Strengthening Medium Enterprises as a Catalyst for MSME Growth

• 31 May 2025

For Prelims: Ministry of Micro, Small and Medium Enterprises, Manufacturing Sector, Mudra Yojana expansion, Udyam portal, Government e-Marketplace, Production-Linked Incentive, Economic Survey 2024-25, Digital MSME 2.0  

For Mains: Role of MSMEs in India’s Economic Growth,  Key Issues Hindering the Growth of MSME Sector. 

Source: IE 

Why in News?

NITI Aayog has released a report titled ‘Designing a Policy for Medium Enterprises’, proposing a dedicated concessional credit scheme and reforms to boost India’s medium-sized enterprises( that includes enterprises with investment in plant and machinery up to ₹125 crore and an annual turnover up to ₹500 crore).  

• The report can also serve as a potential blueprint for addressing the challenges faced by small and micro enterprises, paving the way for a more inclusive and scalable MSME ecosystem. 

What are the Key Policy Recommendations of NITI Aayog for Medium Enterprises? 

• Facilitating Financial Access: Introduce a dedicated working capital scheme offering concessional loans up to Rs 25 crore and a Medium Enterprise Credit Card with pre-approved limits up to Rs 5 crore for emergency funds.  
  • Extend the Non-Performing Asset (NPA) classification period from 90 to 180 days to ease liquidity pressures. 
• Technology Integration & Industry 4.0: Upgrade existing Technology Centres into India SME Industry 4.0 Competence Centres providing AI, IoT, and automation support through a hub-and-spoke model (links a central unit to multiple branches) to ensure wider outreach and phased implementation for smooth adoption. 
• Strengthening R&D & Innovation: Allocate 25–30% of Government funding from the Self-Reliant India Fund specifically for medium enterprises’ R&D.  
  • Establish a three-tier governance system and promote competition-based funding aligned with national priorities. 
• Cluster-Based Testing & Quality Certification:  Expand the MSE-Cluster Development Programme to medium enterprises by setting up sector-specific testing facilities within industrial clusters, reducing costs and improving export quality compliance through public-private partnerships and digital tools. 
• Customized Skill Development: Enhance real-time skill gap mapping via the MSME Sampark Portal and expand the Entrepreneurship and Skill Development Programme to include cluster-specific, technology-linked, and export-oriented training.  
• Centralized Digital Portal: Create a dedicated sub-portal on the Udyam platform consolidating information on schemes, compliance, finance, and market access, integrated with AI tools for eligibility assistance, compliance tracking, and real-time regulatory and market updates.

Note: While medium enterprises act as catalysts through higher innovation, investment, and export capacity, it is crucial to strengthen the entire MSME ecosystem, including micro and small enterprises—which are vital to inclusive economic growth and rural employment. A synergistic approach can amplify sectoral development and resilience. 

What are Micro, Small and Medium Enterprises (MSMEs)? 

• About:  MSMEs are businesses that produce, process, and preserve goods and commodities. 
• Classification: These are broadly classified into  micro, small and medium enterprises based on their investment in plant and machinery for manufacturing or equipment for service enterprises, as well as their annual turnover. 

 

• MSME  Scenario:  As per Udyam Portal (Feb 2025), India has 5.93 crore MSMEs, with micro enterprises forming over 98%, while medium enterprises account for just 0.3% (69,300 units).  
  • Out of 2.95 crore registered MSMEs (as per MSME Annual Report 2023-24), 72% are engaged in the service sector and remaining 28% in the manufacturing sector. 
• Significance: 
  • Contribution to GDP & Employment:  MSMEs currently contribute approximately 29% to India's GDP, producing 6,000+ diverse products and employ over 60% of India’s workforce. 
    • MSMEs create 27 crore jobs, with women comprising 26% of the workforce. 
    • While micro enterprises generate 89% of MSME jobs, medium enterprises contribute 3%, but with a high per unit employment of ~89 persons. 
  • Contribution to Exports: MSMEs account for 40% of India's exports despite only 1.36% of registered MSMEs are exporters. 
    • Of these, 64% have an export turnover of less than Rs 1 crore. 
  • Green & Sustainable Growth: MSMEs lead India’s green industrial push by adopting clean energy and circular economy practices. Schemes like RAMP (with World Bank support) and Telangana MSME Policy (Rs 4,000 crore) focus on sustainable growth and entrepreneurship. 
  • Leading Digital & Technological Transformation: MSMEs are rapidly adopting digital payments, automation, and AI. Programs like ONDC and the Rs 1 lakh crore interest-free innovation fund support this shift.  
    • 72% of MSME transactions are now digital. 

Click Here to Read More: Role of MSMEs in India’s Economic Growth 

 

What are the Key Issues Associated with MSMEs in India? 

• Access to Finance: Despite schemes like Mudra Yojana and PM Vishwakarma, MSMEs face credit hurdles due to lack of collateral, high interest rates, and complex loan procedures. Many fail to meet formal lender criteria, pushing them toward unreliable informal credit sources. 
  • As per SIDBI Report 2025, 17% of surveyed MSMEs did not avail any credit, while 8% relied on informal sources, micro enterprises being most impacted (12%). 
• Regulatory and Compliance Burden: MSMEs struggle with complex tax structures, frequent policy changes, and onerous compliance, lacking manpower and expertise. While GST has eased some processes, the regulatory load remains heavy, leading to penalties and financial stress. 
  • Multiple overlapping laws across labor, taxation, and environmental regulations create bureaucratic roadblocks.   
• Infrastructure and Logistics Gaps: Poor transport, warehousing, and supply chains increase costs and delays, especially in rural areas, limiting market expansion and customer satisfaction. 
  • The Economic Survey 2022-23 pointed out that logistics costs in India were in the range of 14-18% of GDP against the global benchmark of 8%.   
• Technology Adoption Lag: Most MSMEs lack access to AI, IoT, automation due to financial and technical constraints, reducing competitiveness and innovation. Digital payment integration is weak, and cybersecurity remains inadequate, increasing operational risks. 
  • Of 64 million MSMEs, just 7.7 million have achieved digital maturity. 
  • According to a survey by the Ministry of MSMEs, only 45% of MSMEs have adopted some form of AI in their operations  
• Skilled Workforce Shortage: MSMEs rely heavily on semi/unskilled labor, affecting efficiency. Lack of targeted training and skilled manpower in technical/managerial roles constrains growth and productivity. 
  • About 47% of MSMEs report difficulty in finding employees with the right skills, especially in manufacturing and IT-enabled services, where specialised talent is crucial for sustained growth. 
• Market Access and Competition: MSMEs face low brand visibility, restricted marketing budgets, and limited market intelligence.  
  • Only 1.36% of registered MSMEs are currently exporting. And even in them, Medium enterprises, though just 9% of exporting units contribute 40% of MSME exports. 
• High Informality: Despite recent improvements, still a major portion of MSMEs operate unregistered, lacking access to formal credit, govt. schemes, and IPR/legal protection. Weak documentation undermines credibility and scalability.  

Click Here to Read More: Challenges Related to MSME Sector 

What Steps can India Adopt to Strengthen and Revitalize the MSME Sector? 

• Simplifying Compliance & Formalisation: Complex tax rules increase MSME costs and discourage formalisation.  
  • India should adopt a unified tax filing system with simplified rates and pre-filled forms, using GST Sahaj and Udyam portals, like Brazil’s SIMPLES program.  
  • To support growing firms, a 3-year transition with tax benefits should be given to ease compliance. 
• Real-Time Monitoring & Policy Evaluation: A central MSME Performance Dashboard should be made to track credit, technology use, exports, employment, and skills.  
  • A high-powered MSME transformation council should coordinate data collection and policy oversight for better monitoring and evaluation. 
• Improve Access to Finance: Use fintech tools like alternative credit scoring (based on trade and utility payments), blockchain lending, and digital collateral systems to help small and rural MSMEs get affordable and timely loans, going beyond existing credit schemes. 
• Promote Technology and Innovation: Set up regional Innovation Centers where MSMEs can use new technologies like AI, IoT, robotics, and cloud computing. 
  • These centers should provide affordable tech support, mentorship, and chances to work with research groups. 
• Build Skills and Entrepreneurship: Start a national mission to train MSME workers in digital skills, vocational training, leadership, and entrepreneurship.  
  • Use online learning, apprenticeships, and global certification to make sure the workforce meets modern needs. 
• Expand Market Access and Branding: Create one digital portal that links domestic marketplaces like GeM with global export platforms.  
  • This will make it easier for MSMEs to list products, get export help, and access market data. Also, run campaigns like “Vocal for Local” to promote MSME products nationally and internationally. 
• Support Sustainable and Inclusive Growth: Encourage MSMEs to use clean technologies with green loans, carbon credits, and training on sustainability. Improve rural MSMEs by boosting infrastructure, supporting agriculture-based industries, and including women and marginalized groups in business chains. 

Conclusion 

NITI Aayog’s recommendations for medium enterprises focus on financial access, technology, and skill development to strengthen this key segment. Expanding these reforms to include all MSMEs is vital. A unified approach addressing finance, innovation, market access, and sustainability will revitalize the entire MSME sector, boosting India’s economy and employment. 

Drishti Mains Question:

Discuss the role of MSMEs  in India’s economic development and analyze the key policy recommendations of NITI Aayog aimed at addressing their challenges.  

UPSC Civil Services Examination, Previous Year Question:(PYQ)  

Prelims:

Q.1 What is/are the recent policy initiative(s)of Government of India to promote the growth of the manufacturing sector? (2012)  

1. Setting up of National Investment and Manufacturing Zones  
2. Providing the benefit of ‘single window clearance’  
3. Establishing the Technology Acquisition and Development Fund  

Select the correct answer using the codes given below:  

(a) 1 only  

(b) 2 and 3 only  

(c) 1 and 3 only  

(d) 1, 2 and 3 

Ans: (d) 

Q2. Which of the following can aid in furthering the Government’s objective of inclusive growth? (2011)  

1. Promoting Self-Help Groups  
2. Promoting Micro, Small and Medium Enterprises  
3. Implementing the Right to Education Act  

Select the correct answer using the codes given below:  

(a) 1 only  

(b) 1 and 2 only  

(c) 2 and 3 only  

(d) 1, 2 and 3  

Ans: (d) 

Q3. Consider the following statements with reference to India : (2023)  

1. According to the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, the ‘medium enterprises’ are those with investments in plant and machinery between `15 crore and `25 crore.  
2. All bank loans to the Micro, Small and Medium Enterprises qualify under the priority sector.  

Which of the statements given above is/are correct?  

(a) 1 only  

(b) 2 only  

(c) Both 1 and 2  

(d) Neither 1 nor 2  

Ans: (b)