Unlocking the Growth Potential of Medium Enterprises in India

NEW DELHI (India CSR): The Micro, Small, and Medium Enterprises (MSMEs) contributes approximately 29% to India’s GDP, accounts for 40% of exports, and employs over 60% of the workforce. In a move to boost India’s industrial transformation, NITI Aayog has launched a report titled “Designing a Policy for Medium Enterprises”, offering a detailed roadmap to elevate medium enterprises as key drivers of the Indian economy. The report was unveiled by Shri Suman Bery, Vice Chairman, NITI Aayog, alongside Members Dr. V.K. Saraswat and Dr. Arvind Virmani.

The report highlights the critical, yet under-leveraged role played by medium enterprises and outlines targeted interventions to unlock their full potential. The report delves into the structural skew in the MSME sector, which contributes approximately 29% to India’s GDP, accounts for 40% of exports, and employs over 60% of the workforce. Despite its critical role, the composition of the sector is disproportionately weighted: 97% of registered MSMEs are micro enterprises, 2.7% are small, and only 0.3% are medium enterprises.

Medium enterprises form the backbone of India’s manufacturing and export landscape. While they represent only a small fraction of the MSME universe, their contribution to GDP, job creation, and innovation is significant. However, unlike micro and small enterprises, medium enterprises remain underserved by existing policy frameworks. A renewed focus on medium enterprises through targeted policy interventions can catalyze their growth and position them as a key pillar in India’s journey towards a robust, self-reliant economy.

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Jobs and Employment

MSME sector employs 62% of the country’s workforce. The sector generates employment for 18.36 crore people including approximately 5 crore women. The Micro Enterprises comprise about 89% of total MSME employment in 2024. Medium Enterprises contributed 3% to the total MSME employment in 2023-24. However, per unit employment generated by Medium Enterprise is 89.14. MSMEs’ share in the country’s export is about 40%. However, only 1.36% of registered MSMEs export–out of which 64% units have export turnover less than Rs. 1 crore. While micro & small enterprises make up most exporting units (91%), their contribution to the total export value is 60% of total MSME exports. While Medium Enterprises comprise 9% of exporting units that contribute to 40% of MSME exports.

Table 1.1: Classification of the MSME Units

High Export Share, Low Policy Focus

This 0.3% of medium enterprises contributes nearly 40% of MSME exports, underscoring their untapped potential as scalable, innovation-led units. The report identifies medium enterprises as strategic actors in India’s transition towards self-reliance and global industrial competitiveness under Viksit Bharat @2047.

Medium Enterprises: The Untapped Backbone

The report highlights the critical, yet under-leveraged role played by medium enterprises and outlines targeted interventions to unlock their full potential. The report delves into the structural skew in the MSME sector, which contributes approximately 29% to India’s GDP, accounts for 40% of exports, and employs over 60% of the workforce. Despite its critical role, the composition of the sector is disproportionately weighted: 97% of registered MSMEs are micro enterprises, 2.7% are small, and only 0.3% are medium enterprises.

Role of MSMEs in the Economy

The Micro, Small, and Medium Enterprises (MSME) sector in India plays a crucial role in the country’s economic landscape. It contributes approximately 29% to the nation’s GDP, 40% to total exports, and employs over 60% of the workforce. MSMEs cater to the demand for a wide variety of products, producing over 6,000 distinct items. Among them, micro enterprises dominate with a 97% share of registered MSMEs, followed by small enterprises (2.7%) and medium enterprises (0.3%).

Gaps in Medium Enterprises Support

Despite their immense potential, medium enterprises face several structural and operational challenges. These include limited access to working capital, inadequate technology integration, insufficient R&D support, shortage of skilled manpower, and lack of awareness about existing schemes. While government policies have historically supported micro and small enterprises, medium enterprises often do not benefit from tailored programs. Focused interventions in these areas can enable medium enterprises to scale, innovate, and compete globally.

Policy Design and Objective

This policy framework is aimed at designing strategic measures that specifically address the needs of medium enterprises. By reviewing existing opportunities, identifying gaps, and studying international best practices, this report presents actionable recommendations. Each recommendation focuses on a critical area for improvement, aiming to build a robust ecosystem for medium enterprises to thrive.

Tailored Financial Initiatives

Medium enterprises require significantly higher capital than their micro and small counterparts. Currently, no dedicated financing scheme exists to meet their working capital needs. It is proposed to launch a financing scheme under the Ministry of MSME, allowing medium enterprises to access concessional loans through local retail banks with fast-track approvals. Loans can be capped at a percentage of sector-specific revenue, with a maximum limit per request. A special credit card with a pre-approved limit of up to ₹5 crore can also be introduced, linked to market interest rates. Implementation can be coordinated by the Ministry of MSME in partnership with financial institutions.

Technology Integration Needed

Medium enterprises have a high potential for adopting advanced technologies. Existing Technology Centres (TCs) under the Ministry of MSME can be revamped into “India MSME Competence Centres.” These upgraded centres should cater to diverse industries such as general engineering, electronics, fragrances, sports, and more—based on regional demand. They must function as innovation hubs, facilitating Industry 4.0 technologies and digital transformation across MSMEs.

R&D Promotion Required

For medium enterprises—especially in manufacturing and exports—investment in research and development (R&D) is essential. A dedicated cell under the Ministry of MSME should promote coordinated R&D efforts. Cluster-specific projects of national importance can be identified, and a tripartite funding mechanism should be set up. This includes:

1. An Expert Committee to define the R&D agenda,
2. A Research Funding Management Committee to call for proposals,
3. A Project Review and Monitoring Committee for oversight.

The Self-Reliant India Fund can be tapped, with a portion reserved exclusively for medium enterprise R&D. Relevant ministries and agencies can jointly support this initiative.

Cluster-wise Testing Facilities

Quality assurance and regulatory compliance are essential for medium enterprises, especially in sectors like manufacturing, textiles, and pharmaceuticals. However, the current Micro and Small Enterprises – Cluster Development Programme (MSE-CDP) excludes medium enterprises. It is proposed to integrate medium enterprises into this scheme by establishing sector-specific, cluster-based testing facilities. These should be developed after identifying high-concentration sectors across states, thereby strengthening product certification and compliance at the local level.

Customized Skill Development

Medium enterprises operate in dynamic industries that require continuous upskilling. The skill needs of medium enterprises should be mapped in detail to design specialized programs. The existing Entrepreneurship and Skill Development Programme (ESDP) can be expanded to cater to medium enterprise-specific training. This includes:

• Six-week training (E-SDP),
• One-week advanced training (Advanced ESDP),
• Advanced MDP training programs.

Curriculum should be report-oriented and aligned with industry-specific needs, including sustainability and lifecycle-focused training. The Ministry of Skill Development and Entrepreneurship can play a lead role in execution.

Centralized Support Portal

Medium enterprises often struggle to access timely and relevant information about schemes, compliance, and funding. A centralized sub-portal under the Udyam Portal should be developed for medium enterprises. This portal should have three core modules:

1. Basic Information Module,
2. Process Module (application, compliance),
3. Market Research Module.

This one-stop solution will enhance accessibility and reduce barriers in navigating government support systems.

Six-Pillar Policy Framework

To address these issues, the report outlines a comprehensive policy framework with targeted interventions across six priority areas:

1. Tailored Financial Solutions:
   • Working capital financing scheme linked to enterprise turnover
   • ₹5 crore credit card facility at market rates
   • Expedited fund disbursal through retail banks, overseen by Ministry of MSME
2. Technology Integration and Industry 4.0:
   • Upgrade Technology Centers into India SME 4.0 Competence Centers for sector-specific support
3. R&D Promotion Mechanism:
   • Dedicated R&D cell within MSME Ministry
   • Leverage Self-Reliant India Fund for cluster-based projects
4. Cluster-Based Testing Infrastructure:
   • Develop testing and certification facilities tailored to key sectors
5. Custom Skill Development:
   • Align skilling programmes with enterprise-specific regional and sectoral needs
   • Integrate medium enterprise-centric modules into existing ESDPs
6. Centralized Digital Portal:
   • Dedicated sub-portal under Udyam platform
   • Features include scheme discovery, compliance support, and AI-based assistance

Table 1: MSME Schemes Available to Medium Enterprises (2022–23)

Table 2: MSME Schemes Not Available to Medium Enterprises (2022–23)

Table: Funds Allocated during 2022–23 to Schemes for Medium Enterprises

Why Medium Enterprises Deserve a Stronger Policy Focus

India’s MSME schemes heavily favor micro and small enterprises, but the imbalance may stifle innovation, job creation, and global competitiveness.

Introduction

India’s Micro, Small, and Medium Enterprises (MSMEs) are often hailed as the backbone of the economy. While the government has rolled out a wide range of schemes to uplift the sector, the overwhelming emphasis on micro and small enterprises (MSEs) has raised questions about whether medium enterprises (MEs) are being left behind. This article explores the rationale behind this skewed focus, the potential unintended consequences, and the need for a more balanced policy approach to nurture the full spectrum of MSMEs.

Why Micro and Small Enterprises Get More Attention

There are several reasons why government support is disproportionately directed toward micro and small enterprises:

• Massive Population Share: Micro and small enterprises make up 99% of the total MSME population, dominating the sector.
• Resource Vulnerability: These enterprises typically face severe constraints in accessing capital, formal credit, and infrastructure.
• Employment Engines: MSEs are labor-intensive and play a significant role in employment generation across manufacturing, services, and agriculture.
• Alignment with Global Goals: Organizations like the World Bank and International Labour Organization (ILO) recognize small businesses as key to achieving poverty alleviation and sustainable development, aligning with the Sustainable Development Goals (SDGs).
• Inclusive and Equitable: Many MSEs are owned by marginalized groups, including women, Scheduled Castes (SCs), Scheduled Tribes (STs) and other underrepresented communities. Supporting MSEs is seen as pro-poor and socially inclusive.

Nature of Support Schemes for MSEs

Due to this rationale, most MSME schemes provide:

• Training programs for unemployed youth
• Financial support for setting up micro enterprises
• Marketing and infrastructure assistance
• Quality certification and compliance aid
• International exposure and sustained credit flows

This well-intentioned structure is designed to promote entrepreneurship, employment, and poverty alleviation.

Unintended Consequences of a Skewed Structure

While support for MSEs is vital, the Economic Survey 2023–24 warns of a critical side-effect called the “threshold effect” — where businesses deliberately avoid crossing size thresholds to retain scheme benefits. This has several adverse implications:

1. Missed Opportunities for Job Creation

Medium enterprises are better poised to scale operations and employ more workers. However, firms staying small to retain benefits lose out on large-scale employment potential.

2. Stunted Innovation and Productivity

Growing enterprises benefit from economies of scale, which enhance productivity and innovation. Current schemes, however, disincentivize scaling up, limiting technological advancement and competitiveness.

3. Weakened Global Competitiveness

Medium enterprises are key players in exports and global trade. Without targeted policy support, they fail to reach global markets, resulting in a missed opportunity to boost India’s export performance and industrial footprint.

📌 “The threshold effect leads to an underutilization of growth potential in India’s industrial ecosystem.”
– Economic Survey 2023–24, Press Information Bureau

The Emerging Policy Gap

The lack of tailored schemes and funding for medium enterprises has created a vacuum. Unlike MSEs, which are supported through employment subsidies, credit schemes, and training, medium enterprises often operate without comparable levels of state support. This restricts their ability to scale, innovate, or expand globally — roles they are structurally suited to fulfill.

A Call for Balanced Intervention

While the current policy focus fosters inclusive growth, it also risks holding back the natural evolution of businesses from micro to medium scale. A recalibrated approach is needed — one that supports:

• Medium enterprise-specific financial instruments
• R&D and tech adoption incentives
• Export and internationalization strategies
• Dedicated skill programs and infrastructure access

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CONTRIBUTION OF MSMEs TO THE GDP

As on July 2024, As per the latest information received from the Ministry of Statistics & Programme Implementation, the share of MSME Gross Value Added (GVA) in all India Gross Domestic Product (GDP) during last five years are as follows:

As per the information culled out from the Data Dissemination Portal of Directorate General of Commercial Intelligence and Statistics (DGCIS), the share of export of MSME specified products in all India exports are as follows:

*up to May 2024

As on 16.07.2024, the total employment reported by the MSMEs on the Udyam Registration Portal (since 01.07.2020 to 16.07.2024) is 20.39crore(including informal micro enterprises registered on Udyam Assist Platform).

The Ministry of Micro, Small and Medium Enterprises (MSME) implements various schemes and programmes aimed at promotion and development of MSME Sector in the country. These schemes/programmes include MSME Champions Scheme, Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), Prime Minister’s Employment Generation Programme (PMEGP), Micro and Small Enterprises – Cluster Development Programme (MSE-CDP) and Raising and Accelerating MSME Performance (RAMP).

Further Government has taken a number of initiatives to support the MSME Sector. Some of them are:

1. Collateral free loan up to a limit of Rs. 500 lakh (w.e.f. 01.04.23) to MSEs with guarantee coverage up to 85 % for various categories of loan through Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) under Credit Guarantee Scheme.
2. Rs. 50,000 crore equity infusion through Self Reliant India Fund. This scheme has a provision for corpus of Rs.10,000crore from Government of India.
3. New revised criteria for classification of MSMEs.
4. Registration of MSMEs through ”Udyam Registration Portal” for Ease of Doing Business.
5. No global tenders for procurement up to Rs. 200 crore
6. Inclusion of retail and whole sale trades as MSMEs w.e.f. 02.07.2021.
7. Non-tax benefits extended for 3 years in case of an upward change in status of MSMEs.
8. Roll out of Raising and Accelerating MSME Performance (RAMP) programme with an outlay of Rs. 6,000 crore over 5 years.
9. Integration of Udyam Registration Portal with National Career Service (NCS) of Ministry of Labour& Employment and Skill India Digital of Ministry of Skill Development and Entrepreneurship. Registered MSMEs are enabled to reach out to trained manpower and capacity building. 
10. Under Vivad se Vishwas – I, relief by way of refund of 95% of the deducted performance security, bid security and liquidated damages was provided to MSMEs. Relief was also provided to MSMEs debarred for default in execution of contracts.
11. Launch of Udyam Assist Platform (UAP) to bring the Informal Micro Enterprises (IMEs) under the formal ambit for availing the benefit under Priority Sector Lending (PSL).
12. Launch of ‘PM Vishwakarma’ Scheme on 17.09.2023 to provide end to end holistic benefits to the traditional artisans and craftspeople engaged in 18 trades.

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Path to Viksit Bharat @2047

The report emphasizes that unlocking the potential of medium enterprises requires a shift toward inclusive policy design and collaborative governance. With strategic support in finance, technology, infrastructure, skilling, and information access, medium enterprises can emerge as the drivers of innovation, employment, and export growth. This transformation is pivotal to realizing the vision of Viksit Bharat @2047.

Way Forward

Medium enterprises possess tremendous potential to drive India’s innovation, employment, and industrial growth. Yet, their role remains underleveraged due to inadequate policy support. The recommendations outlined in this framework focus on optimizing current schemes and institutional frameworks rather than creating new ones. A coordinated and strategic approach—backed by financial, technological, and infrastructural support—can empower medium enterprises to emerge as a powerful force in India’s economic resurgence. Strengthening this segment is vital for building a resilient, future-ready industrial ecosystem.

(India CSR)