India recently overtook Japan to become the fourth largest economy. It is an impressive achievement but severe global headwinds brought about by geopolitical factors necessitates a new thinking if India has to continue on the growth path. Micro, small and medium enterprises (MSME) in India is a significant part of the Indian economy with 60 million registered units, employing 183.6 million people. They account for 29 per cent of the country’s GDP and 40 per cent of its exports. Even then, MSMEs are not considered the core of the Indian industry as they are in other countries like Germany, where specific policies are designed to support them to innovate and increase their competitiveness.

The entrenched thinking is that MSMEs represent a significant vote bank, need protection, some largesse and a tonne of lip service. There are many schemes to support MSMEs but their structure is such that they incentivise MSMEs to remain small. An analysis of MSMEs reveals that 97 per cent of them are micro, 2.7 per cent small and only 0.3 per cent are medium. It is the medium enterprises that present a fascinating picture of opportunities for the country’s economic growth, rooted in innovation, R&D, and exports. Each unit generates an average of 89 regular jobs. They significantly outpace their micro and small counterparts in both impact and output.

Unique challenges

They also face several unique challenges. Typically, a medium enterprise has higher working capital requirement than micro and small enterprises, but there are no financial products/credit support that cater to this need. Out of the 18 schemes of the Ministry of MSME, only eight specifically support medium enterprises and only one provides credit support. Most of the other schemes are designed to support micro and small enterprises. It is therefore imperative to launch a special financing scheme under the Ministry of MSME to address this gap. A credit card facility with a pre-approved limit (of ₹5 crore) may also be considered.

R&D and innovation are the cornerstone for sustained export competitiveness. Medium enterprises innovate but limited policy support exists to strengthen their R&D and innovation. Add to this, there is no sector-specific testing infrastructure. In spite of these challenges, the track record of medium enterprises in churning out innovative products — be it during Covid-19 in manufacturing ventilators/PPE kits, or in the defence sector in import substitution of critical items hit by sanctions, or in developing high precision components to aid in our missile and space programme — has been stellar. Medium enterprises fare much better than large enterprises in the areas of risk taking, innovation, R&D and precision manufacturing. A specific support programme like a Medium Enterprise Research Fund will go a long way in scaling this effort.

‘Designing a Policy for Medium Enterprises’, a report by the Administrative Staff College of India and NITI Aayog that was released on May 26, brings out the urgent need for a specific Medium Enterprises Policy to unlock the full potential of such enterprises under the three main pillars of Viksit Bharat@2047 — innovation, employment and export.

Bagchi is Professor and Director, and Roy and Pandey are Assistant Professors, Administrative Staff College of India

Published on June 19, 2025