UNDERSTANDING

INDIAN MSME SECTOR

PROGRESS AND CHALLENGES

MAY 2025
Acknowledgement
We are thankful to the following individuals and organisations for their invaluable contributions to this report,
‘Understanding Indian MSME Sector’. Their insights, expertise and time have enriched the understanding of the
sector and helped shape this report.

Entrepreneurs and survey participants

We thank more than 2,000 entrepreneurs across the country who participated in the primary survey. Their candid
inputs provided valuable insights into the state of the Micro, small and medium enterprises (MSMEs), helping us
identify the challenges and proffer suggestions for growth.

Department of Financial Services, MoF

We are deeply grateful to the officials of DFS-MoF for their continuous guidance and support in conceptualising,
commissioning and finalising this report.

Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)
We thank the senior officials of the CGTMSE for sharing valuable statistics and information about the organisation
and various schemes for MSEs.

Banking sector experts

We thank the senior officials of State Bank of India, Axis Bank and CSB Bank for sharing their experience on lending
to MSMEs. Their perspectives on the challenges faced by both the lenders and the borrowers, as well as the initiatives
that can aid access to credit for the sector, have been invaluable.

ONDC
We acknowledge the contributions of the senior officials of the Open Network for Digital Commerce (ONDC) who
provided us with a detailed understanding of their vision, workings and its emerging role in market connect and credit
linkages, as well as their roadmap for growth.

Research partner
We would like to extend thanks to Crisil Intelligence, the research partner, for their role in preparing this report. Their
collaboration and expertise were instrumental in bringing this project to fruition.

This report would not have been possible without the collective efforts and contributions of these individuals and
organisations. We appreciate their time, expertise and willingness to share their knowledge, which have greatly
enhanced the value of this report.

Economic Research and Data Analysis Vertical, SIDBI

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List of contents
At a glance .................................................................................................................................................................. 5

Overview of MSME sector ......................................................................................................................................... 7

Study methodology & findings............................................................................................................................... 13

Unpacking the MSME puzzle: Key insights from the study ................................................................................ 18

Access to credit ....................................................................................................................................................... 26

Access to market – unlocking MSME potential .................................................................................................... 33

Socio economic development and MSMEs ........................................................................................................... 38

Sustainability and green adoption among MSMEs .............................................................................................. 43

Conclusion ............................................................................................................................................................... 47

Appendix: MSME credit gap assessment methodology ...................................................................................... 48

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Foreword
The Micro, Small, and Medium Enterprises (MSME) sector remains a cornerstone of
India’s economic growth, playing a vital role in fostering innovation, employment
generation, and exports. Often referred to as the backbone of the nation’s manufacturing
and industrial ecosystem, MSMEs bridge the urban-rural divide, promote
entrepreneurship, support local supply chains, and drive economic inclusivity. By
leveraging regional resources and catering to local markets, MSMEs contribute
significantly to community development, infrastructure enhancement, and improved
living standards.
Contributing nearly one-third to India’s GDP, the MSME sector is a key pillar of the government’s flagship ‘Make in
India’ initiative and is recognised as one of the four primary engines of economic growth. The government’s consistent
push toward formalisation has further bolstered credit penetration, allowing more enterprises to access formal
financial systems. However, sustaining the momentum in the sector is very critical for realising the goal of Viksit
Bharat by 2047. MSMEs are more susceptible to economic disruptions than larger enterprises, and while many
informal micro-enterprises (IMEs) have been brought under the formal fold through the Udyam Assist Platform, a
significant portion of India’s 7.34 crore MSMEs (as per the Annual Survey of Unincorporated Sector Enterprises 2023-
24) continues to operate outside policy frameworks. Limited access to affordable capital, constrained market reach,
inadequate infrastructure, skilled labour shortages, lack of technological adoption, productivity challenges and
climate change risks are some of the critical barriers impeding their growth.

Given that timely and structured information is crucial for effective decision-making, the unavailability of real-time
MSME data remains a significant challenge. The absence of structured data throughout the year prevents
policymakers, lenders, and other stakeholders from identifying early signals and making proactive interventions.
Recognising this gap, SIDBI has been at the forefront of MSME development, not only ensuring credit flow to the
sector but also undertaking research initiatives that provide deep insights into its evolving landscape.

The present report, “Understanding Indian MSME Sector”, is a step toward addressing this informational gap by
offering a comprehensive analysis of the MSME ecosystem. This report examines the credit gap in the sector,
provides an in-depth study of 19 sectors where MSMEs play a critical role, and covers more than 70 MSME regions
and interactions with more than 2,000 MSMEs through primary surveys supplemented with industry-level data. By
consolidating key insights and trends, the report serves as a valuable resource for policymakers, financial institutions,
industry stakeholders, and all those invested in the sustained growth of India’s MSME sector.

I am confident that this report will serve as a crucial tool for shaping informed policies, facilitating targeted
interventions, and fostering a more resilient and inclusive MSME landscape.

Shri Manoj Mittal

Chairman and Managing Director, SIDBI

May 13, 2025

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At a glance
The report provides insights into the Indian MSME sector based on a survey of 2,097 MSMEs across 19 sectors in
manufacturing, services, and trading. It covers key challenges such as access to finance, technology adoption,
competition, compliance, market access, infrastructure, supply chain, and skilled labour availability. The findings of
the report bring out some valuable perspectives on the MSME sector.

MSME sector formalisation remains a work in progress

• The formalisation of the MSME sector particularly in the micro and small enterprises segment has got a significant
impetus through a step up in the number of Udyam Registration and Udyam Assist Portal. Over 6.2 crore MSMEs
have been registered by March 2025 as compared to 2.5 crore as of March 2024. Higher registrations will not
only help in providing better credit access but also create larger impact of the various government policy
measures in the sector. Nevertheless, formalisation is still a work in progress in the micro enterprise segment
with 35% of the survey respondents remaining unregistered, reflecting lack of awareness and fear of scrutiny.

Sector specific thrust for better credit access needed, digital lending to address gaps
• The survey respondents consider timely and adequate credit access as one of their key challenges despite the
comprehensive policy initiatives in that regard. While borrowings from informal sources are minimal for small and
medium enterprises at 3% and 2% respectively, it is still relatively significant at 12% for micro enterprises. Going
forward, the policy interventions may need to be sector specific given that such credit challenges have been
reported to be relatively higher for readymade garments (RMG), grocery retailers, food processing and IT/ITeS
sectors. Further, there is scope for further procedural simplification in credit delivery, as per the feedback received
from the survey.

• 18% of the MSME respondents have availed digital lending platforms. However, there is a large emerging
opportunity in the MSME digital lending space as 90% of the survey respondents have reported accepting digital
payments, reflecting progress in digitalisation. Further, an increasing share of e-commerce sales, also paves the
way for digital lending in sectors like hotels, RMG and food processing. As this medium gains traction supported
by successful digital platforms like UPI, MSMEs can expect an accelerated access to credit.

• While an increased credit supply to MSMEs is in evidence, the study broadly estimates that the sector still has
an addressable credit gap of about 24% or ~₹30 lakh crore. The gap is higher in the services sector at 27%; it is
estimated to be also higher at 35% for women owned MSMEs. Specific policy initiatives may need to be explored
to reduce the credit gap in these segments.

Women entrepreneurs needs further support to sustain their increasing presence

• Women entrepreneurship has become a significant aspect in the MSME sector with 26.2% in proprietary
enterprises being owned by women as per Annual Survey of Unincorporated Sector Enterprises (ASUSE) 2023-
24. This reflects the evolving social mindset, improving inclusivity, diversity and equality which is critical for
sustainable growth of the economy. 76% of the women led MSMEs have access to credit but they continue to
face higher challenges vis-à-vis their male counterparts with 41% of these respondents highlighting credit access
and high competition as the largest obstacle to their growth.

MSMEs need to be more digitally agile to tap newer markets

• MSMEs also face challenges pertaining to access to newer markets amidst competition from larger companies.
According to the survey, a majority of the MSMEs have been slow to adopt modern channels to reach customers.

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 18% of surveyed MSMEs face intense competition and struggle to expand into new markets particularly in sectors
such as hospitals, hotels and IT & ITeS. Around 70% of the survey respondents continue to use traditional modes
of marketing which hinders their scalability and ability to remain competitive. Effective utilisation of e-commerce
and digital marketing can provide MSMEs with improved access to new markets and customers.

• For MSMEs, the export market is a very significant opportunity with its share in merchandise exports increasing
from 43.6% in FY2023 to 45.7% in FY2024. The survey reveals that apart from credit access and high
competition, supply chain is one of the key challenges for the exporting MSMEs amidst the global uncertainty on
tariffs. However, they are better positioned in terms of technological adoption compared to non-exporters.

Skilled manpower availability, inadequate infrastructure and weaker technology adoption

impact MSME productivity and competitiveness
• While MSMEs are the primary source of employment generation in the economy, skill gaps and availability of
skilled labour issues persist. Around a fourth of the surveyed MSMEs cite the lack of skilled manpower as one of
their major challenges. Skilled labour shortages are particularly high in defence equipment, RMG, hotel sectors,
tiles and sanitaryware as reflected in the survey.

• The survey also highlighted that inadequate infrastructure and technology adoption have an impact on the sector
productivity. Lack of adequate infrastructure appear to be having a material impact on sectors like auto
components, iron and steel and transport and logistics. While a significant proportion of the respondents cited
technology adoption as a major obstacle to their growth, the latter is a larger constraint in service-oriented sectors
such as hotels, hospitals and IT/ITeS.

• From the ease of doing business perspective, a large number of surveyed MSMEs still consider regulatory
compliance as one of their major burdens. In particular, manufacturing businesses such as fabricated metal
products, basic metals, drugs and pharmaceuticals, defence equipment and plastic products find the current
compliance requirements to be onerous.

Meaningful progress in sustainability initiatives

• MSMEs play a key role in achieving climate action and sustainability goals in India. More than one third of the
respondents in the MSME sector have adopted some form of sustainable practices; 31% of the respondents in
the primary survey have adopted Energy-efficient lighting and machinery and 21% have adopted Renewable
Energy Sources. At the same time, 33% of the respondents have opined that limited awareness is the key
challenge in adoption of sustainable practices.

Indian MSME sector is well poised to become one of the strongest engines of the
Indian economy, as the latter progresses towards its goal of Viksit Bharat. The sector
has witnessed significant traction in terms of women entrepreneurship and
sustainability initiatives. The increasing formalisation of the sector and a rising share
of digital lending will help to address the remaining credit gaps. However, MSMEs
need to focus on enhancing their market access and improving their productivity with
the help of government support in areas like digital adoption, skilling, labour
availability and infrastructure.

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Overview of MSME sector
The MSME sector is the backbone of India’s economy, contributing to socio economic development of the country. It
serves as a vital component of the Indian economy, contributing significantly to GDP, employment, and exports. With
over 7.34 crore estimated MSMEs employing around 26 crore individuals, the sector plays a crucial role in promoting
entrepreneurship, innovation, and economic resilience. While challenges persist, proactive government policies,
financial inclusion, and digitalisation efforts are paving the way for sustainable growth. With continued support,
MSMEs are set to become a driving force in achieving India's economic ambitions in the coming decade.

The concept of small-scale industrial undertakings (SSI) in India was first introduced in the Industries (Development
and Regulation) Act, 1951. However, a structured framework for MSMEs was established with the Micro, Small and
Medium Enterprises Development (MSMED) Act, 2006, which provided the first official classification of MSMEs based
on investment in plant and machinery or equipment.

Evolution of MSME classification

• Pre-2006 Era: Small-scale industries (SSI) were defined primarily based on investment limits, with different
thresholds for small and ancillary industries.

• MSMED Act, 2006: Introduced the three-tier classification of Micro, Small, and Medium Enterprises, with different
investment limits for manufacturing and service enterprises.

• Revised Classification (July 1, 2020): The Government of India removed the distinction between manufacturing
and service sectors and introduced a composite criterion based on both investment and turnover to classify
MSMEs.

• Revised Classification (April 1, 2025): The Government of India has further revised the MSME classification to
enhance the investment and turnover limits, allowing businesses to grow while retaining MSME status.1

Current MSME classification (Effective April 1, 2025)

Enterprise Category Investment Limit Turnover Limit

Micro Enterprises Up to ₹2.5 crore Up to ₹10 crore

Small Enterprises Up to ₹25 crore Up to ₹100 crore

Medium Enterprises Up to ₹125 crore Up to ₹500 crore

This revised classification ensures better financial access, ease of doing business, and support for MSMEs to scale
up without losing benefits due to a rigid classification system.

Contribution to economy2
• The share of MSMEs in the country’s Gross Value Added (GVA) increasing from 27.3% in FY2020-21 to 29.6%
in FY2021-22 and 30.1% in FY2022-23 highlights its growing role in national economic output.

• Exports from MSMEs have seen substantial growth, rising from ₹3.95 lakh crore in FY2020-21 to ₹12.39 lakh
crore in FY2024-25. The number of exporting MSMEs has also surged, increasing from 52,849 in FY2020-21 to
1,73,350 in FY2024-25 (up to May 2024).

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• MSMEs contribution to India’s total exports has steadily grown, reaching 43.59% in FY2022-23, 45.73% in
FY2023-24, and 45.79% in FY2024-25 (up to May 2024).

Major challenges in the MSME sector

Despite its crucial role, the MSME sector faces several constraints, including the following:

• While improving, still limited access to timely and adequate formal credit

• Inadequate infrastructure and technology adoption, hindering productivity.

• Skilled labour shortages, skill gaps and difficulty in attracting talent.

• Market access constraints, with intense competition from large companies and in export markets.

• The impact of climate change and sustainability concerns, requiring a transition to greener practices.

The obstacles faced by MSMEs in accessing timely and adequate formal credit are given below:

• Lack of formalisation: Before the introduction of the Goods and Services Tax (GST) and Udyam registration,
the majority of the MSMEs were informal and did not have the documentation for formal credit. But since then,
majority of the enterprises have gathered some level of formalisation. Nevertheless, many still do not have
documents and face issues in accessing formal credit.

• Lack of collateral / lack of credit history: Given the small size of business and lack of credit history of MSMEs,
banks and other financial institutions are unwilling to lend without security. Moreover, most of the enterprises are
unable to provide collateral. However, as per RBI guidelines, banks/FIs cannot insist on collateral security for
loans up to ₹10 lakh. Further, to facilitate collateral-free lending, loans up to ₹10 crore for MSEs can be covered
under CGTMSE.

• Limited financial literacy and management skills: Many MSME owners lack the skills to manage their cash
flow and inventory, resulting in operational difficulties. The lack of financial skills also hampers their debt
management as they are unable to negotiate for a better interest rate or terms for credit.

• Lack of awareness about credit schemes: The government, through various financial institutions and bodies,
has introduced an array of schemes to make credit more accessible and affordable for MSMEs. However, many
owners of these enterprises are unaware of these schemes and so do not get cheaper or collateral-free loans.

• Inability to tap into capital markets: MSMEs are unable to tap into capital markets, given their size and nature
of operations, readiness in terms of required transparency and disclosures and regulatory norms.

Efforts for formalisation of MSMEs

Post NSSO (National Sample Survey Office) Survey in FY2016-17, it came to limelight that a large number of
estimated MSMEs were not registered and in turn were losing out on several benefits including Priority Sector
Lending. Hence, the Government focused on formalisation of the sector. The MSME Formalisation project is a
government initiative aimed at integrating informal micro enterprises into the formal economy by providing them with
Udyam Registration. This formalisation enables these enterprises to access various benefits and support
mechanisms offered by the government, thereby promoting their growth and sustainability. The project reflects the
government's commitment to enhancing the competitiveness and productivity of the MSME sector, which plays a
crucial role in India's economic development.

Moreover, ASUSE Results for 2023-24 was released by the Ministry of Statistics and Programme Implementation
(MoSPI). As per the Survey, the total number of establishments in the sector increased substantially from 6.50 crore
in 2022-23 to 7.34 crore in 2023-24, representing a healthy growth of about 13 %. Among the major states, the

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highest number of establishments (rural and urban combined) has been reported in Uttar Pradesh, followed by West
Bengal and Maharashtra during the survey period. Out of these estimated MSMEs of 7.34 crore, about 6.2 crore
have Udyam Registration (including registrations in Udyam Assist Platform). Micro enterprises account for 98.64%
share, Small Enterprises account for 1.24% share and Medium enterprises account for 0.12% share in the total
Udyam registrations. The total employment generated by the sector is around 26 crore. Registrations in the Udyam
Asist Platform has crossed 2.6 crore. Uttar Pradesh and West Bengal are the top two states accounting for 12% and
11% of the total registration respectively; followed by Maharashtra, Madhya Pradesh and Karnataka. The top 10
states account for 68% of the total registrations in the platform. Registrations in 7 North Eastern States combined
have crossed 5.73 lakh.

Government initiatives for sustainable growth in the MSME sector

GOI has undertaken a series of innovative schemes over the last ten years for enhancing credit flow and ensuring
sustainable growth of the MSMEs as mentioned below.

Pradhan Mantri MUDRA Yojana (PMMY):

• PMMY has played a pivotal role in empowering non-corporate, non-farm small and micro enterprises by providing
loans of up to ₹10 lakh. To strengthen support for aspiring entrepreneurs, the finance minister announced an
increase in the loan limit to ₹20 lakh during the Union Budget 2024-25 on July 23, 2024. This new limit came into
effect from October 24, 2024.

• More than ₹20 lakh crore has been sanctioned and disbursed under PMMY during FY2021 to FY2425.

StandUp India:
• Stand Up India (SUPI) Scheme facilitates bank credit to Women and SC/ST entrepreneurs in setting up greenfield
enterprises. At the end of December 2024, total loan outstanding in the scheme was ₹57,466 crore.

PM Vishwakarma Scheme:
• Recognizes and supports traditional artisans and craftspeople. Provides skill training, financial assistance (up to
₹3 lakh loan), and marketing support.

Prime Minister’s Employment Generation Programme (PMEGP): 3

• Credit-linked subsidy scheme for setting up micro-enterprises.

• Subsidy: 15-35% of project cost (up to ₹50 lakh for manufacturing and ₹20 lakh for services). Special category
beneficiaries (SC/ST/Women/Ex-servicemen) get higher subsidy.

• In 2023-24, PMEGP supported 89,118 enterprises, facilitating entrepreneurship across various sectors. The
scheme disbursed ₹3,093.87 crore as margin money subsidy, enabling small businesses to scale operations and
sustain growth. As a result, an estimated 7,12,944 employment opportunities were generated, reinforcing
PMEGP’s role in strengthening self-employment and job creation nationwide. 4

Special Credit Linked Capital Subsidy Scheme:

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• SCLCSS was introduced under National SCST Hub (NSSH) with the objective to promote new enterprises and
support the existing enterprises in their expansion for enhanced participation in the public procurement. Subsidy
of 25% has been provided to the eligible SC-ST MSEs of manufacturing as well as service sector under NSSH
on institutional finance up to ₹1 crore, for procurement of plant & machinery / equipment (i.e., a subsidy cap of
₹25 Lakhs).

Credit Guarantee Schemes:

• Credit Guarantee Scheme for Micro & Small Enterprises (CGTMSE): CGTMSE provides credit guarantee for
collateral-free loans up to ₹10 crore to eligible MSEs. The coverage is 85% for micro-enterprises (loans up to ₹5
lakh) and 75% for others. The Trust has approved a cumulative guarantee coverage of ₹9.34 lakh crore (1.15
crore nos) as on 31/03/2025 to eligible MSEs.

• Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME): This scheme provides for 60% guarantee
coverage by National Credit Guarantee Trustee Company Limited (NCGTC) to Member Lending Institutions
(MLIs viz., SCBs, AIFIs and NBFCs) for collateral-free term loan assistance upto ₹100 crore sanctioned to eligible
MSMEs for the purchase of equipment / machinery with the minimum cost of such equipment / machinery being
at least 75 per cent of the project cost.

• Credit Guarantee for Pradhan Mantri Mudra Yojana (PMMY): Loans up to ₹20 lakh are provided with the
backing of a credit guarantee provided by the Credit Guarantee Fund for Micro Units (CGFMU), managed by the
National Credit Guarantee Trust Company Ltd (NCGTC).

• Credit Guarantee Scheme for Start-ups (CGSS): CGSS, provides for guarantee against the credit instruments
extended by Member Institutions (MIs viz., Banks, FIs, NBFCs, SEBI registered Alternative Investment Funds)
to finance eligible startups recognized by DPIIT. During the Union Budget 2025-26, the guarantee cover under
CGSS has been increased from the present level of ₹10 crore to ₹20 crore and guarantee fee stands reduced to
1 % for loans in 27 priority sectors.

New credit scoring model

• The Government has launched a new Credit Assessment Model for micro and small enterprises based on scoring
their digital footprints which was announced in Union Budget, July 2024. This credit assessment model will
leverage the digitally fetched and verifiable data available in the ecosystem and devise automated journeys for
MSME Loan appraisal using objective decisioning for all loan applications and model-based limit assessment for
both Existing to Bank (ETB) as well as New to Bank (NTB) MSME borrowers. The digital footprints used by the
model may include Name and Pan authentication using NSDL, Mobile and email verification using OTP, API fetch
of GST data through service providers, Bank Statement Analysis using account aggregator, ITR upload and
verification, API enabled commercial and consumer bureau fetch and due diligence using CICs, fraud checks,
Hunter checks through APIs, among others.

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MSME developmental schemes
• Micro & Small Enterprises Cluster Development Programme (MSE-CDP): Supports infrastructure
development and common facility centers for MSME clusters. GoI assistance: Up to 80% of project cost (₹30
crore for Common Facility Centers, ₹15 crore for infrastructure).

• Entrepreneurship and Skill Development Programme (ESDP): Provides training and skill development for
new and existing entrepreneurs. Includes Entrepreneurship Awareness Programs, Skill Development Training,
and Advanced Management Programs.

• Assistance to Training Institutions (ATI) Scheme: Financial assistance up to ₹3 crore for strengthening MSME
training institutions for state-level institutions.

• Coir Vikas Yojana (CVY): Supports modernization and skill development in the coir industry; includes Mahila
Coir Yojana (women-focused self-employment program).

• Procurement and Marketing Support (PMS) Scheme: Helps MSMEs participate in trade fairs, exhibitions, and
vendor development programs. Provides support for packaging, e-commerce, and market access.

• International Cooperation (IC) Scheme: Supports MSMEs in participating in international trade fairs and
exhibitions. Provides financial assistance for airfare, stall rent, and market research.

• National SC-ST Hub Scheme: Supports SC/ST entrepreneurs in procurement and business development.
Provides subsidies for machinery, loan processing fees, and marketing support.

• A Scheme for Promotion of Innovation, Rural Industries and Entrepreneurship (ASPIRE): Focuses on
setting up Livelihood Business Incubators (LBIs) in rural areas. Provides up to ₹1 crore for government
institutions and ₹75 lakh for private institutions.

• Khadi Gramodyog Vikas Yojana: Supports Khadi artisans and institutions through financial assistance.
Includes Modified Market Development Assistance (MMDA) and Interest Subsidy Eligibility Certificate (ISEC)
Scheme.

• Tool Rooms and Technical Institutions: Provides skill training and access to advanced manufacturing
technologies for MSMEs. Includes 18 tool rooms across India.

• MSME Champions Scheme: Merges multiple schemes to enhance MSME competitiveness, such as:

‒ MSME Sustainable (ZED) Certification – Promotes quality and environmental compliance.

‒ MSME Innovative – Supports startups, incubation, and intellectual property.

‒ MSME Competitive (Lean) Scheme – Focuses on reducing production wastage and increasing efficiency.

• Raising and Accelerating MSME Performance (RAMP): World Bank-supported scheme to improve MSME
access to finance, technology, and markets. Aims to benefit over 5.5 lakh MSMEs by FY2026-27.

• Scheme of Fund for Regeneration of Traditional Industries (SFURTI): The scheme aims to sustainably
increase income of artisans by organizes traditional artisans into collectives or clusters, facilitating product
development, diversification, and value addition. Since FY2014-15, SFURTI has approved the formation of 513
clusters and 376 clusters have successfully become functional. A total grant of ₹1,336 crore has been extended
to support these clusters. Sustainable employment opportunities have been generated for around 2,20,800
artisans in 376 functional clusters (as on 12 Dec 2024). 5

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Union Budget 2025-26: Announcements for MSMEs
As part of the government’s commitment to fostering the sector’s growth with interventions and dedicated initiatives
for MSMEs. Key announcements in Union Budget 2025-26 underscore the attention on the sector:

• Revised classification criteria to benefit larger MSMEs

• Credit cards for micro enterprises: ₹5 lakh limit for registered MSMEs; 10 lakh cards to be issued in the first
year.

• Scheme for first-time entrepreneurs: Loans up to ₹2 crore for 5 lakh entrepreneurs, including women and
SC/ST members; provision for capacity building for entrepreneurship and managerial skills

• A new Fund of Funds, with expanded scope and a fresh contribution of ₹ 10,000 crore to be set up.

• Focus on labour-intensive sectors:

‒ Footwear and leather sector: To enhance the productivity, quality and competitiveness of India’s footwear
and leather sector, a focussed product scheme announced to facilitate employment for 22 lakh persons,
generate turnover of ₹ 4 lakh crore and exports of over ₹ 1.1 lakh crore.

‒ Toy Sector: Development of clusters and skills to promote high-quality 'Made in India' toys.

‒ Food Processing: A National Institute of Food Technology, Entrepreneurship and Management to be set up
in Bihar.

• Enhanced Credit Guarantee:

‒ For Micro and Small Enterprises, from ₹5 crore to ₹10 crore, leading to an additional ₹1.5 lakh crore in credit
over a period of 5 year.

‒ For Startups, from ₹10 crore to ₹20 crore, with a 1% guarantee fee for loans in 27 key sectors important for
Atmanirbhar Bharat

‒ For Exporter MSMEs, term loans up to ₹20 crore covered under the scheme

• Manufacturing mission - Furthering “Make in India”: A National Manufacturing Mission covering small, medium
and large industries for furthering “Make in India” announced. The Mission will also support Clean Tech
manufacturing viz., PV cells, EV batteries, motors and controllers, electrolysers, wind turbines, very high voltage
transmission equipment and grid scale batteries etc.

• Other Announcements:

‒ Deep Tech Fund of Funds – New fund to support the next generation startups

‒ Private R&D Investment – ₹20,000 crore for research & innovation

‒ Revamped PM Street Vendor’s AtmaNirbhar Nidhi (PM SVANidhi) scheme to support the unorganised sector

The initiatives aim to address the credit gap, promote entrepreneurship and enhance the overall competitiveness of
MSMEs.

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Study methodology & findings
The MSME sector in India has been witnessing strong growth on the back of greater government support despite
persistent challenges. To propel the sector to the next level of growth, by unlocking its full potential, an in-depth
understanding of all factors that affect MSMEs is essential. To this end, the following study aims to highlight the
state of MSMEs in the country through primary as well as secondary coverage to bring out the intricacies of the
opportunities, challenges and growth prospects with respect to access to finance, market reach, competition,
technology adoption, regulatory compliance, infrastructure and labour availability, supply chain, women
entrepreneurship, employment generation and sustainability, thereby ensuring that right support is provided as
needed.

An in-depth understanding of the MSME ecosystem is a crucial first step towards harnessing the full potential of the
MSME sector, which is the backbone of the Indian economy.

The sector comprises an impressive 7.34 crore enterprises that contribute nearly a third of the country's gross
domestic product (GDP), employ around 26 crore persons and fuel 46% of its exports. The small but mighty
enterprises also champion social progress through sustainable practices, women’s empowerment, and
entrepreneurial opportunities that transform lives and communities.

Thus, as India strives to become a $5 trillion economy, the MSME sector holds the key to unlocking sustainable
growth through job creation and innovation.

MSMEs: Key driver of Indian economy

41% share in
manufacturing gross
>90% of India’s ~60% of India’s 30% share in India’s 44% share in India’s value added or GVA
enterprises (FY25E) workforce (FY24) GDP (FY23) exports (FY24) (FY22)

~7.34 crore >25 crore Contribution ~28% exports Contributes

estimated estimated rebounded in share from 35% to all-India
MSMEs employment FY23, reaching registered manufacturing
pre-pandemic MSMEs output/
levels production

Source: ASUSE 2023-2024, Udyam portal, Press Information Bureau (PIB) and Directorate General of Foreign Trade (DGFT )

A granular understanding of the MSME sector requires going beyond broad national trends and adopting a localised
approach to capture the distinct profiles of these units at the regional level, including their varied sizes, locations and
specific needs.

The study was conducted with the objective that would provide a holistic understanding of MSMEs’ performance and
identify areas for improvement—from insights on their growth potential and contribution to socio-economic
development to challenges such as credit gap and market accessibility. The idea was to also gauge the impact of
government stimulus, gender diversity in terms of number of women entrepreneurs, level of digitalisation and the
overall health of the sector.

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The findings provide ample food for thought.

Deep diving into the top challenges faced by MSMEs, it was observed that in addition to the well-known difficulty in
access to credit, high competition and technology adoption were two other significant challenges at the overall level.
At the sectoral/regional level there was a stark variation in the intensity of challenges faced.

The study also broadly estimates the addressable credit gap that can be fulfilled by financial institutions in the near
term. Despite the rising credit supply to MSMEs, the sector has an addressable credit gap of ~₹30 lakh crore. Medium
enterprises have witnessed the highest credit gap at ~29% as they require more capital to scale up, followed by micro
and small enterprises.

Structure of the study

A combination of quantitative and qualitative analysis for the study has been used, which was systematic, rigorous
and contextual.

The participatory and collaborative process involved stakeholders in different phases of the engagement.

The data gathering exercise consisted of a primary survey of MSMEs across the country and perusal of secondary
sources, including reports put out by the government, the Reserve Bank of India (RBI) and other agencies.

Statistical and analytical techniques were then used to generate key insights on the sector.

Primary survey – an ear to the ground

The primary survey covered 2,097 MSMEs in 19 sectors, including manufacturing, service and trading domains,
across India.

The survey delved into the opportunities, challenges and growth prospects of these units with respect to access to
finance, market reach, women entrepreneurship, employment generation and sustainability.

Of the 19 sectors, 16 (excluding grocery retailers and electronics goods retailers in the trading sector and defence
equipment) were segregated into four geographical zones (south, west, north, east and north-east). One district per
zone was identified for primary interaction to achieve broad geographic coverage. For the trading sectors, primary
surveys were conducted across the four tiers.

14
Zone-wise sectoral coverage

South zone
Sector Region Sector Region
Auto components Chennai
Hospitals Kozhikode

Services
Basic metal (iron and steel) Visakhapatnam
Cotton textiles Warangal Hotels Visakhapatnam

Drug and pharmaceuticals Hyderabad IT and ITeS Bengaluru

Manufacturing

Electrical equipment Kanchipuram Transport and

Chennai
Fabricated industrial metal logistics
Belgavi
products 3
3
Food processing Chittoor Electronics Grocery %
%
Cities
goods retailers retailers 3
General purpose machinery Bengaluru %
Tier 1 - Hyderabad
Trading

4
Paper and paper products Sivakasi %

Plastics and plastic Tier 2 Mysuru -

Hyderabad
products
Tier 3 - Kozhikode
Readymade garments Kanchipuram
Tiles and sanitaryware East Godavari Tier 4 Tiruppur -

West zone
Sector Region Sector Region
Auto components Pune
Hospitals Indore
Services

Basic metal (iron and steel) Rajkot

Hotels North Goa
Cotton textiles Surat
Drug and pharmaceuticals Indore IT and ITeS Mumbai
Manufacturing

Electrical equipment Jaipur Transport and

Thane
logistics
Fabricated industrial metal
3 Nagpur
%
3 products
% Electronics Grocery
Food processing Satara Cities
3 goods retailers retailers
%
General purpose machinery Nagpur Tier 1 - Mumbai
Trading

4
%
Paper and paper products Indore
Tier 2 - -
Plastics and plastic products Pune
Tier 3 Nashik -
Readymade garments Ahmedabad
Tiles and sanitaryware Morbi Tier 4 - -

15
 North zone
Sector Region Sector Region
Auto components Ludhiana
Hospitals Jalandhar

Services
Fatehgarh
Basic metal (iron and steel)
Sahib Hotels Kullu
Cotton textiles Panipat
IT and ITeS Noida
Drug and pharmaceuticals Solan
Manufacturing

Transport and
Electrical equipment Gurugram Delhi
logistics
Fabricated industrial metal
Bulandshahr 3
products %
3
%
Electronics Grocery
Food processing Dehradun Cities 3
goods retailers retailers %
General purpose machinery Delhi-NCR
Trading

4
Tier 1 Delhi - %
Paper and paper products Noida
Tier 2 Amritsar Lucknow
Plastics and plastic products Kanpur Nagar
Tier 3 -
Readymade garments Gurugram
Tiles and sanitaryware Delhi-NCR Tier 4 Kapurthala Kapurthala

East & Northeast zone

Sector Region Sector Region
Auto components Adityapur
Hospitals Kamrup
Services

Basic metal (iron and steel) Raipur

Hotels Kamrup
Cotton textile Bargarh
Drug and pharmaceuticals Ranchi IT and ITeS Kolkata
Manufacturing

Electrical equipment Khordha Transport and

Kolkata
Fabricated industrial metal logistics
Kolkata
3
3
products
%
%
Food processing Aizawl Electronics Grocery
Cities
3 goods retailers retailers
%
General purpose machinery Howrah
Tier 1 Kolkata -
Trading

4
% Paper and paper products Cuttack
Tier 2 - Patna
Plastics and plastic products Jalpaiguri
Readymade garments Kolkata Tier 3 Cuttack Bhubaneswar

Tiles and sanitaryware Bokaro Tier 4 - -

Source: Primary survey output

16
Demographic profile of the units surveyed
The primary interactions ensured fair representation across MSMEs, based on their size (micro, small and medium
enterprises), gender (male and female), constitution (proprietorship, partnership, Private Limited, Public Limited) and
region (east and northeast, north, south and west).

Spread of surveyed MSMEs

Size-wise Genderwise- ownership

Micro 63% Male 88%

Small 27%
Female 12%
Medium 10%

Category-wise ownership MSME type*

General 84%
Formal 92%
Other backward class 9%

Scheduled Caste 5%
Informal 8%
Scheduled Tribe 2%

Udyam registration Constitution

Proprietorship 59%
Registered 65%
Partnership 16%

LLP 1%

Not registered 35% Private limited company 23%

Public limited company 1%

Source: Primary survey output * Informal is defined here as those who have access to only informal credit sources

17
Unpacking the MSME puzzle: Key insights from the study
Formalisation of MSMEs on the rise
The government has been actively working on bringing MSMEs under the formal ambit to enable them to avail
benefits of sector-specific schemes and initiatives. As of March 2025, the Udyam and Udyam Assist portals had ~6.2
crore registered enterprises. State-wise registration shows Maharashtra leading with ~80 lakh registered units,
followed by Uttar Pradesh (~65 lakh), Tamil Nadu (~49 lakh), West Bengal (~43 lakh) and Karnataka (~41 lakh). 6

Primary interactions with MSMEs indicated that lack of awareness about the benefits of registration and anticipation
of regulatory scrutiny inhibited ~35% of respondents from registering on the Udyam/ Udyam Assist portals.

Diverse business models in vogue

Of the surveyed MSMEs, ~31% operated as direct suppliers to end-users, while ~27% supplied to wholesalers. Some
of the other business models prevalent amongst surveyed MSMEs were suppliers to original equipment
manufacturers (OEMs) along with outsourcing units and suppliers to retailers. Businesses in each sector and
geography have their own set of challenges, opportunities and bargaining powers.

According to the primary data, MSMEs supplying directly to end-users and to wholesalers have a better margin and
payment terms as against MSMEs supplying to retailers. The analysis revealed that there was no gender-wise
distinction in bargaining power. However, medium enterprises had better bargaining power than micro and small
players. At the industry level, MSMEs in the services and trading sectors enjoyed better bargaining power as against
those in manufacturing.

6
Udyam portal - [Link]

18
Business model and bargaining power
Business model

Supplier to Supplier to retailers, 13%

wholesalers, 27%

Outsourcing unit + market sellers, 9%

Supplier to OEM + market sellers, 8%

Direct supplier to end
users, 31% Outsourcing unit , 6%

Supplier to OEM , 6%

Bargaining power

Size-wise Gender-wise
60% 60%

40% 40%

20% 20%

0% 0%
Good Average Poor Good Average Poor

Micro Small Medium Female Male

80% Industry-wise

60%

40%

20%

0%
Good Average Poor
Manufacturing Services Trade

Note: % indicates no of respondents

Source: Primary survey output

Key growth constraints for MSMEs

Despite MSMEs’ significant contribution, they face few challenges that hinder their growth, development and
competitiveness. These challenges not only affect individual MSMEs but also have a ripple effect on the overall
economy, affecting the country's ability to achieve its growth and development goals. In this context, it is essential to
understand the key challenges MSMEs are facing.

19
While access to credit is a well-known hurdle for MSMEs in India, primary interactions with these enterprises revealed
a multitude of other challenges that hinder their growth.

22% 18% 10% 8% 8%

Access to High Technology Regulatory Inadequate

credit competition adoption compliance infrastructure
Key challenges
7% 7% 7% 7% 6%
Availability Access to
Supply of Delayed Availability
of raw new
utilities payments of labour
material markets

Note: % indicates no of respondents

Source: Primary survey output

More than 25% of the respondents cited high competition and technology adoption together as their largest obstacles
to growth. The rapidly evolving business landscape in India has led to increased competition, making it difficult for
MSMEs to stay ahead of the curve. Moreover, the need to adopt new technologies to remain competitive is a major
challenge, as many MSMEs lack resources and expertise to effectively leverage technology.

In addition to competition and technology adoption, MSMEs in India face other challenges that affect their operations
and growth. Regulatory compliance is a major concern, with many MSMEs struggling to navigate the complex web
of laws and regulations. Other key challenges include inadequate infrastructure, unreliable and costly supply of
utilities, difficulty in sourcing raw materials and skilled manpower. Delayed payments and limited access to new
markets are some of the other challenges for MSMEs.

Intensity of top 3 challenges varies across segments

Size-wise Gender-wise

19% Access to credit 26%

22% 17% 18% 20%
15% 16%
9% 14%
9% 16% High competition 15%

Micro Small Medium

Access to credit Access to credit Access to credit
9% Technology adoption 10%
High competition High competition High competition
Technology adoption Regulatory compliance Technology adoption

Manufacturing Services Trading

Industry-wise

20% Access to credit 28% High competition 30% Access to credit

12% High competition 20% Access to credit 15% Delayed payment

8% Availability of raw material 19% Technology adoption 15% High competition

Note: % indicates no of respondents

Source: Primary survey output

20
A size-wise analysis reveals that small enterprises encounter distinct challenges compared with their micro and
medium counterparts. Primary interactions with lenders and MSMEs showed that within small enterprises, those that
want to scale-up their operations and move to the medium category, struggle more in terms of access to credit and
regulatory compliance because of their unpreparedness for higher scrutiny and statutory requirements.

Gender-wise analysis suggested that female entrepreneurs encountered more difficulties in accessing credit than
their male counterparts. Further, women-led enterprises encounter distinct obstacles, including social and cultural
barriers, and lack of networking opportunities, which hinder their ability to scale up and grow their businesses.

An industry-wise analysis highlighted that in addition to access to credit and high competition, availability of raw
materials is another key issue for MSMEs in the manufacturing industry while challenges of technology adoption and
delayed payments impact the service and trading industries.

Greater support required for sectors with higher challenge intensity

Analysis showed that although each sector contends with various challenges such as access to credit, competition,
supply of utilities, availability of raw materials etc, their intensity differs across sectors.

Primary interaction with surveyed MSMEs in different sectors deepened the understanding about the specific
challenges they faced. For instance, in the defence equipment sector, delay in payments and availability of raw
materials are greater constraints than access to credit.

Sectors that face high intensity of multiple challenges are more affected and, hence, need higher support and
intervention.

Intensity of challenges at sectoral level

Supply Availability Access to
Access to High Technology Regulatory of Inadequate of raw Delayed new Availability
Sectors credit competition adoption compliance utilities infrastructure materials payments markets of labour
Auto components 26% 9% 5% 9% 5% 13% 6% 9% 10% 9%
Basic metals (iron and steel) 26% 7% 6% 11% 5% 13% 13% 5% 5% 9%
Cotton textile 22% 25% 4% 8% 4% 10% 7% 7% 7% 6%
Defence equipment 7% 11% 7% 11% 6% 6% 17% 17% 6% 13%
Drugs and pharmaceuticals 17% 14% 6% 11% 9% 8% 8% 9% 14% 3%
Electrical equipment 19% 20% 14% 8% 4% 7% 9% 6% 7% 5%
Electronics goods retailers 26% 12% 6% 6% 8% 8% 2% 14% 6% 12%
Fabricated industrial metal products 11% 11% 15% 15% 6% 6% 8% 13% 12% 3%
Food processing 31% 8% 7% 7% 8% 12% 10% 6% 5% 8%
General purpose machinery 23% 12% 9% 5% 9% 8% 9% 6% 9% 9%
Grocery retailers 35% 18% 0% 0% 15% 2% 0% 17% 13% 0%
Hospitals 19% 35% 27% 8% 4% 0% 0% 0% 1% 5%
Hotels 8% 36% 21% 12% 10% 0% 0% 0% 3% 10%
IT and ITeS 32% 32% 18% 3% 0% 0% 0% 7% 4% 3%
Paper and paper products 10% 20% 15% 6% 12% 9% 10% 5% 3% 9%
Plastics and plastic products 20% 9% 7% 12% 20% 4% 12% 10% 2% 6%
Readymade garments 43% 26% 4% 0% 3% 4% 9% 0% 3% 7%
Tiles and sanitaryware 20% 6% 3% 7% 11% 14% 7% 7% 6% 18%
Transport and logistics 26% 21% 17% 9% 2% 15% 0% 6% 3% 1%
Pan India 22% 18% 10% 8% 7% 8% 7% 7% 6% 7%

High intensity where percentage of respondents > than pan-India number.

Moderate intensity where percentage of respondents are closer to pan-India number.
Low intensity where percentage of respondents < than pan-India number.

Note: The % indicates no of respondents from a particular sector selecting a specific issue as their number 1 hurdle from the top 10 identified
challenges.

Source: Primary survey output

21
For instance, auto components saw high intensity in six out of the top 10 challenges analysed. Of the 19 sectors
analysed, multiple sectors are falling into this high intensity category, showcasing the need for customised
interventions. The challenge heat map also highlights that the MSMEs in the services sector such as hospitals, hotels
and IT/ITeS have a relatively more conducive business environment as compared to that in the manufacturing sector.

Challenge intensity sectoral matrix

Auto components, basic metals (iron and steel), drugs and pharmaceuticals,
High

fabricated industrial metal products, food processing, general purpose

machinery, hotels, paper and paper products, plastics and plastic products,
and transport and logistics
Challenge intensity

Moderate

Cotton textile, electrical equipment, electronics goods retailers, tiles and

sanitaryware, and defence equipment
Low

Grocery retailers, hospitals, IT and ITeS, and readymade garments

Note:

Sectors with greater number of challenges having high intensity.

Sectors with greater number of challenges having moderate intensity.
Sectors with greater number of challenges having low intensity.

Source: Primary survey output

22
The intensity of challenges also differed across regions, as shown in the image below.

Challenge intensity at sectoral/regional level

22% 18% 10%

Access to credit High competition Technology adoption

RMG - Hospitals -
80% 56% Hotels - Kamroop 48%
Kanchipuram Kozhikode

Grocery retailers - Hotels - Hospitals -

67% 48% 44%
Tier 4 Vishakhapatnam Kamroop

Electronics goods IT and ITeS - IT and ITeS -

67% 48% 28%
retailers - Tier 2 Bengaluru Bengaluru

Food processing - Transport &

50% RMG - Kolkata 40% 28%
Dehradun logistics - Thane

Transport & 40% Grocery retailers - Plastics & plastic

40% 24%
logistics - Delhi Tier 3 products - Jalpaiguri

8% 8%
Regulatory compliance Inadequate infrastructure

Fabricated Auto components -

industrial metal 20% 32%
Ludhiana
products - Nagpur

Food processing -
Hotels - North Goa 20% 23%
Satara

Electronics goods Food processing -

20% 20%
retailers - Tier 4 Aizawl

Plastics and Tiles &

plastic products - 16% sanitaryware - 20%
Kanpur Nagar East Godavari

Hotels - Paper & paper

16% 20%
Vishakhapatnam products - Sivakasi

Indicates percentage of respondents across 2,097 Indicates percentage of respondents highlighting a specific challenge as their
MSMEs. top challenge in a region for that sector.

Source: Primary survey output

For instance, competition faced by the information technology (IT) and IT-enabled services (ITeS) MSMEs in
Bengaluru surpassed the pan-India level of ~18%. These MSMEs face competition from large IT and ITeS companies,
which have the scale and resources to outpace them. Furthermore, the high cost of technology adoption makes it
even more challenging for MSMEs to compete with the larger players.

23
Further, ~7% of the total respondents (2,097) highlighted supply of utilities as the key challenge. However, over ~20%
of the respondents from certain sectors such as tiles and sanitaryware in Delhi-National Capital Region (NCR),
plastics and plastic products in Jalpaiguri and hotels in North Goa, cited the supply of utilities as a key challenge.

Challenge intensity at sectoral/regional level

7% 7% 7%
Supply of utilities Availability of raw material Delayed payments Availability of labour

Tiles & Basic metals (iron Fabricated industrial

sanitaryware - 28% and steel) - 24% metal products - RMG - Gurugram 2
20%
Delhi- NCR Vishakhapatnam Belagavi

Plastics & plastic General purpose Fabricated industrial

products - 28% machinery - 20% Hotels - Kamroop 2
metal products - 20%
Jalpaiguri Howrah Kolkata

Tiles &
Hotels - North Paper & paper Plastics and plastic
24% 16% sanitaryware - 20%
Goa products - Sivakasi products - 16%
Bokaro
Hyderabad

Grocery retailers - Electrical Electronics goods

20% equipment - 16% Defence equipment 20%
Tier 3 16% retailers - Tier 1
Khordha & parts

Drugs & Drugs & Tiles &

pharmaceuticals - Plastics and plastic sanitaryware - 20%
20% pharmaceuticals - 16%
Hyderabad products - Kanpur 12% East Godavari
Ranchi Nagar

Indicates percentage of respondents across Indicates percentage of respondents highlighting a specific challenge as their top challenge in a region for
2,097 MSMEs. that sector.
7% 6%
Availability of labour Access to new market

Drugs &
RMG - Gurugram 24% pharmaceuticals - 28%
Indore

Hotels - Kamrup 24% Grocery retailers -

20%
Tier 1

Tiles & Fabricated

sanitaryware - 20% industrial metal
Bokaro 20%
products -
Bulandshahr
Electronics
goods retailers - 20% Grocery retailers -
Tier 1 20%
Tier 3

Tiles &
sanitaryware - 20%
General purpose
East Godavari 16%
machinery - NCR

Indicates percentage of respondents across 2,097 Indicates percentage of respondents highlighting a specific challenge as their
MSMEs. top challenge in a region for that sector.

Source: Primary survey output

Similarly, MSMEs in Ludhiana belonging to the auto components sector, lack adequate infrastructure, with ~32%
respondents highlighting this as a key issue versus ~8% of the industry respondents.

24
Observations on sector- and region-specific challenges can enable the development of customised solutions for
MSMEs.

Challenge intensity - access to credit

High challenge intensity Low challenge intensity

Readymade garments - Kanchipuram Paper and paper products – Sivakasi

Grocery retailers – Tier-4 IT and ITeS – Bengaluru
Electronics goods retailers – Tier-2 Hotels – Kullu
Food processing – Dehradun Paper and paper products – Noida
Transport and logistics – Delhi IT and ITeS – Mumbai
Readymade garments – Ahmedabad Hotels – Kamrup
Readymade garments – Kolkata Hospitals – Jalandhar
Auto components – Pune Transport and logistics – Thane
Tiles and sanitaryware – Morbi Hotels - North Goa
Transport and logistics – Chennai Electronics goods retailers – Tier-1

High challenge intensity indicates percentage of respondents >30% highlighting a specific challenge as their top challenge in a region for that sector.

Low challenge intensity indicates percentage of respondents <10% highlighting a specific challenge as their top challenge in a region for that sector.

Source: Primary survey output

25
Access to credit
Despite the critical role of the MSME sector in the Indian economy, access to timely and adequate formal credit
remains a persistent challenge. Factors such as information asymmetry, limited formalisation, lack of comprehensive
financial records, weak credit histories, and insufficient collateral contribute to this issue. These barriers create a
significant credit gap. Bridging this gap requires a multi-pronged approach, including alternative credit assessment
models, stronger credit guarantee mechanisms, MSME formalisation, financial literacy, and supply chain financing.
Addressing these constraints is essential to unlocking the full potential of MSMEs and driving economic growth.

According to primary interactions with MSMEs, ~17% respondents did not avail any form of credit, while ~8% availed
the same from informal sources. Given the higher level of difficulty in accessing credit for micro enterprises, ~12% of
those surveyed borrowed from informal sources, versus ~3% of small and ~2% of medium enterprises. Credit offtake
by women-led MSMEs was at ~76%, with ~24% of the respondents not availing credit vis-à-vis men-led MSMEs
which saw credit offtake of ~84%. The percentage of women availing informal credit was higher than men.

Interactions with lending institutions indicated that credit penetration from NBFCs/fintechs has increased over the
past few years. Additionally, the overall credit supply to the MSMEs has increased. That said, unmet credit demand
persists.

Credit offtake

12% 13% 14% 12% 12% 13%

20% 17%
3% 2%
19% 17% 18%
8% 17%
12%
6% 8% 10% 7%

27% 26% 27% 27%

85% 85%
75%
68%

36% 35% 34% 35%

Micro Small Medium MSME

Private banks Public banks
Micro Small Medium MSME
Co-operative banks NBFC/ FinTech
Formal credit Informal credit No credit availed
Others

Note: % indicates no of respondents

Source: Primary survey output

26
At pan-India level 8% of surveyed MSMEs opt for informal sources of borrowing. This percentage varies across
sectors and regions with certain sectors availing informal credit as high as 30-40% indicating a stronger need of
financial literacy and formal credit penetration for them.

Informal credit landscape for sectors/ regions

% respondents availing informal

credit

Hotels - Visakhapatnam 43%

Fabricated industrial metal

38%
products - Bulandshahr

Cotton textile - Bargarh 31%

Tiles and sanitaryware -

29%
Bokaro

Food processing - Aizawl 25%

Electronics goods retailers -

24%
Tier 4
3
%
3 Paper and paper products -
% 23%
Sivakasi
3
% Food processing - Chittoor 19%

4
%
Hospitals - Indore 19%

Readymade garments -
17%
Ahmedabad

Pan-India 8%

Source: Primary survey output

Newly established MSMEs need greater support in accessing credit

The government recognizes the importance of startups in driving innovation and economic growth. Various ministries
and departments have introduced schemes to provide financial, infrastructural, and regulatory support to startups.

~46% of the newly established MSMEs respondents (<5 years of operation) witnessed access to credit, high
competition and supply of utilities as their top 3 challenges. With lack of financial history limiting their access to
formal funding, most of the newly established MSMEs rely on either equity or lending from friends/ family to start their
operation.

The primary survey further indicates that 30% of the newly established MSMEs respondents are not availing of any
formal credit.

While at pan-India level 24% of the newly established MSMEs have reflected access to credit as their top challenge,
some of the sectors like electronics goods retailers, RMG and auto components face greater challenge.

27
Challenges of newly established MSMEs

Established MSMEs Top 10 challenges New MSMEs Credit offtake

15% 23%
19% Access to credit 24% 9%
7%

16% High competition 14%

76% 70%
6% Supply of utilities 8%

10% Technology adoption 8% Established MSMEs New MSMEs

Formal credit Informal credit No credit availed

6% Availability of labour 7%

% of newly established MSMEs indicating

6% Availability of raw material 7% access to credit as challenge

Electronics goods retailers 67%

7% Regulatory compliance 7%
Readymade garments 42%

7% Inadequate infrastructure 7% Auto components 39%

IT and ITeS 32%

6% Delayed payments 6%
Electrical equipment 31%

Access to new markets Grocery retailers 29%

6% 4%

Source: Primary survey output

MSMEs expect affordability and procedural simplification for easier credit access
A fifth of the respondents indicated high interest rates as an obstacle to availing credit. As operating efficiency of
MSMEs is lower, reduction in interest rates is a key ask to manage cost and enhance profitability.

What MSMEs face in accessing credit

High interest rates 22%

Limited financial history 14%

Lack of banks and FIs in the area 14%

Stringent collateral requirements 13%

Complex loan process 11%

Delayed disbursements 11%

Higher number of documents required 9%

High document requirement 6%

Note: % indicates no of respondents Source: Primary survey output

Additionally, lack of financial history and inadequate assets to provide as collateral also limit MSMEs borrowing
capabilities, as reported by respondents in the primary survey, especially micro and small enterprises. Respondents
from medium enterprises highlighted delayed disbursements as a key reason for lower offtake of formal credit.

28
Addressable credit gap
The MSME sector continues to face challenges in accessing timely and adequate formal credit because of
information asymmetry on financial and business viability, and inability to offer collateral. This has created a
substantial gap between the requirement and supply, resulting in the credit gap.

A study was conducted to broadly estimate the addressable credit gap that lending institutions can fulfil in the near
term. The overall finance demand has been estimated at ~₹123 lakh crore with the overall debt demand at ~₹92 lakh
crore assuming the split between debt and equity components in the ratio of 3:1. The addressable debt demand is
assumed to be 70% of the overall debt demand at ~₹64 lakh crore. The formal debt supply at ~₹34 lakh crore
comprises of the lending by Banks and NBFCs. The difference between the addressable debt demand and formal
debt supply gives the addressable credit gap of ~₹30 lakh crore of the sector.

Credit gap

₹64 ₹30 ₹34

lakh cr lakh cr lakh cr

Addressable debt demand Addressable gap (24%) Formal credit supply

Addressable credit gap Addressable credit gap Addressable credit gap Addressable credit gap
- enterprise - business activity - region - gender

Micro 25% Manufacturing 20%

Urban 20% Male 20%

Small 21% Services 27%

Medium 29% Trading 33% Rural 32% Female 35%

Note: % refers to addressable credit gap as % of overall finance demand estimated from an overall sector turnover and investment approach
Source: Crisil Intelligence estimates

Despite credit supply to MSMEs increasing, the sector has a broad addressable credit gap of ~₹30 lakh crore.
Medium enterprises face the highest credit gap, at ~29%, since they require more capital to scale up, followed by
micro and small enterprises. The study suggests at the business activity level, the addressable credit gap is highest
for trading sectors, at ~33%, followed by services (~27%) and manufacturing and allied sectors (~20%). This is
because most of the trading MSMEs face a working capital shortfall due to inability to provide collateral given their
business model.

An overview of the MSME spread indicates the region-wise addressable credit gap is estimated to be higher in rural
areas, at ~32%, than in urban, at ~20%. This is attributed to the lower number of financial institutions in rural regions
coupled with lower levels of industrialisation.

Female-owned MSMEs face highest credit gap at ~35% as compared to their male counterparts at ~20% with more
women accessing informal credit to bridge this gap.

29
Alternative finance gaining traction for MSME lending
Given the unmet finance demand in the MSME sector through traditional forms of lending, digital lending as well as
several forms of alternative finance have emerged.

Digital lending landscape

Digital lending as % of total

Credit availed digitally – lending*
MSME loans
18% FY2026(P) 17 accounted for 15% of
Digital lending digital lending in
>90% of respondents
FY2022 12 FY2022 (₹ 3.2 lakh
accepted digital
crore*)
payments
FY2017 1

Source: Digital Lending Association of India, Invest India and primary survey output

Fintechs, banks and other lending institutions are actively promoting digital awareness and building infrastructure to
bring digital lending to all consumers. As this medium gains traction, similar to UPI (United Payment Interface),
MSMEs can expect improved access to credit. Most banks and financial institutions are already equipped to adopt
digital lending, with many having the requisite online platforms and backend systems. Raising awareness about
digital loan avenues will help connect with more MSMEs and facilitate easier access to credit. Though the primary
surveys have shown only ~18% of MSMEs have opted for financing through the digital mode, >90% of the surveyed
MSMEs accept digital payments, indicating readiness for digital finance.

Sectors prime for digital lending

Potential sectors for digital credit offtake

Share of respondents having sales through

Defence equipment,
High

Hotels, Readymade garments It & ITeS, General purpose

machinery
e-commerce

Electrical equipment, Paper &

Moderate

Food processing, Hospitals, Auto components, Plastics &

paper products, Basic metals
Drugs & pharmaceuticals plastic products
(iron and steel)

Cotton textile, Electronics goods

Tiles & sanitaryware retailers, Fabricated industrial Transport & logistics
Low

metal products, Grocery retailers

Low Moderate High

Share of respondents availing lending through digital mode

Source: Primary survey output

30
Based on the primary survey, the above image represents sectors having a greater digital presence which can be
tapped into for digital lending. Sectors like hotels, RMG, auto components, drugs & pharmaceuticals which have a
moderate to high digital presence have greater potential for digital credit offtake.

Alternative lending landscape

10,244 fintechs in Capital markets –

TReDS BSE SME and
Fintech / India
FY2024 – NSE Emerge
Alternative Market size -
financed 41.6 lakh platform combined
invoices market cap > ₹3
finance ₹49.4 lakh crore in
₹1.38 lakh crore lakh crores
FY2022*

Source: Invest India, BSE-SME platform and NSE-EMERGE platform

The Trade Receivables Discounting System (TReDS) is one such alternative lending framework where MSMEs can
discount their invoices for generating working capital. The government's decision to reduce the turnover threshold
limit to ₹250 crore (from the earlier ₹500 crore) and include all central public sector enterprises (CPSEs) on the
invoice discounting platform TReDS, as mandated by the RBI, is likely to have a positive impact on the working
capital cycle of MSMEs.

The capital market is an emerging source of finance for SMEs, with the Bombay Stock Exchange and National Stock
Exchange having dedicated platforms for them.

The study conducted to broadly estimate the addressable credit gap, estimates the equity demand for the MSME
sector as ~₹31 lakh crore (based on a normative 3:1 debt equity ratio). As per primary interactions with various
industry stakeholders, most MSMEs use internal accrual and informal sources to finance the short-term equity
demand. It is estimated that enterprises in the growth or mature stage opt for equity financing. These enterprises are
mostly medium and small entities with a turnover of over ₹150 crore. They raise equity through crowdfunding, venture
capital, private equity and initial public offerings. Micro enterprises have limited access to external equity, mainly
because only a handful of players provide early-stage equity venture capital.

Thus, newer and emerging alternative forms of lending are expected to benefit MSMEs. Although digital lending is at
a nascent stage, it is expected to grow faster with the government and financial institutions taking measures to
increase its reach. Globally, alternative sources of finance provide more inclusivity to borrowers. A similar trend is
expected in India as well, as people move from collateral-based funding to cashflow-based funding and rely more on
Digital Public Infrastructure (DPI) to assess and approve funds.

31
MSMEs ask to further improve access to finance

Providing subsidy and grants 22%

Reducing documentation 19%

Creating awareness programmes for existing policies and

14%
schemes

Reducing interest rate 13%

Increase digital lending 13%

Establishing more banks and FIs 10%

Implementing policies that support ease of doing business 9%

Note: % indicates no. of respondents

Source: Primary survey output

Provision of subsidy and grants topped the suggestions from the surveyed MSMEs for improving access to finance
followed by streamlining processes and easing the documentation burden on smaller businesses. Creating
awareness about various initiatives and schemes and building strong and effective data security measures are the
key to reaching the masses.

32
Access to market – unlocking MSME potential
Apart from the challenges faced in accessing credit, Indian MSMEs struggle to access markets, which refers to an
MSME's ability to effectively sell its products and services. This is reflected in their operating model, which
predominantly focuses on local sales through traditional marketing methods, rather than expanding beyond local
markets by improving competitiveness and leveraging digital technologies.

According to the survey, majority of the MSMEs have been slow to adopt modern channels to reach customers. This
hinders their scalability and ability to remain competitive, highlighting the need for a shift in their operating model to
prioritise digital market access and sales.

Modes of marketing

Traditional modes of marketing Contemporary modes of marketing

24% In-person marketing

18% Referral marketing 18% Mail/telemarketing

16% Print advertising 13% Digital marketing

11% Trade shows and events

Note: % indicates no. of respondents

Source: Primary survey output

Almost 70% of the respondents prefer traditional modes of marketing as listed above; ~18% opted for
mail/telemarketing. Newer modes of digital marketing through social media are yet to gain traction, with only ~13%
of respondents using the same.

Leveraging e-commerce for market expansion

Effective utilisation of e-commerce and digital marketing can provide MSMEs unprecedented access to new markets
and customers. The Indian e-commerce industry is forecast to grow to US$ 325 billion by FY2030 from US$60 billion
in FY2023 7.

7
[Link]

33
Digital revolution of MSMEs

18,737 crore digital ~38% order value on GeM

transactions worth ₹ 3,659 from MSEs; GMV of ~₹4.09
lakh cr in FY25 (Apr-Jan)
lakh crore in FY24

MSME contribution to
e-commerce sales 70%

80%
Sellers on
ONDC are MSMEs

Internet penetration for MSMEs rose

ONDC crossed
26.7% in FY2024 from 21.1%
~5 lakh sellers in
in FY2023 May 2024

Source: ASUSE 2023-24, PIB, Economic survey 2024, Union Budget documents, GeM, and ONDC

The government has launched initiatives such as the ONDC and Government e-Marketplace (GeM) to enable
MSMEs to establish their digital presence by selling their products online and accessing government procurement
opportunities. In May 2024, ONDC crossed 5 lakh sellers, of which 70% of the sellers were small and medium
enterprises8.

Another powerful initiative helping MSMEs, especially the MSEs, has been mandatory procurement of goods and
services through the GeM portal by government entities. The public procurement policy mandates 25% annual
procurement from MSEs by central ministries/ departments/ CPSEs, including 4% from MSEs owned by those
belonging to SCs/STs and 3% from MSEs owned by women entrepreneurs.

Initiatives facilitating MSMEs with the necessary tools and support to navigate the digital landscape is helping them
expand their market affordably, with the lower marketing effort and cost cushioning profitability.

Fragmentation leads to higher competition

MSMEs face high competition, with numerous small businesses operating in proximity. This intense competition can
lead to reduced profit margins, making it challenging for MSMEs to maintain their profitability. As a result, many
MSMEs struggle to generate sufficient revenue, leading to thin profit margins and limited scope for investment in

8
[Link]
20was%20organized

34
growth and expansion. The high competition also leads to a surplus of similar products, making it difficult for individual
businesses to differentiate themselves and attract customers.

Around 18% of survey respondents have highlighted competition as one of their major challenges at an all-India level.
However, the study indicated varying levels of intensity across sectors/ regions as depicted below.

Challenge intensity- high competition

High challenge intensity Low challenge intensity

Hospitals - Kozhikode Fabricated industrial metal products - Nagpur

Hotels - Vishakhapatnam Basic metals (iron and steel) - Vishakhapatnam

IT and ITeS - Bengaluru Food processing - Dehradun

Grocery retailers - Tier 3 Plastics and plastic products - Pune

Readymade garments - Kolkata Food processing - Aizawl

Paper and paper products - Cuttack Auto components - Ludhiana

IT and ITeS - Noida Tiles and sanitaryware - East Godavari
Readymade garments - Ahmedabad Basic metals (iron and steel) - Rajkot
Readymade garments - Gurugram Tiles and sanitaryware - Bokaro
Transport and logistics - Kolkata Grocery retailers - Tier 4

High challenge intensity indicates percentage of respondents >30% highlighting a specific challenge as their top challenge in a region for that sector.

Low challenge intensity indicates percentage of respondents <10% highlighting a specific challenge as their top challenge in a region for that sector.

Source: Primary survey output

As per the primary survey, respondents from three out of the four regions studied in the RMG sector highlighted high
competition as their topmost challenge given the lack of product differentiation and absence of proper distribution.

MSMEs must focus on innovative strategies to enhance their competitiveness to improve operational efficiency and
expand their market reach.

MSMEs can access newer markets through exports

Several MSMEs have been successfully exporting their goods and services across the world. India recorded
merchandise exports of US$ ~451 billion in FY2023, which dipped to ~US$ 437 billion in FY2024. However, the share
of MSMEs in merchandise exports has increased from 43.59% in FY2023 to 45.73% in FY2024.

Amongst the surveyed MSMEs, 14% were export oriented units across sectors. There is still vast untapped potential
in this segment that can be leveraged for MSME growth if challenges such as time-consuming processes, procedural
delays, availability of information regarding regulatory requirements, inadequate storage and transportation facilities,
and difficulty in accessing export finance are eased for MSMEs intending to export.

Delving further into the exporting and non-exporting MSMEs, it can be observed that though both segments faced
similar challenges, the intensity varies. For exporters, availability of raw materials is a bigger challenge given the

35
stringent quality requirements for exports. At the same time, technology is not that big a challenge compared to non-
exporters given that they would have better technology to meet the export demand as they compete at a global level.

Key challenges for exporting and non-exporting MSMEs

Exporters challenges Top 10 challenges Non-exporters challenges

22% Access to credit 23%

16% High competition 17%

12% Availability of raw materials 7%

9% Availability of labour 6%

9% Inadequate infrastructure 8%

8% Delayed payments 7%

7% Regulatory compliance 8%

6% Technology adoption 10%

6% Access to new market 6%

5% Supply of utilities 8%

Source: Primary survey output

In addition to the regular challenges faced, exporting MSMEs are also limited by certain unique issues like cultural
and language barriers and currency fluctuations.

Challenge intensity mapping

Cultural and language barriers Currency fluctuation

• Basic metals (iron and steel) – Vishakhapatnam
• Auto components – Chennai • Drugs and pharmaceuticals – Ranchi
• Basic metals (iron and steel) - Mandi Gobindgarh and Raipur • Food processing – Aizawl
• Electronics goods retailers - Tier 2 (Amritsar and Mysuru) • IT and ITeS – Noida
• Food processing – Aizawl and Satara • Paper and paper products – Sivakasi
• Plastics and plastic products – Pune • Plastics and plastic products – Jalpaiguri
• Tiles and sanitaryware – Bokaro and Delhi- NCR • Tiles and sanitaryware - Bokaro

Competition Logistics and transportation

• Cotton textile – Surat and Warrangal • Drugs and pharmaceuticals – Solan

• Electronics goods retailers - Tier 2 (Amritsar and Mysuru) • Fabricated industrial metal products – Bulandshahr
• Fabricated industrial metal products – Bulandshahr • Plastics and plastic products – Hyderabad
• Food processing – Aizawl • Tiles and sanitaryware - Bokaro
• Paper and paper products - Cuttack

Note: More than one-third respondents have highlighted the above identified challenges as their top challenges
Source: Primary survey output

36
Several initiatives have been announced for exports in Union Budget 2025-26, beginning with the launch of the Export
Promotion Mission to facilitate easy access to export credit, cross-border factoring support, and support to MSMEs
to tackle non-tariff measures in overseas markets. Additionally, the government is to set up a digital public
infrastructure (DPI), BharatTradeNet (BTN), as a unified platform for trade documentation and financing solutions for
international trade. These initiatives are expected to propel the growth of exports by MSMEs over the next few years.

Focus on the specific sectoral interventions as highlighted in the above image will give a thrust to exports from
MSMEs.

37
Socio economic development and MSMEs
Employment generation
MSMEs account for ~90% of the enterprises in India and ~30% of its GDP, while also providing large-scale
employment. In countries such as South Korea, the share of MSMEs in employment is as high as 80%, while their
contribution to GDP is ~50%. Lack of technology/skill upgradation constrains efficiency and productivity of MSMEs
in India. However, as MSMEs are a crucial driver of employment generation in the country, the sector needs to be
tapped into to boost economic growth.

Workforce participation and employment trends

Over the years, India has seen a decline in its unemployment ratio (UR) and an increase in its Worker Population
Ratio (WPR), despite an increase in the labour force participation ratio (LFPR), indicating an increase in jobs. The
WPR, LFPR, and UR have shown significant improvements over the years. The WPR increased from 46.8% in FY18
to 58.2% in FY24, while the LFPR rose from 49.8% to 60.1%. The UR declined from 6.0% in FY18 to 3.2% in FY24,
reflecting a stronger labour market.

Workforce participation trends (FY18-FY24)

Year WPR (%) LFPR (%) UR (%)

FY18 46.8 49.8 6.0
FY19 47.3 50.2 5.8
FY20 50.9 53.5 4.8
FY21 52.6 54.9 4.2
FY22 52.9 55.2 4.1
FY23 56.0 57.9 3.2
FY24 58.2 60.1 3.2
Note: WPR is the percentage of employed people in the population (15 years and above), LFPR is the percentage of people in the labour force seeking or available
for work (15 years and above), and UR is the percentage of people in the labour force who are unemployed (15 years and above)

Source: Directorate General of Employment

Worker population ratio by demographics

The Worker Population Ratio (WPR) varies by region and gender. In FY24, the rural WPR stood at 76.3%, whereas
the urban WPR was significantly lower at 46.5%. The overall WPR reached 58.2%. When considering gender, male
participation was at 72.3%, while female participation lagged behind at 26.0%.

Worker population ratio (FY24)

78.1% 72.3% 76.3%

62.1% 58.2%
46.5% 49.4% 40.3%
26.0%

Rural Urban Total

Male Female Total

Note-WPR is for population 15 years and above

Source: Directorate General of Employment

38
Nature of employment in various sectors

Sectoral employment - Sectoral employment -

male (FY24; in %) Sectoral employment -
female (FY24; in %)
total (FY24; in %)
0.1 0.8
1.0 13 11.9
11.3
1.1 5.6
8.1 36.3
6.1
3.7 46.1
12.2

15.5 11.6 64.4

12
16.4 11.4
Agriculture 11.4
Agriculture Agriculture
Manufacturing Manufacturing Manufacturing
Construction Construction Construction
Trade, hotel & restaurants Trade, hotel & restaurants
Trade, hotel & restaurants
Transport, storage & communications Transport, storage & communications
Other services Transport, storage & communications
Other services
Others Other services
Others
Others

Source: Directorate General of Employment

Higher employment in the MSME sector through growth of entrepreneurship

MSMEs have been a major source of employment, with a significant rise in registered enterprises. Several factors
have contributed to the growth of employment in India. Some are as follows:

• Economic growth: Strong economic growth has boosted employment in India over the last few years. A
revitalised manufacturing sector, expansion of the service sector and strong growth in several key industries have
led to better employment opportunities. According to ASUSE 2023-2024, over the last year, worker growth rate
was ~10% in manufacturing, ~2% in trade, and ~18% in the service sector, which was the highest

• Government initiatives: The government, through its skill building and employment promotion schemes and
programmes, has to an extent helped bridge the labour gap

• Wider spread of education: With improving levels of literacy and education in the country, there are more
opportunities for employment

• Entrepreneurship development: With the startup culture taking roots in the country, more people are taking up
entrepreneurship

Employment in MSMEs (Cumulative data)

Year Total employment No. of MSMEs registered

Cumulative (Mar 2025) 25.95 crore 6.2 crore

Source: Udyam portal

39
Expansion of MSMEs to drive socio-economic growth
The MSME sector is expected to remain a key driver of growth, innovation and job creation, enabling India to achieve
its Viksit Bharat 2047 goal while ensuring sustainable development and social inclusivity.

Though MSMEs employ around 26 crore persons, skill gaps and employability issues persist for MSMEs.

Although ~7% of the 2,097 surveyed MSMEs highlighted availability of labour as their topmost challenge, for some
of sectors/ regions such as RMG in Gurugram and hotels in Kamrup, the challenge intensity on labour issues was as
high as ~24%.

Challenge intensity - availability of labour

High challenge intensity Low challenge intensity

Readymade garments - Gurugram Grocery retailers - Tier 3

Hotels - Kamrup Electrical equipment - Jaipur
Tiles and sanitaryware - Bokaro Grocery retailers - Tier 4
Electronics goods retailers - Tier 1 Electrical equipment - Kanchipuram
Tiles and sanitaryware - East Godavari Transport and logistics - Chennai
General purpose machinery - Bengaluru General purpose machinery - Nagpur
Electronics goods retailers - Tier 3 Food processing - Satara
Defence equipment & parts Auto components - Adityapur
Plastics and plastic products - Pune Drugs and pharmaceuticals - Hyderabad
Basic metals (iron and steel) - Vishakhapatnam IT and ITeS - Kolkata

High challenge intensity indicates percentage of respondents >30% highlighting a specific challenge as their top challenge in a region for that sector.

Low challenge intensity indicates percentage of respondents <10% highlighting a specific challenge as their top challenge in a region for that sector.

Source: Primary survey output

To address this, the government has launched various programmes to enhance skills and employability, particularly
among the youth. With a large young population, proper training and skill development are essential to unlock their
potential and fuel MSME growth. Effective awareness and outreach of these initiatives are critical to achieving the
desired outcomes in employment and employability.

Rise of women entrepreneurship in MSMEs

Similar to the role of MSMEs in employment generation, women empowerment is another aspect where MSMEs
contribute significantly. Annual Survey of Unincorporated Enterprises shows female owned proprietary
establishments increased from 22.9% in 2022-23 to 26.2% in 2023-24.9 This reflects the evolving social mindset,
fostering inclusivity and equality, thus paving the way for further growth.

9
ASUSE 2023-24

40
The number of women-owned MSMEs as a percentage of the total MSMEs is higher on the Udyam Assist platform.
As of January 2025, they accounted for 70% of the MSMEs registered on Udyam Assist, while women-owned MSMEs
accounted for 20.5% of the entities registered on the Udyam platform. According to the NSSO’s 73rd report on
Economic Characteristics of Unincorporated Enterprises, the share of women-owned MSMEs was higher in rural
areas than in urban areas. In FY2015-16, women-owned MSMEs accounted for ~22% of the MSMEs in rural areas
(3.25 crore) as against ~18% in urban areas (3.09 crore). Significantly, women owned ~20% of the micro entities, but
only ~5% of the small, and ~2.6% of the medium enterprises.

Gender-based ownership as of FY2016 Gender-based ownership as of FY2016

(in %) (in %)
5.26 2.67

22.24 18.42 20.44

94.74 97.33
79.56
77.76 81.58

Micro Small Medium

Rural Urban Male Female
Male Female

Source: NSSO’s 73rd report on Economic Characteristics of Unincorporated Enterprises

Among the states, Maharashtra had the highest number of women-owned MSMEs, registered on Udyam and Udyam
Assist platforms, West Bengal was second, followed by Uttar Pradesh and Tamil Nadu.

Top states by women-owned MSMEs

State Women-owned MSMEs

Maharashtra 2,535,077

West Bengal 2,486,603

Uttar Pradesh 1,968,385

Tamil Nadu 1,926,040

Karnataka 1,656,845
Source – Udyam and Udyam Assist, PIB10

Challenges faced by women entrepreneurs

MSMEs with women entrepreneurs face similar operational and financial challenges as faced by the overall sector.
The most significant issue is access to credit, which affects 26% of MSMEs. High competition from large players
(15%) also presents a major obstacle. Technology upgradation remains a challenge for 10% of MSMEs, while 9%
face difficulties in securing skilled employees.

Despite progress, the primary interactions with close to ~250 women entrepreneurs highlight the following
challenges.

10
[Link]

41
Top 10 challenges faced by women entrepreneurs

Access to credit 26%

High competition 15%

Technology adoption 10%

Availability of labour 9%

Inadequate infrastructure 7%

Delayed payments 6%

Regulatory compliance 6%

Availability of raw materials 5%

Supply of utilities 4%

Access to new markets 3%

Note: % indicates no. of respondents

Source: Primary survey output

To address these challenges, the government has launched various schemes and initiatives, such as the Women
Entrepreneurship Programme, Udyam Sakhi portal, and Trade Related Entrepreneurship Assistance and
Development (TREAD)11 scheme, aiming to empower women entrepreneurs and promote growth. With a
comprehensive strategy that includes financial inclusion, skill development and effective policy implementation, India
can tap into the enormous potential of its women entrepreneurs, driving growth and self-sufficiency.

To sustain economic growth, policies should focus on increasing MSME access to credit, promoting gender-inclusive
entrepreneurship, enhancing financial literacy, expanding skill development programs, and strengthening MSME
support frameworks.

11
[Link]

42
Sustainability and green adoption among MSMEs
India's commitment to sustainability and climate change
India has been at the forefront of global sustainability efforts, making significant commitments to combat climate
change. As a party to the United Nations Framework Convention on Climate Change (UNFCCC) and its Paris
Agreement, India submitted its first Nationally Determined Contribution (NDC) in the year 2015 comprising, inter-alia,
of following two quantifiable targets 12:

• To reduce the emissions intensity of its GDP by 33 to 35% by 2030 from 2005 level; and

• To achieve about 40% cumulative electric power installed capacity from non-fossil fuel-based energy resources
by 2030.

As on 31st October 2023, the cumulative electric power installed capacity from non-fossil fuel-based energy
resources is 186.46 MW, which is the 43.81% of the total cumulative electric power installed capacity. As per the
third national communication submitted by India to the UNFCCC in December 2023, the emission intensity of its GDP
has been reduced by 33 percent between 2005 and 2019. In August 2022, India updated its NDC according to which
target to reduce emissions intensity of its GDP has been enhanced to 45 percent by 2030 from 2005 level, and the
target on cumulative electric power installed capacity from non-fossil fuel-based energy resources has been
enhanced to 50% by 2030.

The Government of India has articulated and put across the concerns of developing countries at the 26 th session of
the Conference of the Parties (COP26) to the United Nations Framework Convention on Climate Change (UNFCCC)
held in Glasgow, United Kingdom. Further, India presented the following five nectar elements (Panchamrit) of India’s
climate action13:

i. Reach 500GW non-fossil energy capacity by 2030.

ii. 50 per cent of its energy requirements from renewable energy by 2030.

iii. Reduction of total projected carbon emissions by one billion tonnes from now to 2030.

iv. Reduction of the carbon intensity of the economy by 45 per cent by 2030, over 2005 levels.

v. Achieving the target of net zero emissions by 2070.

The government has also introduced several policies and programs to promote sustainability, including the Faster
Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) scheme, the Perform, Achieve, and Trade (PAT)
program for industrial energy efficiency, and the Unnat Jyoti by Affordable LEDs for All (UJALA) scheme, which has
successfully reduced energy consumption nationwide. Furthermore, India has actively participated in global
environmental efforts such as the International Solar Alliance (ISA) and the Coalition for Disaster Resilient
Infrastructure (CDRI), reinforcing its commitment to climate resilience and green energy development.

12
[Link]
13
[Link]

43
Progress in sustainability
Several milestones have been reached, reflecting progress toward these sustainability goals:

Indicator Achievement

Carbon intensity reduction (as of 2019) 33% (compared to 2005)

Share of electricity from non-fossil sources (July 2024) 45.4%

Increase in forest cover (2021 over 2019) 1,540 sq km

Increase in tree cover (2021 over 2019) 721 sq km

Installed solar capacity (April 2024) 82.64 GW

Source: PIB 14 15

Green technology in MSMEs

Micro, Small, and Medium Enterprises (MSMEs) play a crucial role in India's economic development, contributing
significantly to employment and GDP. However, they also account for a substantial portion of energy consumption
and emissions. Integrating green technology into MSMEs is essential for enhancing sustainability and
competitiveness. The adoption of energy-efficient machinery, renewable energy sources, and waste reduction
practices can significantly lower operational costs and carbon footprints.

Several initiatives have been introduced to support MSMEs in adopting green technology. SIDBI has launched
various green financing programs, including the Green Finance Scheme and the Energy Efficiency Financing
Scheme (MoU with Bureau of Energy Efficiency), to help MSMEs transition to sustainable business models.
Additionally, the government has introduced the Zero Defect Zero Effect (ZED) certification, encouraging MSMEs to
adopt sustainable manufacturing practices. A few of the major schemes are listed below.

Green technology schemes under RAMP: To address the issue of greenhouse gas emissions by MSEs, the
Government has introduced two sub-schemes under Raising and Accelerating MSME Productivity (RAMP) in
December 2023. The aim is to help MSEs access institutional finance at a concessional rate for adopting clean/green
technologies and aid their transformation into sustainable green businesses:

• MSE Green Investment and Financing for Transformation Scheme (MSE-GIFT Scheme) has a total outlay
of ₹478 crore for FY2024-FY2026. The scheme intends to help MSEs adopt identified green technologies. It has
three sub-components: Interest subvention, risk-sharing facility, and information, education and communication
(IEC).

• MSE Scheme for Promotion and Investment in Circular Economy (MSE-SPICE) has a total outlay of ₹472.5
crore for FY2024-FY2027. The scheme has two sub-components: Credit-linked capital subsidy, and Information,
Education and Communication (IEC)

SIDBI is the implementing agency for both the above sub-schemes.

The integration of advanced technologies such as solar-powered equipment, bioenergy solutions, and energy-
efficient cooling and heating systems is gaining traction among MSMEs.

14
[Link]
[Link]
15

%20climate%20change

44
Digital tools, such as smart energy management systems and AI-driven analytics, further enhance efficiency and
sustainability.

Despite these advancements, challenges remain, including high initial investment costs, lack of awareness, and
limited technical expertise. Addressing these barriers through financial incentives, capacity-building programs, and
policy support is essential to accelerate the adoption of green technology in the MSME sector.

Key sectors for green financing

As per the RBI’s report titled Report on Currency and Finance, 2022-2316, green financing requirement in India could
be at least 2.5% of GDP annually to address the infrastructure gap caused by climate events, and the financial system
may have to mobilise adequate resources and reallocate current resources to contribute effectively to achieving the
country’s net-zero target.

Key sectors/areas for green financing

Clean energy remains a primary focus, with the expansion of renewable sources such as solar, wind, and
hydroelectric power. Clean transportation is also crucial, with an emphasis on the adoption of electric vehicles,
alternative fuels, and sustainable public transport infrastructure. Another vital area is energy efficiency, which involves
the implementation of energy-saving technologies and industrial upgrades to reduce overall consumption.

Waste management plays a significant role in sustainability efforts, with strategies centered on efficient recycling,
waste-to-energy conversion, and sustainable disposal mechanisms. Additionally, climate adaptation measures, such
as infrastructure resilience, water conservation, and disaster management strategies, are essential for ensuring long-
term sustainability.

While progress has been made in carbon reduction, renewable energy capacity, and forest conservation, continued
green financing and policy implementation are necessary to achieve the long-term goals. India's commitment to
sustainability and climate action is evident through its ambitious targets and policy initiatives. Moreover, the
integration of green technology in MSMEs presents a significant opportunity to enhance sustainability in the industrial
sector. The emphasis on clean energy, transportation, and waste management highlights the multidimensional
approach required for a greener future.

Sustainable practices and challenges

MSMEs need to play a significant role in sustainability given India has committed to ambitious climate change and
sustainability targets, including reducing carbon emissions by 1 billion tonnes by 2030 and meeting 50% of its energy
needs from renewable sources. MSMEs can play a crucial role in adopting green technology. The primary interactions
depict ~36% of the respondents have adopted some form of sustainable practices. 31% of the respondents in the
primary survey have adopted energy-efficient lighting and machinery and 21% have adopted renewable energy
sources. At the same time, 33% of the respondents have opined that limited awareness is the key challenge in
adoption of sustainable practices.

16
[Link]

45
 Sustainable practices adopted Adoption of green technologies Challenges in adopting sustainable
practices

Energy-efficient
lighting and 30% Limited
33%
machinery Yes, awareness
36%
Renewable energy 17% Affordability
21%
sources
Implementation
Transportation 14%
complexity
through electric 19%
vehicle 14% Time-consuming

Waste reduction and Insufficient

16% 14%
recycling practices infrastructure
No,
64% Environmental
Eco-friendly 8%
14% challenges
packaging

Note: % indicates no. of respondents

Source: Primary survey output

Various initiatives and schemes are in place to support MSMEs in accessing credit and implementing sustainable
practices. Lack of awareness being a key challenge in adopting sustainable practices as indicated in the primary
survey, efforts to raise awareness among MSMEs will enable them to contribute to India's sustainability goals and
transition to a greener ecosystem. In this regard, SIDBI has been supporting MSMEs in their sustainability journey
through their various schemes and initiatives.

By leveraging green financing and technology, MSMEs can help India achieve its climate targets while also improving
their own competitiveness and sustainability.

46
Conclusion
We are living in a financially dynamic era marked by both challenges and opportunities. The global economy
continues to navigate uncertainties arising from geopolitical shifts, supply chain disruptions, and evolving trade
dynamics. The pandemic and subsequent geopolitical tensions have led nations to rethink their economic strategies,
emphasizing resilience and reliability in global supply chains. Amidst this changing landscape, India emerges as a
rare bright spot, well-positioned to seize emerging opportunities.

At the heart of India’s economic growth story lies the MSME sector—an indispensable pillar of the economy.
Contributing nearly one-third to the GDP and accounting for almost half of the country’s exports, recognising their
significance, the Government of India has proposed enhancing investment and turnover limits for MSME
classification, ensuring a more robust and competitive sector. With over 7 crore MSMEs generating employment for
about 26 crore individuals, the sector remains a key driver of economic progress.

A significant milestone in the development of the MSME sector in India is the big shift in formalisation with the
registration of approximately 2.6 crore Informal Micro Enterprises (IMEs) through the Udyam Assist Platform. This
initiative is set to transform credit flow dynamics, policy formulation, and the sector’s overall contribution to the
economy. As MSMEs integrate further into the formal economy, access to reliable sectoral data becomes crucial for
informed decision-making.

While the Government continues to take major initiatives in the sector, MSMEs still face structural challenges such
as inadequate access to formal credit, skilled labour shortages, infrastructure bottlenecks, and limited awareness of
government schemes. This report, “Understanding Indian MSME Sector”, provides a comprehensive analysis of
these issues at both macro and micro levels. Notably, it estimates the credit gap in the sector at approximately ₹30
lakh crore and highlights government initiatives and digital lending innovations that are shaping the future of MSME
financing.

The MSME sector in India is at a critical juncture, with immense opportunities for growth and development. However,
the sector's progress is dependent on policies and programmes that foster access to credit and market, women
empowerment, entrepreneurship, and sustainability. Creating awareness amongst MSMEs and handholding them in
their journey to scale up is the key in effective implementation of designed policies and programmes.

The survey findings indicate the opinions of the respondents, which are not necessarily shared by SIDBI.
The data has been obtained from survey of MSMEs through personal interviews, telephonic interviews and
computer assisted web interviews. The study was commissioned by SIDBI to Crisil. The survey and credit
gap assessment has been undertaken by Crisil. SIDBI does not accept any responsibility whatsoever for
any consequences arising from the use of the information contained in this document.

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Appendix: MSME credit gap assessment methodology
The approach for credit gap estimation in the MSME sector is based on the estimation of overall finance demand
in the sector using the gross turnover and investment figures (as per government classification) of the Udyam-
registered enterprises. The latter figures are extrapolated for the informal enterprises to obtain the aggregate
turnover and investment of the whole MSME sector.

The overall finance demand essentially comprises of two components:

• Working capital and

• Investments in fixed assets

The working capital requirement is assumed at 30% of the estimated operating expenses based on empirical data
seen for MSMEs. For investment in fixed assets, a multiplier of 1.7 has been used over the estimated industrywide
investment figures, given the additional expenditure on land, buildings and miscellaneous items that are not
factored into the investment definition.

The total finance demand is assessed at around ₹123 lakh crores based on the above approach.

Of the total finance demand, 75% is assumed to be debt demand and the remaining 25% is attributed for share of
equity based on a normative debt equity mix of 3:1.

Further, the debt demand is funded through both formal and informal sources of capital. In order to arrive at the
formal addressable debt demand, it is assumed that 70% of the debt demand is formal in nature (or addressable
debt demand) and 30% of the debt demand is assumed to be met by informal sources.

The adopted approach assumes that the demand for equity and debt from informal sources are met from family,
relatives and other sources by the promoters of the enterprises.

This leads to the addressable debt demand to be estimated at ₹64 lakhs.

To arrive at the broad estimated credit gap of ₹30 lakhs, the credit supply from formal sources viz., Banks and
NBFCs (~₹34 lakh crore) is deducted from the addressable debt demand.

The proportion of credit gap is computed at ~24% in the context of the aggregate finance demand.

The assumptions for the credit gap assessment have been based on primary interactions and secondary research.

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NOTES

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NOTES

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he assumptions for the credit gap assessment have been based on primary interactions and secondary research.

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