1. Learning new skills and unlearning outdated ones is crucial for MSME growth
   
2. Financial training allows MSMEs to take control of cash flow and build funds for future
   circumstances
   
3. Soft skills training improves customer service and marketing strategies for business growth
   
4. Automation and quality control training improve production efficiency and quality 
   
5. Promoting sustainability can boost employment and contribute to India’s economic prosperity

The skilled manpower requirement in the MSME sector is projected to be over 150 million. This is because a skilled workforce can lead to a 20-30% increase in productivity and an average revenue growth of 24%. Investing in skill development enhances business efficiency, reduces errors, improves customer service, accelerates technology adoption, and facilitates the implementation of industry best practices. Moreover, it enables businesses to meet government regulations and international quality standards, ensuring competitiveness in a rapidly evolving market.

Despite this importance and requirement, skill development remains the most overlooked area across industries, with only 4.7% of the workforce in India having received formal training (significantly lower compared to countries like China at 24% and Germany at 75%). 

Here’s a look at the existing distribution of skilled workforce across various industries in the MSME sector. 

Sources: Ministry of Micro, Small & Medium Enterprises, FTCCI, ResearchGate 

This uneven skill development can primarily be attributed to inadequate awareness about the need to upskill, limited access to training programs, and fewer resources among MSMEs. Typically, small companies consider any training beyond the immediate job requirement to be a luxury and provide it only when there is a large profit for the firm. Even when training occurs, it is often reactive, informal, and short-term, focusing solely on solving immediate work-related problems rather than fostering long-term employee development. As a result, MSMEs fall behind in formal training, gaining digital literacy, and upscaling logistics and warehousing.

MSMEs in Tier 2 and Tier 3 cities also face significant skill gaps that hinder their productivity and competitiveness despite their potential. Beyond technical expertise, there is a lack of leadership and managerial skills that further limits the ability of MSMEs to scale operations, adapt to market changes, and drive innovation. The areas where skill development can be fostered for the comprehensive growth of MSMEs include:

Digital & Technological Skills

• Expertise in Enterprise Resource Planning (ERP),  Customer Relationship Management (CRM), and automation tools.
•  Digital marketing and e-commerce 
• Awareness of AI, IoT, and cloud computing.

Financial & Business Management

• Financial literacy, management, and budgeting skills.
• GST, taxation, and compliance knowledge.
• Nuances of identifying funding opportunities or procuring business loans

Manufacturing & Production Skills

• Skilled workers for advanced manufacturing
• Strong knowledge in quality control and process optimization
• Efficient production methods and waste reduction knowledge 

Supply Chain & Logistics Management

• Proper inventory management and procurement planning 
• Keen understanding of cost-effective logistics strategies
• Enhanced warehouse management knowledge and transportation expertise

Sales & Marketing Expertise

• Strengthen brand positioning and customer engagement strategies 
• Build knowledge of modern sales techniques
• Robust online presence and social media marketing skills 

Soft Skills & Leadership Development

• Develop communication, negotiation, and problem-solving skills 
• Strengthen leadership and managerial skills
• Improved adaptability to market changes and business innovations

The above-mentioned skill gap across sectors necessitates interventions for business growth and competitiveness as countries investing in human capital through education and vocational training experience improved GDP growth rates. 

5 Effective Ways for MSMEs to Bridge the Skill Development Gap

To narrow the skill gaps, MSMEs must focus on key areas of skill development across various business functions to improve overall productivity. This entails:

1. Learning and Unlearning: Key Skills for MSME Growth

MSMEs must continuously acquire new skills to stay competitive in an evolving business landscape. This includes technical expertise, digital and financial literacy, managerial capabilities, and soft skills to enhance efficiency and productivity.

At the same time, letting go of outdated practices is crucial. As technology advances, traditional and manual methods may become obsolete, requiring MSMEs to embrace modern approaches with a growth mindset.

For instance, a traditional textile MSME can expand its reach by adopting e-commerce, learning digital marketing, online advertising, and inventory management tools. Shifting away from sole reliance on local markets, MSMEs can abandon inefficient manual record-keeping and outdated marketing techniques in favor of digital-first strategies.

2. Financial Training

Training in fund management allows MSMEs to take control of cash flows and even build funds for future circumstances. MSMEs report a significant boost in operational efficiency by dropping operational costs through implementing various fund management platforms.

Example: Financial training and support initiatives like the Deen Dayal Upadhyaya Antyodaya Yojana (DDU-AY) provide financial literacy and skill development, helping small entrepreneurs manage resources efficiently and expand their businesses. These efforts highlight the significance of financial empowerment in driving sustainable economic growth in smaller cities.

3. Soft Skills and Customer Service

MSMEs need to provide soft skills training to their employees for better customer service and marketing strategies for business growth. Customer relationship management (CRM) training across all levels of a company will bring enthusiasm and commitment to employees.

4. Manufacturing, Automation, and Quality Control

Automation and quality control training help improve production efficiency and maintain the product quality of businesses. To remain competitive, MSMEs require a workforce capable of utilizing new technologies and adapting to new processes. By implementing certain quality control tools, MSMEs can become more competitive and produce better quality products at competitive prices.

Example: A Tier-2 MSME in the automotive parts sector embraced efficient manufacturing techniques that reduced production defects by 20%.

5. Sustainable Practices  

Training in sustainable practices is becoming essential as businesses shift toward eco-friendly operations. MSMEs hold immense potential for growth, innovation, and sustainability. By aligning institutional strategies with their unique needs, promoting sustainability can boost employment, and contribute to India’s economic prosperity. For example, when an MSME in the packaging industry replaces plastic with biodegradable materials, it can improve product demand. 

There are several initiatives by the government of India to support MSMEs through skill development, financial aid, and technological advancement. Leveraging these initiatives, MSMEs can enhance employee skills, improve productivity, boost competitiveness, and provide access to better technology and financial support, for sustained growth.

Initiative	Description
Skill India Mission	Vocational training and specialized courses.
Pradhan Mantri Kaushal Vikas Yojana 4.0 (PMKVY 4.0)	Short-term skill training program & certification across various sectors
National Apprenticeship Promotion Scheme (NAPS)	Financial incentives for MSMEs to engage apprentices and enhance employee skills.
Sector Skill Councils (SSC)	Sector-specific training in key business functions
FutureSkills Prime	Builds digital skills and automation training for MSMEs.
Technology Centre Systems Programme (TCSP)	Offers advanced skill training and technology support to MSMEs.
Micro & Small Enterprises Cluster Development (MSE-CDP)	Enhances skills and competitiveness through technology and training in MSME clusters.
Entrepreneurship and Skill Development Programs	Trains and boosts capacity building for MSME entrepreneurs.
Stand-Up India Scheme Features	Skill development and entrepreneurship training for SC/ST and women entrepreneurs.
Rozgar Mela	Enhances skill-based employment opportunities through government-supported training.

The Impact of Skill Development on MSMEs

Skill development is not just about bridging knowledge gaps—it is about empowering MSMEs to thrive in an increasingly competitive, digitized, and sustainability-focused economy. Prioritizing training and capability-building ensures that MSMEs remain resilient, future-ready, and integral contributors to India’s economic growth. Beyond direct financial benefits, skilled employees drive innovation—fostering the development of new products, services, and streamlined business models. 

Additionally, when MSMEs cultivate a culture of continuous learning, they increase their adaptability to market shifts, regulatory changes, and emerging global trends. Moreover, trained employees demonstrate higher job satisfaction and lower attrition rates, reducing recruitment and training costs over time.