Source: The post “India’s small enterprises hold key to job growth” has been created, based on “India’s small enterprises hold key to job growth” published in “Indian Express” on 10th December 2025.
UPSC Syllabus: GS Paper-3- Economy
Context: India’s small enterprises are pivotal to job growth, yet their potential for generating employment remains severely constrained. The country’s workforce, primarily engaged in small, unincorporated household enterprises, faces a fundamental challenge: most workers are self-employed in businesses that lack capital, productivity, and technology adoption. These enterprises, which form the backbone of India’s labor market, require targeted interventions to enable them to scale, improve productivity, and ultimately create jobs.
Current State of Small Enterprises
- The majority of India’s non-agricultural enterprises are Own Account Enterprises (OAEs), which do not hire any workers.
- These OAEs make up 87% of all non-agricultural enterprises and contribute to low productivity levels.
- A minority of Hired Worker Enterprises (HWEs) employ workers and generate significantly more value than OAEs.
- However, a large portion of these businesses operate at a subsistence level, earning just enough to sustain the business and family.
- These enterprises mostly operate in the services sector, which makes up about 74% of non-agricultural establishments. Many are located in rural areas, where educational levels are low, and there is limited technical or vocational training among proprietors.
- The lack of capital and capability limits their ability to grow and create meaningful employment.
The Role of Productivity in Job Creation
- Increasing the productivity of these small enterprises is essential for job creation. Data from the Annual Survey of Unincorporated Enterprises (ASUSE) shows that a 10% increase in Gross Value Added (GVA) is associated with a 4.5% increase in the number of hired workers.
- Therefore, improving productivity not only helps businesses grow but also creates job opportunities. This shift from subsistence entrepreneurship to high-productivity, job-creating enterprises is crucial for India’s economic transformation.
- Although services dominate the sector, manufacturing remains more labor-intensive and continues to add jobs even during periods of economic slowdown. This sector’s potential for job creation should be tapped more effectively.
Challenges Confronting Small Enterprises
Several key factors hinder the growth of small enterprises:
- Non-recovery of Dues: A significant problem facing small enterprises is the non-recovery of dues. The Reserve Bank of India (RBI) identified this as a key issue in its 2019 report on MSMEs, and ASUSE data reveals that many enterprises face this challenge. Recent amendments to the Finance Act in 2024 aim to address delayed payments, but the effectiveness of this move remains to be seen.
- Unregistered Status: Many small businesses choose to remain unregistered, seeing it as a survival strategy rather than a liability. This self-imposed limitation prevents them from accessing formal credit, legal protections, and growth opportunities.
- Access to Credit: Access to formal credit is another critical barrier. Only about 10-12% of unincorporated enterprises have outstanding loans, limiting their ability to invest in capital and technology. Studies show that access to formal credit significantly boosts GVA, especially for medium and large enterprises. However, credit must be coupled with training, market access, and managerial support for it to be transformative.
- Technology Adoption: Small enterprises in India have low rates of technology adoption. Only 5-6% use computers, and less than 26% use the internet. Enterprises that adopt basic ICT tools experience higher GVA across all sizes. By integrating digital tools—such as e-commerce platforms and digital payment systems—these enterprises can increase efficiency and expand their markets, creating new opportunities for growth and employment.
Policy Recommendations for Supporting Small Enterprises
To unlock the potential of small enterprises for employment growth, India must focus on the following:
- Improving Credit Access: The government must tailor credit policies to address the specific needs of small enterprises. This means providing access to working capital for stabilization and growth capital for expansion, not just microcredit for survival. Non-performing assets (NPAs) and excessive documentation requirements must be reduced to make credit more accessible.
- Promoting Technology Adoption: Initiatives like Digital MSME, UPI incentives, and e-commerce platforms need to be better implemented to facilitate the adoption of technology by small enterprises. Businesses need more than just digital payments; they require training, handholding support, and market linkages to fully leverage the potential of digital tools.
- Vocational Training and Skill Development: With a significant portion of small business owners lacking formal education or vocational skills, there is a need for targeted training programs that enhance their managerial capabilities and technological proficiency. Such training will help boost productivity and enable businesses to expand and hire more workers.
Conclusion: India’s employment future lies not in a few large factories but in the millions of small enterprises that already drive the economy. To harness this potential, the government must create an ecosystem that supports these enterprises through easier access to credit, better technology adoption, and targeted skill development. By helping small businesses scale and transition from subsistence to high-productivity ventures, India can create the quality jobs needed for its growing workforce. The entrepreneurship story is already unfolding in small shops, home-run units, and local service establishments; what it requires is multi-pronged support to reach its full potential.
Question: Discuss the challenges faced by small enterprises in India and suggest policy measures to enhance their role in job creation.
