MSMEs: Time to Step Up

UPSC Syllabus: Gs Paper 3- Indian economy

Introduction

Micro, Small and Medium Enterprises (MSMEs) are a major pillar of India’s economy and play an important role in employment, manufacturing and exports. Despite their strong contribution, many enterprises remain small and struggle to grow into competitive medium-sized businesses. With 31.1% contribution to GDP, 35.4% to manufacturing outputand 48.58% to exports, India’s next phase of economic growth depends on helping MSMEs scale, innovate and become sustainable enterprises.

MSMEs as the Pillars of India’s Economy

1. Economic Contribution: MSMEs play a major role in India’s economy by contributing 31.1% of GDP, 35.4% of manufacturing output and 48.58% of exports. Their strong presence makes them an important driver of economic growth.
2. Employment Generation: The sector provides employment to 32.8 crore people and is India’s second-largest employer after agriculture. It creates livelihood opportunities across both rural and urban areas.
3. Entrepreneurship and Inclusive Growth: MSMEs encourage first-generation entrepreneurs, women entrepreneurs and youth-led enterprises. They also support artisans, rural enterprises, startups and innovative manufacturers.
4. Regional Development: The sector promotes balanced development by creating business opportunities in semi-urban and rural areas. It strengthens local economies through manufacturing, services and traditional industries.
5. Formalisation and Transformation: Digitalisation, formalisation and policy support are expanding the reach of MSMEs. These reforms are improving access to finance, technology, markets and government schemes.

Why India’s MSMEs Need to Scale Up

1. Limited Growth Beyond Micro Enterprises: India has millions of micro enterprises, but only a small number grow into medium-sized businesses. This limits productivity, quality employment and export growth.
2. Need for Business Support: Many enterprises struggle during their early years and fail to reach their full potential. Better advisory services, mentoring, formalisation support and growth capital can improve their survival and expansion.
3. Working Capital Constraints: Timely liquidity is essential for meeting large orders and managing long payment cycles. Greater focus on seller financing can help enterprises scale in a sustainable manner.
4. Focus on Long-Term Institutions: The goal should not only be to increase the number of MSMEs. More enterprises should develop into stable and competitive institutions that can grow over time.
5. Changing Global Opportunity: As global supply chains diversify, India has an opportunity to become a stronger manufacturing and export hub. However, this requires MSMEs to become larger, more productive and globally competitive.

Government Initiatives Strengthening the MSME Ecosystem

1. Improving Formalisation: The MSME definition was revised from 1 April 2025 by increasing the investment and annual turnover limits. This gives enterprises more room to expand while continuing to receive policy support. Registrations under the Udyam Registration Portal and Udyam Assist Platform crossed 8.7 crore by June 2026, improving access to finance, markets and government schemes.
2. Expanding Access to Finance: The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)strengthened collateral-free lending by increasing the guarantee limit from ₹5 crore to ₹10 crore. The Digital Credit Assessment Model, enhanced support to the Small Industries Development Bank of India (SIDBI) and the Self-Reliant India (SRI) Fund further improved access to institutional finance and equity support.
3. Promoting Entrepreneurship and Self-Employment: The PM Vishwakarma Scheme supports artisans in 18 traditional trades through skill training, concessional credit, digital enablement and marketing support. The Prime Minister’s Employment Generation Programme (PMEGP) promotes self-employment by supporting new micro-enterprises through credit-linked subsidies and has generated employment for more than 97 lakh people.
4. Strengthening Rural Enterprises: The A Scheme for Promotion of Innovation, Rural Industry and Entrepreneurship (ASPIRE) promotes rural entrepreneurship through skill development, incubation and micro-enterprise support.
5. Improving Competitiveness: The MSME Champions Scheme promotes innovation, design, intellectual property protection, quality manufacturing through Zero Defect Zero Effect (ZED) certification, and operational efficiency through Lean Manufacturing (LEAN) practices. These initiatives help MSMEs become more productive and globally competitive.
6. Technology, Governance and Market Access: Technology, Governance and Market Access: Technology Centres and Extension Centres support skill development and innovation. The Samadhaan Portal, CHAMPIONS Portal, Online Dispute Resolution Portal and MSME Sambandh Portal improve grievance redressal, address delayed payments and strengthen market access.
7. Promoting Inclusive and Regional Growth: The National SC-ST Hub (NSSH), the Promotion of MSMEs in North Eastern Region and Sikkim Scheme, and the RAMP Scheme improve market access, infrastructure, capacity building and Centre-State cooperation. Together, these initiatives strengthen enterprise development across different regions and social groups.

Emerging Opportunities for MSMEs

1. Digital Commerce and Credit: India’s digital public infrastructure has transformed identity and payments. The next step is to strengthen commerce and credit through platforms such as the Trade Receivables Discounting System (TReDS), wider seller financing and specialised business-to-business (B2B) ecosystems that improve working capital, transparency and business efficiency.
2. Artificial Intelligence for Productivity: AI can improve inventory management, forecasting, customer engagement and compliance without large investments. These technologies should become affordable and available beyond metropolitan cities so that productivity gains reach more enterprises.
3. Women-led Enterprises: Women own more than one-fifth of MSMEs registered on the Udyam platform. Better access to finance, markets and business networks can increase their contribution to employment and strengthen local economies.
4. Global Manufacturing and Export Potential: India contributes only 2.9% of global manufacturing value added and 1.8% of global merchandise exports. This provides significant scope for MSMEs to deepen their participation in global value chains and strengthen India’s manufacturing base.
5. Global Cooperation: India strengthened international cooperation by hosting the First BRICS MSME Forum and the Third SME Working Group Meeting in June 2026. The discussions focused on access to finance, technology adoption and sustainable MSME growth.

Way Forward

1. Support Enterprise Scaling: The focus should shift from creating more MSMEs to helping existing enterprises become sustainable and competitive medium-sized businesses.
2. Expand Access to Finance: Greater access to seller financing, working capital, equity support and timely credit can help enterprises manage cash flow and expand their operations.
3. Strengthen Digital and Technology Adoption: Digital infrastructure should make commerce easier by improving market linkages and access to capital. Affordable AI and technology should reach enterprises across the country.
4. Promote Inclusive Growth: Women entrepreneurs, rural enterprises, artisans and enterprises from the North East and SC/ST communities should receive stronger support to improve participation in markets and employment generation.
5. Build Competitive MSMEs: Continued reforms, innovation, skill development, technology support and stronger integration with global value chains can improve productivity and export competitiveness.

Conclusion

MSMEs have become a strong pillar of India’s economy through their contribution to employment, manufacturing, exports and entrepreneurship. Continued reforms, easier access to finance, wider technology adoption and stronger market linkages can help more enterprises grow, compete globally and contribute to the vision of Viksit Bharat 2047, making the next decade a decade of scale rather than survival.

Question for practice:

Discuss the role of Micro, Small and Medium Enterprises (MSMEs) in India’s economy and examine the measures needed to help them scale into competitive and sustainable enterprises.

Source: Businessline