• MSMEs are a vital pillar of India’s Viksit Bharat 2047 vision, driving manufacturing and reducing import dependence. They play a crucial role in the local production of defense components, medical devices, and processed foods, thereby strengthening the economy.
• Supporting MSMEs through industrial clusters can further reduce costs and boost export potential. 
• Embracing technology—including AI-enabled solutions, greener operations, and utilization of Free Trade Agreements—can enhance efficiency and competitiveness. 
• Additionally, seeking funding options like LAP and machinery loans will enable MSMEs to accelerate their growth and realize their full potential.

As India marks its 79th Independence Day, the nation’s story is closely tied to the economic progress it has made in recent years. With a GDP of $4.19 trillion, the national focus has shifted from recovery to sustained expansion, driven by initiatives such as manufacturing scale-up through Production Linked Incentive (PLI), formalization and skilling (Udyam and PM Vishwakarma), facilitating easier market entry through public procurement opportunities, and export readiness under evolving trade frameworks. The immediate impact is visible in the Manufacturing Purchasing Managers Index (PMI) rising to 59.1 in July 2025, the Services PMI registered 60.5, and the Composite PMI reaching 61.1. 

MSMEs at the Core of India’s Industrial Progress

MSMEs form the backbone of multiple industries, and their presence ensures that industrial growth does not remain limited to metropolitan areas but reaches Tier-2 and Tier-3 cities, and even rural areas. Such industrial activities have helped reduce the need to migrate to larger cities. This also accelerates the government’s efforts to provide a formal structure to small enterprises. As of the beginning of 2025, under Udyam and Udyam Assist, 5.7 crore MSMEs were registered, which is a step towards integrating small businesses into the formal economy.  

Having official recognition allows these businesses to access priority sector lending, subsidies, and even public procurement contracts. Efforts towards formalization alone were responsible for 1.1 crore jobs being created in the 2023 to 2024 period, demonstrating that targeted policy action can directly contribute to employment and regional development.

The reach of these businesses ensures widespread growth, including industries like:

1. Textiles: MSMEs continue to contribute to spinning, weaving, processing, and garmenting capacities while moving toward higher-value categories such as technical textiles. The sector contributed 8.63% of India’s merchandise exports in 2024–25 (including handicrafts), and policy focus is on quality, zero-defect production, and market diversification. 
2. Food processing: A pivotal role in milling, primary processing, ready-to-eat products, and cold-chain services. Processed foods accounted for 23.4% of India’s agri exports in 2023–24, including preserved cucumbers, mango pulp, preserved vegetables, tea and coffee, etc., packaged kharif rice, supported by standards, logistics upgrades, and branding under government programs. 
3. Electronics: Policy incentives and vendor development in electronics are drawing MSMEs into assembly, components, tooling, and after-sales ecosystems. India’s mobile phone production and exports have expanded sharply under MeitY’s push, with mobile exports rising from about ₹1,500 crore in 2014–15 to roughly ₹2 lakh crore in 2023–24, and national plans targeting $300 billion in electronics production by 2026. 
4. Engineering and auto components: MSMEs supply machining, castings, forgings, electronics, and sub-assemblies to both domestic OEMs and overseas buyers. The auto component industry recorded ~9–10% growth in FY24 and moved to a trade surplus, reflecting gains in localization and technology upgrades that are diffusing into Tier-2 and Tier-3 clusters.

The Role of MSMEs in Reducing Import Dependence

Besides regional growth, small enterprises have helped build robust domestic capabilities that can withstand global supply chain shocks. These enterprises have emerged as key players in reducing India’s import dependence, particularly in strategic and high-demand sectors.

• Defense & Aerospace: Over 16,000 MSMEs are now part of India’s defense manufacturing ecosystem. They supply components, systems, and materials that contribute to 65% of defense equipment being produced domestically—up from less than 40% a decade ago. The Ministry of Defence’s Innovations for Defence Excellence (iDEX) program and the Make-II initiative have opened doors for small manufacturers to participate in high-value contracts.
  
• Medical Devices: India still imports about 80% of its medical devices, but MSMEs are steadily capturing market share through low-cost diagnostics, surgical consumables, and patient monitoring devices. Initiatives such as the PLI scheme for medical devices and the creation of Medical Device Parks are supporting small-scale manufacturers with shared infrastructure and subsidies.
  
• Agro-Processing: Despite being an agricultural powerhouse, India imports certain value-added food products. MSMEs are bridging this gap by producing millet-based snacks, edible oils, organic packaged goods, and ready-to-eat products under the PM Formalisation of Micro Food Processing Enterprises (PMFME) scheme, which offers credit-linked subsidies and training.
• Semiconductors & Electronics: India imports nearly $24 billion worth of semiconductors annually, but recent policy momentum is shifting the landscape. The India Semiconductor Mission (ISM), backed by ₹76,000 crore and incentives like the Semiconductor Fabs Scheme and Design Linked Incentive (DLI), aims to build local manufacturing capacity. MSMEs can tap into this ecosystem by handling PCB manufacturing, component assembly, and chip packaging.

Faster movement of raw materials and finished goods is reducing lead times, lowering costs, and enabling MSMEs to meet domestic and export demand more efficiently. Together, these trends indicate that domestic demand is strong and that MSMEs are well-placed to expand production in line with import substitution goals.

MSMEs Driving Manufacturing Excellence

Manufacturing is one of the strongest pillars of MSME contribution. MSMEs account for 33–45% of India’s total manufacturing output, with a diverse range of goods from machine parts to consumer products.

India’s industrial clusters are central to this output:

• Surat: A complete ecosystem for textiles and diamonds, supporting both domestic consumption and exports.
• Rajkot: Known for precision engineering, machine tools, and automotive components.
• Tiruppur: A global leader in knitwear exports.
• Noida: A growing hub for electronics assembly and manufacturing.

These clusters benefit from shared infrastructure, skilled labor, and easy access to suppliers and logistics networks. 

Exports have tripled from ₹3.95 lakh crore in FY2020–21 to ₹12.39 lakh crore in FY2024–25. With policy focus now shifting towards high-value exports.

The government is also actively pushing for more such clusters to be created, encouraging states to open new hubs for manufacturing-led growth. Programmes like the Micro and Small Enterprises Cluster Development Programme (MSE-CDP) and SFURTI are driving this momentum by offering up to 80% grant support for common facility centres, upgrading infrastructure, and providing market linkages. 

As of December 2024, 376 clusters were operational under SFURTI, supporting over 2.2 lakh artisans, while dozens more are being developed under MSE-CDP across high-potential states. This sustained push is expanding the cluster network, enabling MSMEs across India to access better infrastructure, technology, and scale-up opportunities..

Tech-Enabled Self-Reliance

Digital adoption is becoming a necessity for MSME competitiveness. As of 2025, 67% of MSMEs are digitally equipped, and 23% use advanced tools like AI, IoT, and data analytics. In manufacturing, AI and IoT are enabling predictive maintenance, reducing downtime, and improving product quality. In agriculture-related enterprises, IoT-based sensors and mobile apps are optimizing irrigation and crop monitoring. Renewable energy MSMEs are designing and producing solar module components and EV battery packs for both domestic and export markets.

Digital transformation also extends to market access. E-commerce platforms, B2B marketplaces, and digital payment systems are connecting small manufacturers to national and international buyers at lower costs. While barriers such as low digital literacy and initial investment remain, targeted funding and training programs are helping bridge the gap.

Manufacturing and Self-Reliance as the Cornerstones of 2047

India’s manufacturing journey has evolved in distinct phases. In the post-independence years, cottage industries and small workshops sustained livelihoods while preserving traditional skills. The 1970s and 1980s brought agro-equipment manufacturing that supported the Green Revolution. The 1990s ushered in an era of export-oriented growth in textiles, gems, and engineering goods. By the 2010s and 2020s, MSMEs had embraced digital tools, integrated with global supply chains, and diversified into high-value sectors.

What differentiates the current decade is scale and intent. Earlier, sectoral growth was often isolated; today, under government initiatives like Make in India, manufacturing is expanding across multiple sectors simultaneously. This momentum is essential for India’s goal of becoming a developed nation by 2047.

However, expansion of production capacity requires capital. Two funding instruments are proving crucial:

• Loan Against Property (LAP) allows business owners to unlock the value of existing assets to scale operations, expand facilities, and enter new markets.
• Machinery Financing Loans (MFL) enable the purchase of advanced equipment, increasing production capacity and efficiency.

The growing availability of credit from RBI-registered NBFCs like Protium, which offers both LAP and MFL solutions tailored for MSMEs, ensures that businesses can access reliable funding without compromising long-term financial stability.

The Next Industrial Leap for MSMEs

The next phase of India’s industrial growth will be shaped by how effectively MSMEs combine technology, quality, and market access. Four drivers of growth stand out: 

1. AI-powered manufacturing will move from pilots to the production floor. Simple steps like machine health monitoring, digital work instructions, and camera-based inspection can reduce downtime, improve consistency, and create reliable data trails for audits. 
2. Greener processes will act as a passport to supply chains: energy metering, cleaner fuels, and water recycling lower costs while meeting buyer codes and environmental norms. These upgrades help MSMEs meet standards and hold margins even as markets become more competitive.
3. Defense exports present a clear opportunity as domestic indigenization deepens. MSMEs that align with specifications and testing protocols can supply components, assemblies, and lifecycle support, opening adjacent MRO and spares markets. 
4. Free Trade Agreement-led expansion will reward those that plan for rules of origin, labeling, and certifications upfront, pairing export-ready products with dependable logistics and digitized documentation to reach high-value destinations.
5. Industry 5.0: Moving beyond automation, Industry 5.0 blends AI, robotics, and IoT with human expertise to create manufacturing that is more sustainable, resilient, and people-focused. 93% of manufacturers are adopting Industry 5.0, with many targeting 6–7% revenue gains in the next two years, while improving environmental outcomes and employee well-being.

Government initiatives will keep shaping this trajectory. PLI encourages local value addition and scale; PM Vishwakarma brings traditional artisans into formal skilling and credit; PMEGP supports first-time entrepreneurs with subsidy-linked loans; and the Public Procurement Policy provides a stable base of demand for compliant suppliers. The central challenge is the “Missing Middle.” Enabling micro and small units to become medium enterprises will require steady upgrades in machinery, quality systems, and working capital—supported by reliable, growth-oriented credit and tighter linkages between standards, procurement, and finance.