How limited access to capital and inadequate infrastructure are impeding the growth of MSMEs

Micro, small, and Medium Enterprises (MSMEs), a key pillar of the government’s flagship Make in India initiative, are battling multiple internal and external headwinds retarding their growth.

Parliament recently approved the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026, aimed at strengthening the framework for resolving disputes over delayed payments and improving ease of doing business for MSMEs.

But Anil Bhardwaj, secretary general of the Federation of Indian Micro and Small & Medium Enterprises (FISME), says addressing delayed payments is just an incremental change for MSMEs, which need more comprehensive legislation.

MSMEs account for 35.4% of Indian manufacturing, 48.58% of exports and 31.1% of GDP. With over 74.7 million enterprises employing 328.2 million people, the sector is India’s second-largest employer, next only to agriculture.

Limited access to affordable capital, constraints in market reach, inadequate infrastructure, shortages of skilled labour, absence of technological adoption, productivity challenges and climate change risks are critical barriers impeding their growth, say experts.

Geopolitical Pressure

MSMEs are also under pressure from geopolitical issues such as the Gulf war, US tariffs and the European Union Carbon Border Adjustment Mechanism (CBAM), a tool to address carbon leakage by ensuring that the price of imports from non-EU countries reflects their embedded carbon emissions.

“There are trade uncertainties that change almost on a day-to-day basis,” says Bhardwaj. “So it makes the life of exporters extremely difficult because once they have committed something at a price, they have to supply at the same price…both importers as well as exporters are shying away from taking larger bets or longer bets.”

Reduced demand in the EU and the Gulf conflict have impaired supply chains, are hurting trade.

“There has been a deficiency of containers and freight prices have increased 10-30%. The hit has been taken by exporters,” says Bhardwaj. “Almost 70-75% of our exports have been going through Dubai, which continues to be affected. Shipments have been stuck, timelines have not been met, cost of freight has increased and new orders are not coming.” The resultant dent in profitability will be reflected in the coming months, he warns.

MSMEs form the foundation of supply chains that make India’s “factory of the world” ambition credible, and they operate in a market large enough to absorb their own output while supplying global buyers, says Deepa Seshadri, a Partner at Deloitte India.

“Three things are working in their favour right now. Skilled labour remains accessible and affordable. Technology that was once the preserve of large enterprises is now within reach through the Cloud, Artificial Intelligence, and subscription models. And policy has turned meaningfully more supportive, with credit guarantees, formalisation incentives, and procurement preferences designed specifically for smaller units,” she says.

Challenges

A report by the Small Industries Development Bank of India (SIDBI) released last year offered a comprehensive analysis of the MSME ecosystem, covering 19 sectors where small businesses play a critical role.It covered more than 70 MSME regions and contained interactions with more than 2,000 MSMEs through primary surveys supplemented by industry-level data.

More than 25% of respondents cited intense competition and technology adoption as their largest obstacles, the report says. India’s rapidly evolving business landscape has led to increased competition.

Regulatory compliance is a concern, with many MSMEs struggling to navigate a complex web of laws and regulations. Seshadri says technology adoption remains uneven.

“Access to finance is still the sharpest bottleneck. And the process of establishing an MSME, while simplified, still demands navigation that a first-time entrepreneur finds difficult,” Sehadri warns.

There is also a quieter gap: cybersecurity awareness. “That deserves attention.”

@richajourno