Here is a Practical Guide to Overcome Them 

• India’s MSME sector is structurally imbalanced, with too few medium enterprises despite their high contribution to exports and employment. 

• Three major challenges—regulatory complexity, low tech adoption, and workforce skilling gaps—are holding back MSMEs from growing more. 

• Targeted steps like digital onboarding, basic automation, and leveraging government platforms can help MSMEs embrace technology. 

• Skill development must be sector-specific, locally delivered, and aligned with evolving operational needs of MSMEs. 

• Pursuing certifications, adopting quality standards, and participating in schemes like ZED can open access to larger markets and global supply chains. 
   

India’s ambitious vision of becoming a ‘Viksit Bharat’ by 2047 significantly depends on the dynamism and growth of its MSMEs. For this vision to materialize, these vital economic drivers must evolve beyond mere survival to embrace a mode of scale and global competitiveness. However, India’s MSME sector remains structurally imbalanced. While 97% of registered MSMEs are micro-enterprises, only 2.7% are small, and a mere 0.3% qualify as medium enterprises. Of these, medium enterprises generate significantly more employment, with an average of 89.14 employees per unit compared to just 5.7 in micro-enterprises and 19.11 in small enterprises¹. 

This highlights the diverse composition of the sector and the need for differentiated yet unified support across all MSME segments to become the third-largest economy by 2027–28. However, NITI Aayog CEO BVR Subramanyam highlights three major challenges facing the MSMEs in achieving this goal:  

1. Complex regulations: Compliance with multiple laws—ranging from labor and taxation to environmental clearances and export documentation—often requires resources and expertise that most small enterprises lack. The process is not only time-consuming but also creates uncertainty, which discourages formalization and investment.  

2. Slow adoption of technology: Many MSMEs have yet to adopt basic digital tools, such as online payments, supply chain software, etc. Limited awareness and lack of technical support often prevent implementation, leading to lower productivity, restricted market access, and higher costs. Expanding structured and affordable access to technology is essential for progress. 

3. Gaps in skilled workforce: MSMEs struggle to find employees with the right technical and soft skills. In smaller towns and industrial clusters, workers have limited access to formal training and on-the-job learning. The lack of sector-specific, regionally relevant skilling programs makes it harder for MSMEs to modernize operations or improve service quality.  

Besides the above key challenges, MSMEs continue to face persistent issues like: 

4. Access to Finance: Despite their scale, many enterprises receive limited support under priority sector lending. The estimated credit demand gap for MSMEs is over ₹30 lakh crore². 

5. Improve quality and valid product certification: Many MSMEs lack access to dedicated research, development, and product testing infrastructure, which limits their ability to innovate, improve quality, and meet industry standards. The absence of cluster-level support and institutional backing makes it difficult for small enterprises to compete in technology-driven or quality-sensitive markets 
    

To address these challenges effectively, solutions must be designed and implemented at the cluster level, rather than in isolation. This approach enables long-term impact and supports a shift from subsidy-based assistance to capability-led growth.  

Overcoming regulatory hurdles for seamless compliance  

Compliance continues to be one of the most pressing issues for MSMEs. Small business owners often face uncertainty, delays, and resource drain due to complex and overlapping regulatory frameworks that govern taxation, labor laws, factory licenses, environmental clearances, and export procedures. 

Here’s how MSMEs can overcome this challenge: 

• Formalize operations via Udyam Registration, which now integrates PAN and GST data, simplifying identification and eligibility for multiple schemes. 

• Leverage MSME Facilitation Councils and District Industries Centers to resolve disputes and obtain guidance on local compliance issues. 

• Stay updated using digital compliance tools and dashboards (such as MCA21, GSTN, and NSWS portals) that automate filings and alert on due dates. 

• Participate in workshops and capacity-building programs conducted by local chambers of commerce or associations like FISME, FICCI, or CII. 

Embracing Technology as a Growth Catalyst

India’s digital transformation is well underway, but MSMEs require structured support to effectively plug into this evolving ecosystem. While platforms like Udyam, ONDC (Open Network for Digital Commerce), and various digital banking tools exist to streamline operations and expand market access, their adoption among many MSMEs remains low, often due to a lack of tech familiarity and perceived complexity. 

Here’s how MSMEs can overcome this challenge: 

• Gradual Digital Adoption: MSMEs should begin with affordable, incremental steps. This includes adopting digital payment systems for smoother transactions, utilizing basic cloud solutions for data storage and collaboration (e.g., SaaS for accounting or CRM), and exploring simple automation tools for repetitive tasks like invoicing or inventory tracking. 

• Leveraging Existing Platforms: Actively engaging with the Udyam portal ensures official recognition and access to various government schemes. Participating in ONDC can significantly expand market reach by enabling direct-to-consumer sales, bypassing traditional intermediaries. 

• Basic Industry 4.0 and Industry 5.0 Tools: Even at a foundational level, tools related to IoT (for simple monitoring), basic data analytics (for sales trends), and process automation can help MSMEs enhance efficiency, reduce waste, and build resilience against market fluctuations. As the conversation now expands to Industry 5.0, which emphasizes human-machine collaboration, personalization, and sustainability, it is important for MSMEs to begin preparing for this shift.  Initiatives like the recently launched Dx-EDGE (Digital Excellence for Growth and Enterprise) platform, a collaboration between CII, NITI Frontier Tech Hub, and AICTE, are designed to empower MSMEs with the necessary tools, knowledge, and ecosystem for digital transformation. 

• Government Schemes and E-Commerce Platforms for Market Access: MSMEs should explore government initiatives that provide financial support for technology adoption, such as the Credit Linked Capital Subsidy Scheme (CLCSS) and platforms like Government e-Marketplace (GeM) which open doors to government contracts. 

Building a Skilled and Future-Ready Workforce

India’s growth and demographic advantage depend largely on education, skill development, and strengthening the MSME workforce. However, a large share of the MSME workforce lacks formal vocational or technical training, which affects productivity and makes it harder for businesses to grow. 

How MSMEs can overcome this challenge: 

• Public-Private Partnerships: Collaboration between government bodies, industry associations (like the Confederation of Indian Industry), educational institutions, and private skilling platforms is vital. This can facilitate the development and delivery of relevant courses, ensuring that training is aligned with current and future industry demands. 

• Online Skilling Platforms & Mentorship: Leveraging online platforms can provide flexible and accessible learning opportunities, especially for geographically dispersed MSMEs. Mentorship initiatives, where experienced professionals guide budding entrepreneurs and their teams, can provide invaluable practical knowledge and leadership development. 

• Integration with Existing Schemes: Medium enterprise-focused modules can be integrated into existing Entrepreneurship and Skill Development Programs (ESDPs). MSMEs should actively seek out government schemes like the Deen Dayal Upadhyaya Antyodaya Yojana (DDU-AY), which offer financial literacy and skill development support. 

• Targeted Training Programs: MSMEs need specialized training programs curated to their specific industry and operational needs. This goes beyond just digital literacy to include critical skills in advanced manufacturing processes, quality control, supply chain management, customer service, and basic financial management (e.g., GST, taxation, budgeting). To be truly effective, these training programs need to be actively promoted in regional markets. MSMEs in smaller cities often miss out due to lack of visibility. Partnerships between skilling platforms and local startup bodies can be a powerful way to raise awareness and drive participation. 

Access to business loans

While India’s outstanding credit to MSMEs crossed ₹27.25 lakh crore in FY24, a significant credit gap of ₹30 lakh crore still persists, especially for micro and small units operating in financially underserved regions. Many businesses lack collateral, formal financial history, or the knowledge to navigate loan products.

Practical ways to improve credit access: 

• Register on the Udyam portal to become eligible for priority sector lending and schemes like CGTMSE.

• Open a dedicated current account and maintain basic books of accounts—even spreadsheets or app-based bookkeeping can help. 

• Build a digital transaction history through UPI and online payments, enabling better credit profiling. 

• Explore MSME-friendly lending institutions, including regulated NBFCs like Protium, which offer tailored loan products, faster approvals, and simplified documentation. 

• Leverage government-backed programs such as Mudra loans or PMEGP. 

Strengthening Quality Standards and Certifications 

Despite producing quality goods, MSMEs often lose out on large contracts, government tenders, or lucrative export opportunities due to a lack of formal certifications and standardized processes. In a globalized marketplace, quality assurance is paramount for credibility and market access. 

How MSMEs can overcome this challenge: 

• Pursuing Relevant Certifications: Achieving recognized quality standards such as ISO (International Organization for Standardization), BIS (Bureau of Indian Standards), or sector-specific certifications demonstrates a commitment to quality and opens doors to larger supply chains and international trade. For instance, Balaji Super Spandex expanded its operations by 50% after streamlining production and achieving formal quality standards—highlighting how certification-readiness can directly support business growth. 

• Leveraging the ZED Scheme: The Ministry of MSME’s MSME Sustainable (ZED) Certification Scheme (Zero Defect Zero Effect) aims to encourage MSMEs to produce defect-free products with minimal environmental impact. The scheme offers graded incentives and subsidies for certification levels (Bronze, Silver, Gold), making it more accessible. MSMEs can apply through the ZED portal, which provides guidance through self-assessment and third-party evaluations. 

• Awareness and Accessible Pathways: There is a growing need for greater awareness about the benefits of certifications and for simplified, accessible pathways to help MSMEs navigate the procedural complexities. Government and industry bodies must provide handholding support, workshops, and expert guidance to facilitate the certification process. 

• Focus on Process Improvement: Beyond mere certification, MSMEs should inculcate a culture of continuous process improvement, lean manufacturing, and waste reduction. These practices inherently lead to higher quality products and operational efficiency, making certification a natural outcome. 

The Time to Transform is Now 

The MSME ecosystem is evolving, and the policy focus is sharper than ever. From budgetary support and PLI schemes to skilling and sustainability initiatives, the environment is ready for transformation. However, the real change must begin at the unit level. MSMEs must invest in affordable technology, prioritize continuous skilling, and pursue recognized quality standards. At the same time, the ecosystem—government bodies, NBFCs, digital platforms, and industry mentors—must work at the cluster level to make this shift sustainable. 

With the right support and self-initiative, MSMEs can go from surviving to scaling—and become core drivers of India’s global manufacturing and innovation ambitions.