India’s MSMEs Face Big Challenges—Could NITI Reforms Unlock Billions?

India’s Micro, Small, and Medium Enterprises (MSMEs) are the backbone of the nation’s economy, contributing 30.1% to India's gross value added (GVA) and employing over 110 million people. Despite their critical role, MSMEs continue to face persistent challenges in credit access, skill development, technology adoption, and market integration.

Recognizing the urgency of reforms, NITI Aayog, in collaboration with the Institute for Competitiveness (IFC), has released a pivotal report—"Enhancing MSME Competitiveness in India"—outlining systemic measures to bridge gaps in the sector. By addressing financing bottlenecks, strengthening workforce capabilities, and improving regulatory frameworks, the report aims to position MSMEs as globally competitive enterprises that drive inclusive growth.

Credit Access: Bridging the ₹80 Lakh Crore Gap 

While MSME credit uptake has improved, with micro and small enterprises growing from 14% to 20% between 2020 and 2024, and medium enterprises seeing an increase from 4% to 9%, the formal credit ecosystem still falls short of meeting demand. As of FY2021, only 19% of total MSME credit needs were met, leaving a ₹80 lakh crore financing gap.

Beyond insufficient credit availability, delayed payments continue to paralyze MSME cash flows. Since October 2017, over 2.31 lakh complaints have been filed by MSMEs to recover ₹50,359 crore in unpaid dues. This liquidity crunch restricts growth, job creation, and innovation within the sector.

CGTMSE Reforms and Priority Sector Lending (PSL) Adjustments

The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) has expanded coverage, but operational inefficiencies and risk premiums hinder accessibility. The report calls for revamping CGTMSE models, emphasizing sector-specific lending mechanisms and flexible collateral requirements. It also recommends increasing guarantee coverage to 100% for women-led businesses to boost female entrepreneurship.

Additionally, the report suggests reinstating Priority Sector Lending (PSL) norms, allowing banks to extend loans to NBFCs for further lending to MSMEs, thus mitigating financial risk through credit insurance schemes.

Skill Deficits and Workforce Development: STEM Education as a Catalyst

A key challenge holding MSMEs back is a lack of formal vocational training and industry-specific expertise. Over 70% of MSME workers lack structured skill development, hampering productivity, automation, and scalability.

The report advocates for state-backed STEM education initiatives, bridging technical and vocational training gaps. It highlights the need for subsidized employment training programs to help MSMEs upskill workers, particularly in high-impact sectors such as textiles, automotive, chemicals, and food processing.

Additionally, last-mile connectivity challenges must be addressed for rural micro-enterprises, ensuring easier access to skill training centers and digital learning platforms.

Technology Adoption: Digital Infrastructure and Innovation Hurdles

Technology adoption remains a major roadblock, limiting MSME competitiveness. Issues such as poor internet infrastructure, unreliable electricity supply, and high upgrade costs prevent MSMEs from integrating automation and data-driven tools.

Many MSMEs are not leveraging subsidized technology schemes, largely due to low awareness or complex application processes. The report recommends establishing MSME-specific infrastructure, including:

• Co-working spaces and industrial parks for cost-effective technology adoption.
• Shared digital risk management solutions to help enterprises monitor supply chains, manage inventory, and optimize logistics.

If implemented effectively, these measures could significantly boost MSME efficiency and participation in global markets.

Cluster-Based Policy Interventions: Unlocking Regional Growth

The report identifies four high-impact MSME sectors—textiles and apparel, chemicals, automotive, and food processing—as key areas for cluster-based interventions. Strategies include:

• Modernizing supply chains with targeted investment.
• Digital marketing training to expand global reach.
• Trade partnerships to improve export competitiveness.

Geographically, northeastern and eastern states face unique challenges due to limited logistical connectivity and weak market integration. To address this, the report urges state-led investments in transport infrastructure and direct market linkage platforms.

Regulatory Challenges: BIS Certification and Compliance Costs

Many MSMEs struggle with complex regulatory requirements, particularly those related to mandatory Bureau of Indian Standards (BIS) certification. Enterprises in sectors like stainless steel utensils argue that high certification costs disproportionately impact small manufacturers.

To alleviate these barriers, the report calls for simplifying BIS certification norms, making compliance more accessible while ensuring product quality standards remain intact.

India’s MSME Transformation: The Blueprint for Sustainable Growth

India’s MSME sector is poised for transformation, provided that targeted reforms in finance, skills, technology, and market integration are effectively implemented. The report underscores the importance of adaptive policy frameworks, with data-driven governance and stakeholder engagement at the forefront.

Public-private collaborations, coupled with proactive institutional support, will be essential in unlocking MSMEs' full potential—turning them into sustainable drivers of India’s economic growth.

MSMEs are not just business entities—they are innovation engines shaping India’s future. With agile leadership, digital readiness, and forward-thinking policymaking, MSMEs can bridge the ₹80 lakh crore financing gap, integrate tech solutions, and scale into global growth drivers.

For entreprenuers and founders, the time to act is now. Digitize, train your workforce, modernize operations, and leverage every policy advantage available. The NITI Aayog-IFC report is not just a diagnosis—it’s a blueprint for action.

Those who move decisively will lead India’s next economic transformation.