product (GDP).
Indian MSMEs are a major contributor to the forex reserves and in FY23, they contributed 44 per cent of India’s exports, at USD 200 billion. The data from the first half of FY24 shows that the share of MSMEs in exports has risen to 46 per cent. While this is still not as much as the pre-pandemic levels of 50 per cent, experts said that there are other encouraging signs.
