India’s MSME sector is dominated by micro units, but medium enterprises drive 40% of exports despite being only 0.3% of MSMEs.

Explore their challenges (finance, tech, skills) & strategic importance. Discover vital policy recommendations to unlock their potential for GDP growth and global

competitiveness.

Context: India’s MSME sector is an economic cornerstone, contributing ~29% to GDP, 40% to exports, and employing over 60% of the workforce. However,

its structure is overwhelmingly skewed: Micro enterprises dominate, forming 97% of registered MSMEs, followed by Small (2.7%) and Medium enterprises (amere 0.3%). Crucially, despite their small numbers, Medium enterprises drive nearly 40% of MSME exports, highlighting their outsized potential and strategic importance.

The MSME Landscape: Skewed Towards Micro, Underleveraging Medium

 Cornerstone of Economy: India’s MSME sector is vital, contributing ~29% to GDP, 40% to exports, and employing over 60% of the workforce.

 Dominance of Micro Units: The sector is overwhelmingly skewed: Micro enterprises form 97% of registered MSMEs, Small account for 2.7%, and

Medium make up a mere 0.3%.

 Strategic Importance of Medium: Despite their small number, Medium Enterprises contribute nearly 40% of total MSME exports, highlighting

their disproportionate potential and strategic value.

The Policy Imperative: Focusing on Medium Enterprises

 Current Imbalance: Policy frameworks exhibit overdependence on informal micro firms and a significant under-leveraging of Medium Enterprises.

 Medium Enterprise Advantage: Medium firms are uniquely positioned to scale effectively, adopt innovation, and integrate into global supply

chains compared to smaller units.

Key Challenges Hindering Medium Enterprises

 Limited Finance Access: Only 37% access formal loans. Barriers include:

• Collateral-heavy procedures
• Inadequate risk assessment models
• Absence of dedicated credit lines

 Significant Technology Gap: 82% lack adoption of advanced technologies (AI, IoT, digital automation), harming productivity and global competitiveness.

 Skill Mismatch: 88% receive no benefit from government skill programs due to outdated or inaccessible training modules.

 Low Scheme Awareness & Uptake: Over 90% are unaware of key schemes (e.g., RAMP, ZED, GeM). Bureaucratic complexity further

hinders usage even when aware.

 Heavy Compliance Burden: Multiple inspections (labour, health, safety) increase transaction costs and reduce ease of doing business.

Why Medium Enterprises Matter Disproportionately

•  High Forex Generation: Each Medium Enterprise generates an average of ₹39.95 crore in forex income, vastly exceeding Small (₹8.3 crore) and Micro (₹1.39 crore) units.
•  Innovation Leadership: Contribute 81% of total MSME R&D expenditure, driving investments in automation, AI, and process improvements.
•  Employment Multipliers: Create significantly more jobs, averaging 89 employees per unit, compared to Small (19.1) and Micro (5.7) units.
•  Enhanced Profitability & Scale: Benefit from economies of scale, superior infrastructure, and stronger investment capabilities, ensuring higher RoCE and sustained competitiveness.

Policy Recommendations for Medium Enterprise Growth

 Tailored Finance Instruments:

o Launch a working capital scheme linked to enterprise turnover with fast-track approvals.

o Introduce a dedicated ₹5 crore ME Credit Card at market rates requiring minimal collateral.

 Technology Upgradation via Competence Centres:

o Repurpose existing tech centres into “India ME 4.0 Hubs,” providing access to Industry 4.0 tools for key sectors (ESDM, Pharma, Sports Goods).

 Focused R&D Ecosystem:

o Establish a 3-tier funding mechanism: Expert Committee →

Proposal Solicitation → Rigorous Monitoring.

o Utilize the Self-Reliant India Fund (SRI) to finance sector-specific innovation projects.

 Cluster-Based Testing and Certification:o Expand the MSE-Cluster Development Programme (MSE-CDP) to explicitly include Medium Enterprises.

o Set up dedicated testing labs within regional ME clusters to ensure quality compliance, particularly for exports.

 Customized Skill Development:

o Design export-oriented, sector-specific training curricula.

o Integrate tailored ME modules into existing Entrepreneurship and Skill Development Programmes (ESDP) with Ministry of Skill Development support.

 Centralized Digital Support Portal:

o Develop a dedicated ME sub-portal under the Udyam platform, featuring:

 Scheme discovery and application tracking

 Compliance management tools

 Market intelligence modules