Over 96 per cent of India’s microenterprises operate with an annual turnover less than INR one crore (~ USD 120K). For enabling effective policy making, it is crucial to address the heterogeneity of microenterprises which are at different stages of business growth. Nano enterprises can be classified as a distinct segment within the MSMEs as firms with an annual turnover less than INR one crore (~ USD 120K), characterized by their hyperlocal roots and focus. Typical examples of nano enterprises include small retail or Kirana stores1, local businesses and small manufacturing units being run by households or individuals.

The study particularly delves into the trade sector enteprises with annual turnover between INR 10 lakhs (~ USD 13.33K) and one crore (~ USD 120K), to identify their challenges and opportunities. In addition to contributing to the evidence on the drivers of formalization such as entrepreneur and enterprise background characteristics and institutional and ecosystem factors, this study aims to understand the latent factors, such as perceived usefulness and ease of use, that drive an individual’s behavior to adopt formalization.

The study was conducted among 1, 683 nano enterprises (~75 per cent registered and 25 per cent unregistered) spread across four states of India: Jharkhand, Madhya Pradesh, Maharashtra, and Tamil Nadu, selected based on the higher number of Udyam registrations and to ensure geographical representation from different zones. Within each state, one developed district and another relatively less developed or aspirational district was selected to ensure a representative sample within each state. An enterprise was classified as ‘registered’ if it was registered with at least one of the following digital platforms: Udyam, Goods and Services Tax (GST)2, and Shop Act/Gumasta license. Unregistered enterprises are not registered on any of the above three platforms.