NITI Aayog, in collaboration with the Institute for Competitiveness (IFC), has released a comprehensive report titled Enhancing MSMEs Competitiveness in India. This report outlines a strategic blueprint to unlock the potential of India’s Micro, Small, and Medium Enterprises (MSMEs) through reforms in financing, skilling, innovation, and market access.
Key Challenges Facing MSMEs
The report identifies critical barriers to MSME competitiveness, focusing on four key sectors: textiles manufacturing and apparel, chemical products, automotive, and food processing. Using firm-level data and the Periodic Labour Force Survey (PLFS), it highlights:
- Limited access to formal credit: Despite progress, only 19% of MSME credit demand was met formally by FY21, leaving an estimated ₹80 lakh crore credit gap.
- Skill shortages: A significant portion of the MSME workforce lacks formal vocational or technical training, impacting productivity.
- Low investment in innovation: Many MSMEs underinvest in research and development (R&D), quality improvement, and modern technologies.
- Technological barriers: Unreliable electricity, weak internet connectivity, and high implementation costs hinder technology adoption.
- Policy awareness gaps: Many MSMEs are unaware of or unable to access state and national support schemes.
Key Statistic: Between 2020 and 2024, access to formal credit for micro and small enterprises increased from 14% to 20%, and for medium enterprises from 4% to 9%. However, significant credit gaps persist.
Recommendations for Systemic Reforms
The report proposes targeted interventions to enhance MSME competitiveness and integrate them into global value chains:
- Financing: Revamp the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) with institutional collaboration and targeted services to bridge the credit gap.
- Skilling: Address skill shortages through vocational and technical training programs to boost productivity.
- Innovation: Encourage investment in R&D, quality improvement, and modern technologies through incentives and awareness campaigns.
- Market Access: Support MSMEs with digital marketing training, partnerships with logistics providers, and platforms for direct market linkages, particularly in high-growth regions like India’s northeastern and eastern belts.
- Policy Implementation: Strengthen state-level policy design and implementation with consistent monitoring, better data integration, and improved stakeholder engagement.
Focus on Cluster-Based Development
The report emphasizes the importance of upgrading outdated technologies and improving marketing and branding capabilities within MSME clusters. A robust, adaptive, and cluster-based policy framework at the state level is recommended to foster innovation and competitiveness.
Call to Action: The report underscores the need for stronger institutional collaborations and enhanced global competitiveness to position MSMEs as a key driver of sustainable economic growth.
Why MSMEs Matter
MSMEs are the backbone of India’s economy, contributing significantly to employment and GDP. By addressing systemic barriers and fostering inclusive growth, the recommendations in this report can enable MSMEs to drive economic transformation and create sustainable job opportunities.
Despite recent boosts through Union Budgets and various support policies, low awareness and implementation gaps continue to limit their effectiveness. The report’s focus on state-level interventions and stakeholder engagement aims to bridge these gaps and maximize policy impact.
Looking Ahead
The collaboration between NITI Aayog and the Institute for Competitiveness marks a significant step toward empowering India’s MSMEs. By implementing the report’s recommendations, policymakers can create an enabling environment for MSMEs to thrive, fostering innovation, competitiveness, and inclusive growth across the country.