SIDBI’s latest report, “Understanding Indian MSME Sector: Progress and Challenges,” highlights strong formalization, rising digital adoption, and growing women entrepreneurship. However, challenges remain in credit access, skilled labor, market reach, and sustainability awareness. The report estimates a ₹30 lakh crore credit gap, urging targeted policy interventions for inclusive MSME growth.
13th May, 2025 – New Delhi: The Small Industries Development Bank of India (SIDBI) has released an in-depth report titled “Understanding the Indian MSME Sector: Progress and Challenges”, offering a comprehensive overview of the evolving landscape of Micro, Small, and Medium Enterprises (MSMEs) in India.
The report is based on a blend of primary and secondary research, including a detailed survey of over 2,000 MSMEs across 19 industries. It delivers nuanced insights into regional, sectoral, and gender-based dynamics, shedding light on both the strengths and persistent challenges within the MSME ecosystem.
Key Insights from the Report:
1. Formalization on the Rise
The MSME sector is witnessing rapid formalization, particularly among micro and small enterprises. As of March 2025, more than 6.2 crore MSMEs were registered under the Udyam Registration and Udyam Assist Portal—up from 2.5 crore in March 2024—reflecting the success of government initiatives to bring informal businesses into the formal economy.
2. Credit Access Remains a Key Challenge
Despite various policy interventions, timely and adequate access to credit continues to be a major hurdle. Informal borrowing remains notable among micro enterprises (12%), though it’s relatively low for small (3%) and medium (2%) enterprises.
3. Digital Adoption and Lending
The sector is increasingly embracing digital financial tools:
- 18% of MSMEs now use digital lending platforms.
- 90% accept digital payments.
This adoption, powered by platforms like UPI, presents an opportunity to enhance credit access and operational efficiency.
4. Persistent Credit Gap
Despite increased lending, the sector still faces a significant credit gap estimated at ₹30 lakh crore—about 24% of the total credit demand. The gap is higher in:
- Services sector: 27%
- Women-led MSMEs: 35%, underscoring the need for targeted financial inclusion efforts.
5. Women Entrepreneurship Rising
Women now own 26.2% of proprietary MSMEs (as per ASUSE 2023–24), showing encouraging signs of inclusion. However, challenges persist:
- 76% of women-led MSMEs have access to credit.
- 41% report access to credit and high competition as key obstacles.
6. Limited Market Access
Around 70% of MSMEs still rely on traditional marketing methods, limiting their scalability and competitiveness. Improved adoption of e-commerce and digital marketing could unlock new growth opportunities.
7. Export Growth and Barriers
MSMEs have increased their share in India’s merchandise exports from 43.6% in FY23 to 45.7% in FY24. Export-oriented MSMEs show stronger digital adoption but face persistent issues in:
- Supply chain efficiency
- Credit access
- Competition
8. Skilled Labour Shortage
Approximately 25% of MSMEs cite a lack of skilled manpower as a major growth barrier. The shortage is particularly pronounced in:
- Defence equipment
- Readymade garments
- Hotels
- Tiles and sanitaryware
9. Infrastructure and Technology Gaps
Inadequate infrastructure and slow tech adoption hamper productivity—especially in sectors like:
- Auto components
- Iron and steel
- Transport and logistics
A significant number of respondents flagged technology adoption as a major constraint to growth.
10. Sustainability Practices Gaining Ground
More than one-third of MSMEs have adopted sustainability practices:
- 31% use energy-efficient technologies
- 21% utilize renewable energy
However, 33% cited limited awareness as a barrier to further adoption of green practices.
The report offers valuable insights for policymakers, financial institutions, industry bodies, and ecosystem enablers to tailor interventions that strengthen the backbone of India’s economy.
📄 Read the full report here:
Understanding the Indian MSME Sector: Progress and Challenges (PDF)
