India’s small and medium-sized enterprises (MSMEs) are increasingly seen as the backbone of the country’s economy. As digital tools become more integral to their operations, these businesses rely heavily on data-driven strategies for customer engagement, marketing, and operational efficiency. But the recent surge in regulatory measures around data collection and digital tools is beginning to pose a serious threat to their survival and growth.

A recent survey by the India SME Forum (ISF) paints a concerning picture. Conducted among 1,010 digitally aware MSMEs, the survey reveals that businesses are deeply concerned about the negative impact of stringent data laws such as the Digital Personal Data Protection Rules (DPDP), the Digital Competition Bill (DCB), and recent decisions from the Competition Commission of India (CCI). These regulations, while necessary to protect data privacy and competition, are viewed by MSMEs as potentially crippling their ability to compete with larger firms.

The key issue? The restrictions placed on data collection and sharing. The laws demand consent for data usage and make it harder for MSMEs to access customer insights that power targeted marketing and customer engagement. The tools that have allowed smaller businesses to expand their reach and operate efficiently now face uncertain futures due to these restrictions.

The Key Role of Digital Tools for MSMEs

For MSMEs, digital platforms are not just tools—they are essential lifelines. The survey found that platforms like Google Search, YouTube, and Amazon are crucial for advertising, with 71% of MSMEs relying on Google Search for ads and 73% using Facebook and Instagram for digital marketing. A significant number of businesses use WhatsApp for direct sales and customer interaction, with 60% of MSMEs considering it indispensable for their operations. Losing access to these tools or seeing their effectiveness diminished could spell disaster for many businesses.

Without digital tools, MSMEs would struggle to build brands, reach customers, or even stay competitive. Many businesses in India do not have the budget or resources to compete in traditional advertising spaces, but digital advertising offers an affordable, scalable solution. However, the increasing compliance burdens created by the new data protection regulations could drive up costs, leaving MSMEs at a disadvantage. More importantly, the restrictions on data usage could rob them of valuable marketing insights, limiting their ability to grow and scale.

The Ripple Effect of Overregulation

The challenge extends beyond just marketing. MSMEs already face an uphill battle in attracting and retaining customers, with 67% of survey respondents citing customer retention as a major issue. Digital tools are helping these businesses bridge that gap, but the regulatory uncertainty threatens to derail that progress. The fear is that the new rules will only add more complexity to their operations, making it harder for them to access data and insights to optimize their customer engagement strategies.

It’s not just the smaller players that are affected. The survey shows a direct link between the use of digital tools and business growth: 78% of MSMEs with high adoption of digital tools expect revenue growth in the coming year, compared to just 70% of businesses with lower adoption. More than 95% of high-adoption MSMEs anticipate business growth over the next two years. These are the businesses that rely most heavily on data and digital tools, yet they could face serious setbacks if the regulatory landscape becomes too restrictive.

The survey data clearly shows that MSMEs need digital tools to thrive. If India’s regulatory framework becomes too rigid, the businesses driving the economy could be stifled. That’s why ISF’s call for a balanced regulatory approach is critical. It’s possible to safeguard data privacy and consumer rights while ensuring that MSMEs retain access to the tools they need to grow.

Policymakers must recognize the value of digital tools in empowering businesses of all sizes. Reducing the compliance burden, ensuring that targeted marketing solutions remain available, and creating a flexible regulatory framework are all essential steps to ensure that MSMEs can continue to leverage data responsibly without the risk of regulatory overreach.

As the Indian economy continues to evolve in the digital age, it’s crucial that our regulations evolve in a way that supports innovation and business growth—not stifles it. The future of India’s MSMEs—and by extension, the country’s economy—depends on it.

Let’s hope the government listens and ensures that policies are not just about protecting data, but about supporting the growth of businesses that are essential to India’s economic future.