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India’s MSME Sector
Context: India’s Micro, Small and Medium Enterprises (MSMEs) play a vital role in the national economy, acting as the backbone of employment and contributing significantly to exports.
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- Two recent reports—by the Small Industries Development Bank of India (SIDBI) and NITI Aayog—offer valuable insights into the current state of the sector.
- Alongside the Annual Survey of Unincorporated Sector Enterprises (ASUSE), these official studies shed light on the key features, challenges, and the employment paradox within the MSME ecosystem.
Key Facts About India’s MSME Sector
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- Total Number of MSMEs: As of March 2025, India has an estimated 7.34 crore MSMEs, out of which 6.2 crore are registered on the Udyam Portal.
- Classification:
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- Micro Enterprises: Investment up to ₹2.5 crore and turnover up to ₹10 crore
- Small Enterprises: Investment up to ₹25 crore and turnover up to ₹100 crore
- Medium Enterprises: Investment up to ₹125 crore and turnover up to ₹500 crore
- By this yardstick, almost all enterprises in India fall under MSMEs.
- Distribution: Micro: 98.64%, Small: 1.24%, Medium: 0.12%. The sector is overwhelmingly micro in scale.
- Ownership Type: Proprietorship: 59%, Partnerships: 16%, LLPs: 1%.
- Private Limited: 23%, Public Limited: 1%
- Employment Contribution: The sector reportedly provides jobs to 26 crore individuals, making it the largest employment generator in India.
- Credit Gap: The sector suffers from a credit gap of ₹30 lakh crore, which is about 24% of the total credit requirement.
- The gap widens for services sub-sectors (27%) and women-owned businesses (35%).
- Exports: MSMEs contributed 45% to India’s merchandise exports in FY 2023-24.
- However, only 1.73 lakh MSMEs are exporters—a tiny fraction. Exported goods are mostly low-tech, including: Readymade garments, Gems and jewellery, Leather goods, Handicrafts, Processed foods and Auto components.
- Government Schemes: Multiple schemes exist including: 2 subsidy schemes, 4 credit guarantee schemes, 13+ development schemes.
- 2025-26 Budget Additions: First-time entrepreneur scheme, MSME credit card, Deep Tech Fund of Funds, revamped PM SVANidhi.
Employment Paradox: Jobs Exist, Talent Doesn’t
- Despite being a major source of employment, the MSME sector faces labour shortages, skill gaps, and difficulty attracting talent.
- This paradox highlights the root of India’s unemployment crisis.
- Why the gap: Large industries demand high qualifications and specialised skills. MSMEs, while needing workers, are unable to attract talent either because:
- Job seekers lack the basic skills or education.
- The jobs offered are unattractive—low pay, unstructured environments.
- This leads to mismatched supply and demand in the labour market.
Employment Data Snapshot (April 2025)
- India’s population: 146 crore
- Labour Force Participation Rate (LFPR): 55.6% → 81 crore
- Worker Population Ratio (WPR): 52.8% → 77 crore
- Unemployed individuals: 4 crore (actively seeking jobs)
- Unemployment rate: 5.0%
- Many more have dropped out of the job market, disillusioned by lack of opportunities.
Family Businesses vs Real Employers
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- About 75% of MSMEs are proprietorships or partnerships—meaning the so-called “jobs” are often family-run and informal.
- The real job-creating potential lies with the small and medium enterprises (just 1.36% or approx. 10 lakh units), where actual employer-employee relationships exist.
- Job Creation Path:
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- Supply side: The 10 lakh small and medium enterprises
- Demand side: Youth with school-level education or basic college degrees
Challenges
- For MSMEs:
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- Lack of access to credit
- Onerous regulations
- Multiple, overlapping government schemes with complex compliance
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- For Job Seekers:
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- Poor quality of school education
- Inadequate language and math skills
- Limited or no vocational training
Strategy to Bridge the Gap
To tackle the unemployment challenge while empowering the MSME sector:
- Improve School Education: Strengthen basics: language, math, digital literacy. Integrate vocational skills training early on.
- Support SMEs (Drop the M): Focus on Small and Micro Enterprises, the true job creators. Implement a single, liberal credit-cum-interest subsidy scheme and Cut down red tape and streamline compliance.
The MSME sector holds the key to solving India’s employment crisis, but only if structural issues on both the supply and demand sides are addressed. Simplified governance, improved education, and focused financial support for small enterprises can unlock the sector’s full potential and bridge the gap between job seekers and job creators.
