Manya Rathore
Research expert covering India
MSMEs in India - statistics and facts
Small is making it big in India. Accounting for almost 30 percent of India’s GDP, the micro, small, and medium enterprises (MSMEs) are commonly credited as the backbone of the Indian economy. Within the cluster, micro-enterprises account for 97 percent of the total share. In addition to being catalysts for exports, and the credit market in the country, the MSMEs help reduce regional imbalance as a major employer in rural and lesser-developed parts of the country.
The paradox, however, is that despite being the economy’s growth engine, the sector struggles on various fronts such as lack of timely financial assistance, technological obsolescence, costly power supply, and tough competition from global counterparts. And a large part of the sector still operates in an informal setup.
MSMEs are increasingly leveraging E-commerce marketplaces. E-commerce adoption is helping these enterprises establish themselves as formalized businesses while providing them access to a wider consumer network. Surveys report growing e-commerce revenues of MSMEs over the years. Strides in digital literacy, sound internet infrastructure, and democratizing technology will be instrumental in strengthening the country’s backbone, the MSMEs.
Funding bottlenecks: Why do MSMEs face credit crunch?
Many MSMEs are largely underserved in terms of financing and lack access to formal channels of credit because they are considered high-risk borrowers. The reasons are lack of credit history, financial record keeping, and inability to provide collateral for accessing loans which means traditional lenders cannot offset the risk to their capital. The credit gap is further widened due to gender disparity. Women entrepreneurs who account for a minor share of the MSME sector face hindrances due to a lack of financing.Closing the credit gap
Certain state-sponsored schemes focus on formalizing and financing the MSME sector including Production-Linked Incentives under Make in India, and Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). Alternative sources of capital such as fintech, digital NBFCs, P2P lending, and crowdfunding have emerged in recent years. The budget for the financial year 2024 also hopes to address the credit gap by introducing a new credit assessment model for MSMEs and encouraging banks to give term loans to small businesses without collateral and top-up loans during stressed times.MSMEs ready for a digital makeover
A credit crunch is not the only challenge that the sector faces. It stayed resilient in the face of demonetization (in 2016), the Goods and Services Tax (2017), and the COVID-pandemic (2020). Looking ahead, MSMEs are increasingly adopting new digital solutions such as digital payment methods, and online loans while reaping the benefits of India’s widespread digital public infrastructure.MSMEs are increasingly leveraging E-commerce marketplaces. E-commerce adoption is helping these enterprises establish themselves as formalized businesses while providing them access to a wider consumer network. Surveys report growing e-commerce revenues of MSMEs over the years. Strides in digital literacy, sound internet infrastructure, and democratizing technology will be instrumental in strengthening the country’s backbone, the MSMEs.
