A few days ago, NITI Aayog Chief Executive Officer BVR Subrahmanyam launched new initiatives for MSMEs. He stated that the sector is heavily impacted by regulations, with technology upgrades and skill development being key challenges. He reportedly said, “Sometimes when I think of the Indian economy, I worry. We have a large number of large companies. The number of medium-sized companies is smaller than the large companies. Then, where is the growth going to come from? It is an institutional, structural problem.”
The Number of Small, Micro, and Medium Enterprises
A significant number of production units remain unregistered, particularly among micro enterprises. Many micro-units are too small to justify registration, while others are unaware of the process or do not find it beneficial. Some previously registered units have not maintained their status over time. In fact, most micro-enterprises are so small that their average employment capacity is fewer than two workers.
Udyam is the only government portal for MSME registration. According to the latest data (Indian Express, 28th March 2025), India has approximately 6.18 crore MSMEs, comprising 6.09 crore micro, 7.44 lakh small, and 70,000 medium enterprises.
Definition of Micro, Small, and Medium Enterprises
The Udyam portal classifies MSMEs based on the 2020 definition. Under this framework:
These thresholds will soon change following the Budget for FY 2025-26, which revised investment limits by 2.5 times and turnover limits by two times.
Challenges in Expanding from Micro to Medium Enterprises
The transition from smaller to larger enterprises remains sluggish. According to the MSME Ministry, in 2023-24, only 1,835 micro enterprises expanded into medium-sized units, while 15,918 small units transitioned to medium enterprises. Technology upgradation and skill development are essential for this growth.
To address these challenges, Subrahmanyam highlighted Dx-EDGE, a new initiative by the Confederation of Indian Industries, NITI Frontier Tech Hub, and the All India Council for Technical Education (AICTE). This initiative, based on a public-private-academia partnership, aims to empower MSMEs with tech-nology, enhancing their resilience and competitiveness. If successfully implemented, it could be a game-changer for the sector.
Subrahmanyam also emphasized the role of local universities and colleges in mentoring MSMEs through upskilling programs. He noted that while large companies can afford high-end consultants, MSMEs struggle under regulatory burdens. However, deregulation efforts have begun, with a task force under the Cabinet Secretary working to streamline land, electricity, and water regulations.
PLI Scheme and the “Make in India” Program
The Indian government introduced the Production Linked Incentive (PLI) Scheme in 2020 to boost manufacturing. The initiative aimed to increase the manufacturing sector’s GDP share from 15% in 2020 to 25% by 2024-25. With an investment of $1.97 trillion across 14 sectors, the scheme sought to attract both domestic and foreign enterprises.
Despite these efforts, the manufacturing sector’s GDP contribution fell to 14% over the past decade. The sales target of ₹15.52 lakh crore was not met, reaching only ₹14 trillion rupees.
According to a Reuters analysis (reported by CNBC on 27th March 2025), several firms failed to initiate production, and even those that met their targets faced delays in subsidy payouts. Dhiraj Nim, a foreign exchange strategist and economist at ANZ Bank, noted that the PLI scheme was never expected to succeed in all 14 sectors. While it performed well in niche areas, India’s longstanding protectionist policies had made domestic manufacturing less competitive than other global hubs.
Conclusion
The MSME sector remains the backbone of India’s economy, but challenges such as strict regulations, technological gaps, and inadequate skill development continue to hinder growth. New initiatives like Dx-EDGE and deregulation efforts could offer solutions. However, to truly boost manufacturing and MSME expansion, policymakers must ensure smoother implementation of incentive programs like the PLI scheme while fostering an ecosystem that encourages innovation and competitiveness.
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