• India is working towards increasing the manufacturing sector’s GDP share from 17% to  25%. This indicates growth opportunities for MSMEs that will be harnessed by many. 

• Competitiveness now means better quality, innovation, and efficiency—not just low cost. 

• Here are seven focus areas that can help MSMEs break the low-value trap: scale, skills, infrastructure, innovation, supply chains, digital tools, and finance.

[1] IBEF, Manufacturing Sector in India Industry Report February 2025

As part of this strategy, the government has launched several targeted initiatives, with the Production Linked Incentive (PLI) schemes playing a key role. Rolled out across 14 critical sectors, these schemes are expected to attract investments worth ₹1.97 lakh crore, create over 60 lakh jobs (direct and indirect), and drive a substantial boost in exports. For Indian businesses, especially micro, small, and medium enterprises (MSMEs), this signals an opportunity to align with national growth, tap into global value chains, and expand beyond traditional markets.

For MSMEs to participate meaningfully in this transition, they must become more competitive in terms of quality, efficiency, innovation, and global readiness. While NITI Aayog offers a timely and structured framework to help small businesses break out of survival mode, this article unpacks its recommendations in practical terms for MSMEs that may have ample support but limited awareness.

MSMEs first need to understand the facets of competitiveness to truly enhance it for sustainable growth.

Understanding What Makes MSMEs Competitive Today

As India integrates more deeply into global supply chains, buyers and markets are placing greater importance on quality, innovation, reliability, and compliance. To grow and sustain in this environment, MSMEs must build core capabilities that go beyond cost, and include:

For MSMEs to participate meaningfully in this transition, they must become more competitive in terms of quality, efficiency, innovation, and global readiness. While NITI Aayog offers a timely and structured framework to help small businesses break out of survival mode, this article unpacks its recommendations in practical terms for MSMEs that may have ample support but limited awareness.

MSMEs first need to understand the facets of competitiveness to truly enhance it for sustainable growth.

Understanding What Makes MSMEs Competitive Today

As India integrates more deeply into global supply chains, buyers and markets are placing greater importance on quality, innovation, reliability, and compliance. To grow and sustain in this environment, MSMEs must build core capabilities that go beyond cost, and include:

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These capabilities form the foundation for long-term growth. Without them, small enterprises often remain stuck in low-margin, low-value segments, unable to scale or expand.

Challenges Hindering MSME Competitiveness

While the MSME sector is widely recognized for its resilience and job-creating capacity, many small businesses face deep-rooted barriers that prevent them from becoming truly competitive. These include:

1. Low technology adoption: Outdated machinery or manual processes, which affects both productivity and consistency.
2. Limited skilled workers: Prevents enterprises from improving output quality or meeting rising customer expectations.
3. Research and Development (R&D): Inadequate investment in product design, process innovation, or industry collaborations, due to limited funds and lack of awareness.
4. Quality certification: Making it difficult for many small manufacturers to enter premium markets or qualify as suppliers for larger firms.

Furthermore, MSMEs often operate in fragmented value chains, without the benefits of scale, shared services, or joint marketing. This isolation makes it hard to reduce costs or improve bargaining power. Lastly, limited exposure to export markets keeps many small businesses confined to local or regional sales, missing out on international opportunities.

To face the above challenges, seven strategies can help MSMEs upgrade their capabilities. Each offers actionable steps that small businesses and ecosystem partners can work toward:

A Practical Roadmap: Seven Key Focus Areas to Boost MSME Competitiveness

To build globally competitive MSMEs, a multi-dimensional roadmap is needed—one that improves skills, systems, scale, and sustainability in tandem. Each area below highlights a practical direction for strengthening India’s small business ecosystem in alignment with national growth ambitions.

1. Strengthening Scale Through Cluster-Based Growth and Market Access

Scale is critical for improving efficiency and cost-effectiveness. Rather than growing in isolation, small businesses can benefit immensely by participating in clusters that offer shared infrastructure, logistics support, and procurement advantages. These industrial groupings allow MSMEs to access technology, branding, and raw materials collectively, reducing operational costs.

Clusters focused on sectors like agro-processing, textiles, auto components, chemicals, and forest-based products can be developed further with better logistics and trade linkages. Additionally, digital commerce platforms, like Open Network for Digital Commerce (ONDC) now offer even the smallest manufacturers or traders the opportunity to access national and global markets directly, reducing dependence on middlemen.

2. Developing a Skilled and Industry-Aligned Workforce

Skilling remains central to any long-term competitiveness strategy. However, for training programs to deliver real value, they must be locally delivered, industry-specific, and responsive to evolving technologies. Partnerships between small businesses, technical institutions, and training centers can help co-create short-term, modular programs that meet actual shopfloor needs. For long-term impact, collaborative institutions must also be strengthened. These bodies—whether formal or informal—can serve as platforms where small businesses regularly engage with universities, R&D entities, and large industry players. With clear knowledge-sharing frameworks and better protection of proprietary ideas, such collaborations can drive innovation and improve workforce capabilities across regions.

3. Enhancing Access to Shared Infrastructure and Quality Facilities

One of the major constraints for small enterprises is the lack of affordable infrastructure for testing, prototyping, and quality certification. Shared facilities—set up within industrial clusters—can bridge this gap effectively. These centers can offer access to product development tools, material testing equipment, and advisory support in areas like packaging, certification, and design. By distributing costs across multiple enterprises, shared infrastructure makes it viable for even micro-enterprises to innovate and comply with regulatory standards. This setup also reduces product rejections and increases acceptance in both domestic and export markets.

4. Driving Innovation and Technology Upgradation

Innovation is central to sustaining relevance and expanding into new markets. Yet, many small enterprises lack the capacity to build dedicated R&D cells or fund new product development. Encouraging partnerships with technical institutions, participation in local design clinics, and creation of cluster-level innovation hubs can make innovation more inclusive. These hubs can offer guidance on product redesign, packaging innovation, and small-scale automation. Access to co-development funds or low-cost technology acquisition models can further ease adoption. Creating avenues where MSMEs can experiment, iterate, and protect their ideas is crucial for building an innovation-first mindset.

5. Building Resilient Supply Chains and Improving Linkages

Supply chain efficiency directly impacts competitiveness. Poor logistics, uncoordinated inventory flows, and fragmented supplier networks add significant cost and reduce reliability. By integrating electronic trade platforms, improving last-mile logistics, and creating smart warehousing hubs within clusters, small businesses can better manage procurement, storage, and delivery. This is particularly important in sectors like food processing and garments, where shelf life and timely delivery are critical. Better supply chains not only support exports but also help stabilize prices in local markets by reducing transit delays and losses.

6. Enabling Responsible Adoption of Digital Tools and AI

Digital technologies, including Artificial Intelligence (AI), offer immense potential to improve decision-making, automate routine tasks, and optimize production. However, the adoption of such tools must be made simple, affordable, and safe. Cloud-based, modular solutions allow MSMEs to pay only for what they use, making advanced tools more accessible. Awareness around data protection laws, responsible AI usage, and digital compliance must also be built gradually. Collaborative ecosystems where MSMEs can access AI consultants, partner with tech companies, and receive handholding can bridge the technical skill gap. Financial assistance in the form of grants, tax breaks, or subsidized software access can also reduce entry barriers.

7. Expanding Access to Finance and Managing Operational Risks

Affordable credit remains a persistent hurdle, especially for businesses without traditional collateral. Shifting towards cash-flow-based lending can offer a more accurate assessment of creditworthiness, especially when supported by digital payment histories and bank integrations. Bundling credit with risk management solutions, such as sensor-enabled inventory tracking and tailored insurance products, can also reduce operational shocks. This is particularly useful in sectors with vulnerable supply chains. Partnerships between small businesses, NBFCs, and insurers can help roll out these integrated solutions. By making capital both accessible and secure, small businesses are more likely to invest in long-term upgrades and innovation.

By focusing on flexible underwriting, quicker disbursal, and sector understanding, regulated NBFCs like Protium serve as partners in a small business’s growth journey—especially for those in emerging geographies.

For India to realize its vision of becoming a globally competitive, innovation-led economy, MSMEs must move beyond their current limitations. This shift will occur by focusing on scale, skills, quality, innovation, sustainability, and digitization. The roadmap is not just for policymakers but for every stakeholder working with MSMEs.

[1] PIB, Ministry of Petroleum & Natural Gas