The Indian Micro, Small and Medium Enterprises (MSME) businesses form the backbone of India's manufacturing and services sectors. It is reported that about 99% of the enterprises in India are either micro or small in size. There are approximately 63.39 million MSMEs across various sectors in India. The Indian MSME industry is expected to contribute approx. 50% to the country's GDP by 2025. The industry is the second-largest employment generator in India as of FY 2022, with more than 111 million people employed.

The Impact

The MSME sector took a significant hit during the pandemic. Nearly 5,900 businesses shut down during FY 2020-21 and 2021-22. With a substantial part of MSME business transactions being dealt with in cash, the working style, low scale of operation, and poor financial management put businesses in a difficult position with the unexpected onset of COVID-19. Most MSMEs faced issues such as having access to finance, marketing their products, and even struggling to cover expenses such as employee salaries, office rent, bills, taxes, and loans EMIs. On the other hand, lenders became circumspect and, to a certain extent, downsized their commitments. To overcome the crisis, the resurgence of MSMEs became a high priority. The industry needed to adopt a strategic and pragmatic approach during such challenging conditions while keeping long-term growth and planning in mind.

Road to recovery

India has made tremendous progress towards digitization, which turned out to be the key, especially post COVID, to creating a new business environment. The utilization of digitization for facilitating remote transaction management, efficient delivery of goods, and easier access to financial services alleviated issues and accelerated recovery. Adopting digitally enabled operations in short to medium term benefited the industry. Manufacturing had the highest adoption rate, adopting or upgrading their usage of digital platforms, compared to the services sector. Social media platforms for marketing or selling items and services were also productive. With direct digital payments and eliminating intermediaries, margins improved for businesses while enabling them to reach broader geographies.

It became necessary for MSMEs to have access to adequate capital, capacity building, and an understanding of dealing with digital banking and trade networks. Apart from digitization, what helped MSMEs endure the aftereffects of COVID were building trust with the employees and fortifying relationships with the lenders. Streamlining workflow and processes helped many reach and serve customers better. Strategies were implemented efficiently and constructive learnings to adapt to changing environments and sticking to proper execution became critical for the turn-around and overall success of the method adopted. Consistently communicating with the lenders with a constant flow of information and updates, collection efficiencies, restructured assets, recoveries, and widespread cultivation of greater trust helped to assuage lenders fears. This also helped avail of government initiated measures such as TLTRO, credit guarantee schemes and restructuring.


Initiatives taken by the Govt and the regulators and belt-tightening by MSMEs have been showing positive results. With sales in the MSME reaching 88% of the pre-pandemic levels and capacity utilization in many industries nearing 70%, it is heartening to know that most entrepreneurs are confident about business recovery after the economic slowdown due to the pandemic.

Ongoing concerns

Every industry endures a struggle of some kind. Even though India has climbed up in the World Bank's Ease of Doing Business index, the system has various drawbacks that deter businesses from expanding or succeeding. Multiple regulations and approvals causing delays in obtaining licenses, insurance, and certifications, hamper the growth prospects of MSMEs. Also, MSMEs face unavoidable issues such as the present geopolitical turmoil between Russia and Ukraine, impacting the supply chains and fuel inflation. There a dire need for support from all sides to use the potential of MSME in India fully.


The Govt of India has launched the MSME Innovative Scheme to help MSMEs scale up through the guidance, financial assistance, technical assistance, and other means that directly benefit society and are successfully marketed by the MSME Ministry. If implemented well and on a large scale, measures such as this can help the sector channelize the natural spirit of innovation among entrepreneurs correctly and help create a more robust industry.

There is also a need to consider appropriate transformations to enable MSMEs to withstand volatility in the domestic and global economic environment. The government has organized training programmes through National Level Development and Service Institutes. This support needs further enhancement to promote innovation and upscale MSMEs to withstand global competition. Technological upgradation of the MSMEs minimizes external risks and encourages corporatization of the MSME sector. Greater formalization of the industry and coverage under GST and digital payments would help in the rapid circulation of money in local economies, create jobs, and spread social progress to the country's most remote corners. All this is critical in the long run for MSME's growth in India.

If India must become a $ 5 trillion economy and provide employment to its ever-growing young population, a vibrant, sturdy, and innovative MSME sector is a sine qua non.