A Guide for MSME Success in the Industry 4.0 Era 

• India’s transition into the Industry 4.0 era is unlocking transformative growth across sectors like manufacturing, healthcare, EVs, defense, etc. 

• MSMEs proactively align with high-growth sectors and adopt relevant technologies to gain competitive advantage and long-term sustainability. 

• Sectors such as pharmaceuticals (8.4% growth), EVs (15.6% YoY growth), and renewable energy (29.52 GW capacity addition) present strong entry points for MSMEs across value chains. 

• To capitalize on this momentum, MSMEs must invest in capacity upgrades, quality certifications, and skill-building tailored to their chosen sectors. 

• Government schemes and financing solutions can empower MSMEs to scale strategically in India’s evolving industrial landscape. 
   

India’s industrial sector is poised for significant expansion, propelled by the transformative power of Industry 4.0 (the fourth industrial revolution), and a strategic government push through capital expenditure and Production-Linked Incentive (PLI) schemes. This technological revolution, integrating AI, IoT, big data, and automation, is reshaping business processes and creating a dynamic ecosystem. For MSMEs, understanding and strategically engaging with this evolving landscape is paramount. By tracking and aligning with high-growth industries, small enterprises can tap into new markets, diversify their offerings, and secure a path towards sustained progress and enhanced global competitiveness in this Industry 4.0 era and beyond.  

To fully benefit from the current industrial momentum and the long-term prospects of these technological advancements, MSMEs must first explore the key booming sectors, analyse their growth drivers, and implement actionable insights. 

How Industry 4.0 is Reshaping Industries 

Industry 4.0 is seamlessly integrating advanced digital technologies into manufacturing and allied sectors and creating smart factories, optimizing supply chains, and fostering greater agility and responsiveness. The Indian government has proactively embraced Industry 4.0 as a key driver for economic growth, setting ambitious goals to elevate the manufacturing sector’s contribution to 25% of the GDP by 2025¹. Initiatives like ‘Make in India’ and the establishment of advanced manufacturing clusters are testament to this commitment.  

While the widespread adoption of Industry 4.0 is still underway, pioneering sectors such as automotive, electronics, and pharmaceuticals are demonstrating its transformative potential, leading to enhanced productivity, improved quality, and increased global competitiveness for Indian industries. 

Importance of Tracking High-Growth Industries for MSMEs 

High-growth industries have the potential to ensure long-term sustainability and expansion. By gaining a deep understanding of the dynamics and evolving demands of these high-growth areas, MSMEs can make informed decisions regarding strategic investments, the adoption of relevant technologies, and the development of necessary skills within their workforce. This proactive approach not only enhances their competitiveness and fosters innovation but also facilitates their seamless integration into domestic and global value chains, opening doors to new collaborations and funding opportunities. 

Booming Sectors & Growth Drivers for MSMEs 

Several key sectors in India are currently exhibiting strong growth trajectories, presenting significant opportunities for MSMEs to thrive. Here are the sectors that powered India’s current industrial momentum, in FY 2024–25: 

• Pharmaceuticals & Healthcare: Known as the ‘Pharmacy of the World,’² India boasts a strong pharmaceutical export base and a rapidly growing domestic demand, fueled by increasing healthcare awareness and MedTech adoption. The Indian pharmaceutical market experienced a growth of 8.4% in FY25, thanks to increasing value in key therapeutic areas like cardio, gastrointestinal, and the non-diabetic segment. 

• Electric Mobility: Witnessed accelerated adoption of EVs, supported by government schemes like FAME and the auto PLI. The rapid growth of EV market, with over 2 million EVs sold in FY2025 and a 15.6% year-on-year increase³, created a ripple effect across the auto component ecosystem. 

• Renewable Energy: The sector set a record with 29.52 GW added capacity in FY25⁴, mainly from solar. This strong performance is also reducing the sector’s reliance on fossil fuel imports and diversifying its energy sources. The expansion of projects within the sector is generating employment opportunities across the value chain, from manufacturing and project development to installation and maintenance, thereby boosting local economies 

• Defense Production: Reached ₹1.27 lakh crore in FY24⁵, with increased participation from private players. Driven by indigenization and modernization under the Atmanirbhar Bharat initiative, including Light Combat Aircraft Tejas, T-90 Bhishma tank overhaul, BrahMos Missile System, Project 75 Submarines, and so on.  

• Construction & Real Estate: Saw substantial gains due to government infrastructure investments and increased demand in residential and commercial property. Regulatory reforms like RERA and GST have improved transparency and investor confidence. 

• Textile: India’s textile and apparel exports (including handicrafts) witnessed a 7% rise to $21.36 billion during the first seven months of FY2024-25 (April-October), a notable increase from $20 billion in the same timeframe in FY2023-24. Ready-Made Garments (RMG) were the primary driver, accounting for 41% of these exports, followed by Cotton Textiles (33%) and Man-Made Textiles (15%)⁶. 

• Steel: In FY2024-25, India’s steel industry saw a significant rise in output, with crude steel production climbing to 151.1 million metric tons, a 4.7% increase from the previous year. This growth aligns with optimistic forecasts projecting an 8% annual increase in India’s steel demand for both 2024 and 2025⁷. 

While the aforementioned sectors are poised for continued high growth, MSMEs are already acting as vital suppliers, collaborators, and service providers, playing an integral role in this ongoing growth story.  

Below is a consolidated list of sectors exhibiting strong growth and presenting significant opportunities for MSMEs in FY2025-26: 

1. Manufacturing 

The manufacturing sector is a cornerstone of India’s economic ambitions, with the government aiming to significantly increase its contribution to the GDP. It has delivered robust output driven by strong domestic demand and rising exports. The government’s focus on raising its GDP share to 23% highlights its central role, especially in sunrise segments like electronics, auto components, and defense. This focus encompasses a broad range of industries, from heavy machinery to consumer goods, and emphasizes enhancing production capabilities and global competitiveness. 

Growth Drivers: Government initiatives like the PLI schemes extend to various manufacturing sub-sectors, encouraging domestic production and attracting investments. The focus on creating a robust manufacturing ecosystem, coupled with the adoption of Industry 4.0 technologies, aims to boost efficiency, quality, and scale. 

MSME Opportunities: MSMEs play a crucial role in the manufacturing value chain, acting as suppliers of raw materials, components, and specialized services. They can participate in contract manufacturing, develop niche products, and integrate into the supply chains of larger manufacturing enterprises. Embracing technology upgrades and focusing on quality standards will be essential for MSMEs to capitalize on the growth in this sector. 

2. Electronics & Semiconductors 

India’s electronics and semiconductor sector is on a rapid growth trajectory, with a projected market size of $103.4 billion by 2030, exhibiting a Compound Annual Growth Rate (CAGR) of 13%⁸. This expansion is fueled by an increasing domestic demand for electronic goods across various applications and strong governmental support to establish India as a global electronics manufacturing hub. 

Growth Drivers: The government’s Production-Linked Incentive (PLI) scheme for electronics manufacturing, coupled with the ‘Digital India’ initiative, is significantly boosting local production. A burgeoning local consumption, driven by a young and aspirational population, alongside increasing internet penetration and the widespread adoption of technology across sectors, further fuels this growth. 

MSME Opportunities: MSMEs can tap into opportunities in component manufacturing, including Printed Circuit Boards (PCBs) and resistors. There’s also potential in chip design verification, testing, and packaging services. Collaborating with Electronic Manufacturing Services (EMS) providers for assembly services and developing specialized software and AI-powered solutions for the electronics industry present further avenues for growth. 

3. Renewable Energy (Solar, Wind, EVs) 

India is aggressively pursuing its renewable energy targets, aiming for 500 GW of installed capacity by 2030. As of March 2025, the country has already achieved 220.1 GW. This ambitious goal is driven by strong policy support, a global focus on sustainability, and the decreasing costs of renewable energy technologies. 

Growth Drivers: Government incentives, including subsidies and favorable policies, are key drivers. The increasing demand for clean energy sources across industries and households, coupled with a record addition of 29.52 GW of renewable capacity in FY25 (led by solar with 23.83 GW), underscores this growth. Initiatives in green hydrogen and wind energy further diversify the sector’s potential. 

MSME Opportunities: MSMEs can engage in the manufacturing of components for solar panels and wind turbines, as well as in battery storage solutions and the development of Electric Vehicle (EV) charging infrastructure. Services in the installation, operation, and maintenance (O&M) of renewable energy projects, decentralized energy systems, bioenergy production, and providing specialized consulting services also present significant opportunities. 

4. Pharmaceuticals & MedTech 

Known as the “Pharmacy of the World,” India boasts a strong pharmaceutical export base and a rapidly growing domestic demand. The sector’s growth is propelled by increasing healthcare awareness, the expansion of health insurance coverage, and the rising adoption of advanced medical technologies. 

Growth Drivers: Government PLI schemes, the establishment of bulk drug and medical device parks, and incentives for Research and Development (R&D) are fueling local manufacturing and reducing import dependence. The projected market size is substantial, with pharmaceuticals expected to reach ₹4.6 lakh crore and MedTech potentially hitting $50 billion by 2030⁹. Government-backed clusters are facilitating quality upgrades and enhancing global competitiveness. 

MSME Opportunities: MSMEs can focus on manufacturing Active Pharmaceutical Ingredients (APIs) and drug intermediates, as well as components and consumables for the MedTech industry. Contract manufacturing, providing R&D support services, engaging in diagnostics, and offering packaging and logistics solutions are viable entry points. Niche areas like biosimilars, digital health solutions, and regulatory-compliant specialized services also hold promise. 

5. Defense & Aerospace 

The defense and aerospace sectors in India are witnessing robust growth, primarily driven by the ‘Atmanirbhar Bharat’ (Self-Reliant India) initiative and increasing defense expenditure. The country has produced numerous defense items where MSMEs contribute, including components for: 

• Artillery Guns: Parts for the Advanced Towed Artillery Gun System (ATAGS). 

• Armored Vehicles: Components for military trucks and protected vehicles. 

• Aircraft: Fasteners, brackets, and structural elements for aircraft like the Light Combat Aircraft (LCA) Tejas. 

• Naval Equipment: Pumps, valves, and shipboard systems for frigates and corvettes. 

• Missile Systems: Parts for guidance systems and warhead casings. 

• Electronic Warfare Systems: Components for jamming devices. 

• Optical and Electro-optical Equipment: Parts for night vision devices. 

• Personal Protection Equipment: Components for bullet-resistant jackets.  

• MRO Services: Providing Maintenance, Repair, and Overhaul (MRO) services, developing advanced materials, and creating niche software solutions for the defense sector are also promising areas.  

Growth Drivers: The establishment of defense industrial corridors, the easing of licensing procedures, and higher Foreign Direct Investment (FDI) limits are attracting significant investments. There’s a strong push for local design, development, and manufacturing of sophisticated defense systems. The defense corridors are boosting infrastructure, simplifying entry for new players, and fostering technological collaborations. The emphasis is on reducing reliance on imports and building indigenous technological capabilities. 

MSME Opportunities: MSMEs can engage in the manufacturing of various defense components, electronics, and aerospace parts. Providing Maintenance, Repair, and Overhaul (MRO) services, developing advanced materials, and creating niche software solutions for the defense sector are also promising areas. Supplying to Defense Public Sector Undertakings (DPSUs) and large private defense firms, and leveraging the ecosystem within the defense corridors, can provide significant business opportunities. 

6. Auto Components & Electric Mobility 

India’s automotive component sector is closely linked to the robust domestic vehicle sales and growing exports. The Electric Vehicle (EV) market is projected to reach USD 113.99 billion by 2029, driven by the ongoing EV transition and supportive government schemes like FAME (Faster Adoption and Manufacturing of Electric Vehicles) and PLI for the auto sector. The overall industry revenue is projected to surpass $80 billion in FY 2024–25¹⁰. 

Growth Drivers: A significant surge in demand for EV-specific components, including batteries, motors, and controllers, is a key driver. The government’s strong emphasis on localization to reduce import dependence further fuels the growth of domestic component manufacturing. 

MSME Opportunities: MSMEs have significant opportunities in manufacturing components for both EVs and traditional Internal Combustion Engine (ICE) vehicles. The aftermarket services and the supply of replacement parts also present a substantial market. Emerging areas like battery recycling, Battery Management Systems (BMS), and the development of EV charging infrastructure offer new avenues for MSME participation. 

7. Infrastructure 

The infrastructure sector is a critical and expanding contributor to India’s GDP, acting as the backbone for overall economic development. This growth is primarily fueled by substantial and sustained government investment in mega infrastructure projects, including an extensive expansion of roads, railways, ports, and airports, significantly improving connectivity and addressing long-standing logistics challenges. Regulatory reforms such as the Real Estate (Regulation and Development) Act (RERA) and the Goods and Services Tax (GST) have also played a crucial role in boosting investor confidence within the broader infrastructure and real estate ecosystem. The real estate market is projected to reach $46.76 trillion by 2025¹¹. 

Increased and targeted government spending on infrastructure development is the primary driver, creating immense demand for construction materials, specialized equipment, and a wide range of related services. The enhanced connectivity facilitated by these projects is solving critical logistics bottlenecks, reducing transportation costs, and improving supply chain efficiency across various industries. Furthermore, the development of new economic corridors and industrial zones, coupled with rapid urbanization and a focus on affordable housing, are further propelling growth in this interconnected sector. 

MSME Opportunities: A diverse range of MSMEs are integral to the infrastructure sector. This includes construction firms, specialized contractors, engineering and design consultants, and suppliers of essential materials like cement, steel, aggregates, and innovative construction technologies. Significant opportunities exist in providing crucial construction services such as civil work, structural engineering, plumbing, electrical installations, and specialized services related to the development of transportation networks (roads, railways, bridges). MSMEs can also capitalize on the demand for equipment and tools for large-scale projects, as well as offering specialized services in areas like logistics support, warehousing solutions linked to improved connectivity, and facility management for new infrastructure assets. The focus on developing efficient logistics networks also opens avenues for MSMEs in transportation and warehousing. 

Considering the above opportunities in the various sectors, larger firms are aggressively scaling up their capacities to meet the increasing demand, enhance operational efficiency, and cater to growing export opportunities. Upgrading MSMEs’ capabilities is paramount for remaining competitive in this evolving landscape.  

The Role of Capacity Upgrades and Tech Adoption 

Investing in modern machinery and equipment can enhance productivity and quality. Skill development programs for their workforce are crucial to adapt to new technologies and processes. Furthermore, the strategic adoption of relevant technologies, such as digital tools for inventory management, customer relationship management, and even basic automation in production, can significantly improve their efficiency and market reach. 

MSME Takeaways: What They Can Do Now To Capitalize On The Wave 

Identifying high-growth sectors  

• Align with High-Growth Sectors: MSMEs should strategically identify and align their businesses with the booming sectors outlined above. Exploring opportunities for backward or forward integration within these value chains can create stable and growth-oriented business models. 

• Identify Niche Roles: Instead of competing directly with large players, MSMEs can focus on identifying and occupying niche roles within these high-growth industries. This could involve becoming a certified vendor for Original Equipment Manufacturers (OEMs) or leveraging aggregator models to access export markets. 

• Upgrade Capacity Smartly: MSMEs should explore avenues for smart capacity upgrades by leveraging government schemes like the Emergency Credit Line Guarantee Scheme (ECLGS). 

• Explore Financing Solutions: Regulated NBFCs like Protium provide tailored loans enabling MSMEs to upgrade capacities and leverage opportunities in the high-growth sectors. 

• Build Essential Capabilities: Investing in Environmental, Social, and Governance (ESG) readiness, obtaining relevant quality certifications, and fostering a culture of Research and Development (R&D) are crucial for long-term sustainability and competitiveness. 

Besides the above, a range of initiatives designed by the Indian government can support MSMEs in their growth journey: 

• PLI-Linked Cluster Schemes: These schemes encourage the formation of manufacturing clusters, often linked to PLI beneficiaries, providing MSMEs with opportunities to integrate into larger value chains. 

• Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE): This scheme provides collateral-free credit to MSMEs, facilitating easier access to finance for capacity upgrades and expansion. 

• State-Level Subsidies: Many state governments offer specific subsidies and incentives for MSMEs adopting green technologies and advanced manufacturing processes. 

• Vendor Registration under GeM/PSUs: Registering as vendors on the Government e-Marketplace (GeM) and with Public Sector Undertakings (PSUs) opens up significant procurement opportunities for MSMEs. 

• Concessions and Benefits for First-Time Exporters: First-time MSME exporters can get reimbursements for various costs, encouraging them to tap into global markets. 

India’s industrial landscape is brimming with opportunities, driven by technological advancements and strategic government support. The high-growth sectors present a fertile ground for MSMEs to expand, innovate, and contribute significantly to the nation’s economic progress. By proactively tracking these trends, strategically aligning their businesses, embracing necessary upgrades, and leveraging available government support, MSMEs can further fuel their growth ambitions by considering various financing options. These include machinery and equipment finance for technology upgrades, Business Loans or Loan Against Property for business expansion to tap into new markets. By strategically utilizing these financial instruments alongside government initiatives, MSMEs can effectively ride this growth wave and secure a prosperous future in India’s evolving industrial ecosystem.