From the Forgotten to the Frontline - MSMEs in INDIA

The journey of India’s Micro, Small, and Medium Enterprises (MSMEs) is a tale of resilience against neglect, a chronicle of struggles and eventual revival that few can overlook. Although the MSMED Act was enacted in 2006 to provide a framework for their growth, the 2007 - 08 global financial crisis laid bare the fragility of these small enterprises. Exports plummeted, liquidity evaporated, NPAs surged, and it was the small exporters who bore the brunt of the economic shock. Yet, the government at the time largely turned a blind eye. Rather than equipping MSMEs to survive the turbulence, policy attention and resources were almost exclusively directed towards rescuing large corporations and recapitalizing banks, leaving the very backbone of India’s economy to navigate the storm on its own.

The response was not just inadequate; it was misguided. Policy attention was diverted to appeasing global investors while Indian MSMEs struggled to survive. For instance, the fiscal stimulus packages announced during 2008-09 primarily targeted infrastructure and automobile sectors, offering tax sops and excise duty cuts that benefitted large industries, while small units fighting for working capital were ignored. The RBI did announce restructuring schemes, but these were cumbersome and limited to those who already had established banking relationships, effectively shutting out the majority of micro and small enterprises (MSEs) who operated in the informal or semi-formal credit system.

At the very moment when MSMEs needed liquidity, credit guarantees, and export handholding, they got none. Exports from sectors like textiles, handicrafts, and gems & jewellery crashed, yet instead of devising special export insurance or support packages, the government went ahead and signed the ASEAN Free Trade Agreement in 2009, opening the floodgates of cheap imports. This reckless move crippled domestic industries already gasping under global recession, making recovery even harder for lakhs of small manufacturers.

It was in these trying circumstances that the India SME Forum came into being, born out of the urgent need for a collective voice for MSMEs, whose struggles were invisible to those in power. For nearly eight years, we kept raising our voices, suggesting reforms, and flagging the issues that were choking entrepreneurs: the lack of collateral free finance, endless hurdles in procurement, and the deliberate neglect of delayed payments. Yet nothing moved. It often felt as though MSMEs simply did not exist on the government’s radar. Entrepreneurs were being pushed into despair: banks tightened credit norms instead of easing them, small businesses were relentlessly chased for repayments rather than offered restructuring support, and no systemic measures ensured timely payments from large corporations or government departments. The few schemes that were announced turned out to be inaccessible to most or designed merely for show, cosmetic efforts that made headlines but made no real difference on the ground. For lakhs of entrepreneurs, this was a period of abandonment, and for us at India SME Forum, it was a constant reminder of why our fight for recognition and reform was so necessary.

That long season of neglect is why the turnaround after 2014 feels so stark, and why the recognition of MSMEs as the backbone of the economy under Prime Minister Modi has been nothing short of transformative.

Everything changed for India’s MSMEs in 2014. In his very first Independence Day speech, Prime Minister Narendra Modi did something no leader had done before, he spoke directly to MSMEs and women entrepreneurs, recognizing them as the true nation builders. For a sector that had long been overlooked and left vulnerable to financial shocks, this acknowledgment was a turning point and the start of a decade long transformation.

One of the most significant initiatives that followed was the Pradhan Mantri MUDRA Yojana (PMMY), launched in April 2015. For millions of MSEs, this scheme became a lifeline, providing collateral free finance at a time when access to credit was a persistent barrier. By categorizing loans into Shishu (up to ₹50,000), Kishore (₹50,000 to ₹5 lakh), and Tarun (₹5 lakh to ₹10 lakh), the scheme offered support to entrepreneurs at every stage of their journey. Since its inception, over 52 crore MUDRA loans worth ₹32.61 lakh crore have been sanctioned, with the average loan size rising from ₹38,000 in FY16 to nearly ₹80,000 in FY23. Notably, around 69% of beneficiaries are women, demonstrating how the scheme not only empowered entrepreneurs but also promoted gender inclusive growth.

Alongside MUDRA, the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) played a transformative role in strengthening MSMEs’ access to finance by removing the barrier of collateral. With guarantee coverage of up to 75%, small businesses could secure loans with confidence, enabling them to invest, expand, and innovate. Over the years, CGTMSE’s coverage was further expanded to include retail traders and co-lending arrangements, significantly broadening financial inclusion for India’s smallest enterprises and encouraging banks to lend without fear of default.

At the same time, the government reinforced its commitment to MSMEs through public procurement policies, ensuring that 25% of all central government purchases were sourced from small businesses, with special provisions for SC, ST, and women entrepreneurs. In 2017, the introduction of the Goods and Services Tax (GST) created a unified national market, replacing a fragmented state based taxation system and providing a huge relief for MSMEs that had long struggled with complex tax compliance. Together, these reforms not only eased operational burdens but also created a more predictable and enabling environment, allowing MSMEs to focus on growth, innovation, and competitiveness.

The Prime Minister’s Employment Generation Programme (PMEGP) complemented these efforts by offering credit linked subsidies to foster entrepreneurship and generate employment. Since 2014, the scheme has supported the establishment of approximately 3.6 lakh new units, creating jobs for nearly 29 lakh individuals and reinforcing the MSME sector as a major engine of livelihood and growth.

Thanks to these initiatives, India’s MSMEs, once exposed and vulnerable to financial and operational shocks, have been transformed into a resilient, confident, and rapidly growing segment of the economy. By easing access to finance, promoting women led enterprises, and incentivizing new business creation, Modi Ji’s administration has not just strengthened MSMEs but has also ensured that they can thrive, innovate, and continue to be the backbone of India’s economic progress.

Empowerment of MSMEs also came through targeted initiatives aimed at marginalized entrepreneurs, with the National SC/ST Hub (NSSH) being a landmark example. Launched under Prime Minister Modi’s leadership, the Hub was designed to bring Scheduled Caste and Scheduled Tribe entrepreneurs into the mainstream economy by providing them with access to finance, capacity building programs, and market opportunities. Through the NSSH, these entrepreneurs could participate in government procurement, receive mentoring support, and gain exposure to business networks that were previously out of reach. As of now, the program has benefited a total of 2,841 entrepreneurs, with subsidies worth around ₹320 crore released to support their growth. I had the privilege of being a member of the first committee of this initiative, and I witnessed firsthand how Modi Ji’s vision translated into concrete action. He ensured that inclusion was not just a matter of policy but a matter of opportunity, recognizing that for India’s economic growth to be truly robust, historically marginalized groups needed equitable access to resources, markets, and support systems. By institutionalizing such targeted programs, the government ensured that MSME empowerment was inclusive, deliberate, and transformative, giving these entrepreneurs the tools, confidence, and platform to compete successfully on a national stage.

This commitment to proactive, hands on governance was not limited to long term empowerment initiatives; it became especially evident during times of crisis. The difference in government response between the 2008 global financial crisis and the COVID-19 pandemic highlights how timely and focused intervention can determine the survival of MSMEs. In 2008, when exports collapsed and liquidity dried up, small businesses bore the brunt of the crisis, while the government’s attention was largely focused on rescuing large corporations and recapitalizing banks. MSMEs were left to navigate the financial storm on their own, leading to widespread distress, closures, and job losses.

Under Prime Minister Modi’s leadership, the approach during the COVID-19 crisis was markedly different. Recognizing that MSMEs form the backbone of India’s economy, the government acted swiftly to protect them from collapse. The Emergency Credit Line Guarantee Scheme (ECLGS) was launched to provide collateral free loans, ensuring that lakhs of small and micro enterprises could continue operations, pay wages, and meet working capital needs. Without this intervention, a significant portion of MSMEs would have faced bankruptcy, potentially triggering a cascading economic crisis.

In essence, the contrast is stark: in 2008, MSMEs were left exposed, but during COVID-19, Modi Ji’s government acted decisively to shield, sustain, and empower small businesses, demonstrating a shift from reactive to proactive governance. By combining immediate financial support with structural reforms, the administration ensured that MSMEs could survive the crisis, preserve jobs, and continue contributing to India’s economic growth.

Recognizing that timely payments are the lifeblood of small businesses, Prime Minister Modi introduced the 45 day payment rule to tackle chronic delays from large buyers to MSMEs. Unlike previous policies that prioritized bigger corporations, he understood that MSMEs needed immediate cash flow to survive and sustain operations. Undeterred by opposition or pressure from powerful interests, he remained steadfast in implementing this measure, ensuring that small enterprises received the support they desperately needed, even in the face of resistance. While enforcement continues to improve, the rule sent a strong message that MSMEs were a national priority and that their survival would not be compromised for anyone else.

Just as critical was the Public Procurement Policy, which, for the first time, mandated that 25% of all government procurement must come from MSMEs. Importantly, the 25% target was structured to promote inclusivity, with 4% marked for SC and ST entrepreneurs and 3% for women owned MSMEs. This was not a symbolic gesture; it was an infusion of trust and opportunity. For decades, small businesses were shut out of government contracts, unable to compete with large corporations or navigate the labyrinth of tendering systems. The policy changed that overnight, leveling the playing field by guaranteeing MSMEs access to one of the largest buyers in the country, the Government of India itself.

The impact has been transformative. Thousands of small businesses that once struggled to find steady markets suddenly had access to assured demand. The ripple effect can be seen across sectors, from engineering goods suppliers in Coimbatore to handicraft artisans in Rajasthan, to IT service firms in Bengaluru. For many, winning a government tender was not just revenue, it was credibility. Banks became more willing to lend, new customers trusted these firms, and small enterprises gained the confidence to scale. This single policy alone has pulled lakhs of enterprises out of informality, setting them on growth trajectories once unimaginable.

Complementing procurement reforms, the Digital India initiative and e-commerce platforms unlocked entirely new markets for MSMEs. Platforms like GeM and private online marketplaces allow even the smallest businesses to connect directly with customers across India and beyond, bypassing intermediaries and expanding their reach. Under Prime Minister Modi’s leadership, the government also took decisive steps to protect MSMEs from external threats, carefully navigating trade agreements to safeguard domestic industries.

The combination of policy and technology has been revolutionary. Today, over 1.4 lakh MSMEs are active sellers on GeM, collectively transacting more than ₹4 lakh crore in business. For the first time, small producers and artisans can compete for large government contracts on a transparent, digital, and competitive marketplace, where geography, intermediaries, or scale no longer impose limits. By integrating market access reforms with digital tools, the Modi government has created one of the most powerful growth enablers in the history of Indian MSMEs, empowering them to thrive in a rapidly evolving economy.

The Digital India revolution brought MSMEs out of the shadows and into the formal economy. With UPI recording over 10 billion transactions each month, millions of small firms have been formalized. A roadside shopkeeper in Varanasi, a handicraft artisan in Odisha, or a tailor in Surat can now accept digital payments, build a credit history, and access loans that were once beyond reach. For the first time, India witnessed the large scale formalization of MSMEs through technology. UPI empowered small businesses to enter the financial system and access markets with ease. Modi Ji’s push for digital adoption meant entrepreneurs no longer had to wait for perfect telecom conditions. Whether on 2G, 3G, or 4G, MSMEs were encouraged to go online, buy, sell, and compete on digital platforms. This digital revolution lowered entry barriers, connected rural entrepreneurs to national markets, and gave Indian MSMEs unprecedented visibility both domestically and globally.

At the same time, the government recognized that digital empowerment alone could not shield MSMEs from external pressures. On the international front, the India ASEAN Free Trade Agreement (AIFTA), implemented in 2010, had led to a surge in imports, particularly in electronics and textiles. Many Indian MSMEs struggled to compete with the influx of cheaper goods, resulting in a widening trade deficit and the erosion of local industries. Recognizing these adverse effects, the Modi government initiated a review and renegotiation of AIFTA, ensuring that domestic MSMEs were better protected and that trade practices promoted fair competition.

Similarly, India opted out of the Regional Comprehensive Economic Partnership (RCEP) in 2019, a decision that reflected a strategic move to shield MSMEs from overwhelming competition. The RCEP included countries like China, Japan, and Australia, whose advanced manufacturing sectors posed a significant threat to Indian MSMEs. The agreement's provisions could have led to an influx of low cost imports, undermining local industries and exacerbating the trade deficit. By withdrawing from RCEP, the government prioritized the interests of MSMEs, ensuring they were not exposed to unfair competition.

These actions underscore Modi Ji's unwavering commitment to safeguarding India's MSMEs. Unlike previous administrations that may have overlooked the vulnerabilities of small businesses in the face of global trade agreements, the current government has consistently placed the interests of MSMEs at the forefront of its trade policies. This proactive stance has been instrumental in preserving the integrity and growth of India's MSME sector.

One of the key steps in creating a more business friendly environment for MSMEs under Prime Minister Modi’s leadership was the introduction of the Jan Vishwas (Amendment of Provisions) Bill, 2023. Recognizing that complex regulations and criminal penalties for minor procedural lapses often stifled entrepreneurship, the government sought to simplify the legal framework and reduce the regulatory burden on small businesses. The Bill decriminalized over 180 minor offences across 42 central laws, replacing harsh imprisonment clauses with civil penalties or administrative actions. This was particularly beneficial for MSMEs, which often operate with limited resources and are disproportionately affected by procedural non-compliance. By replacing fear of imprisonment with predictable monetary penalties and streamlined adjudication processes, the Bill empowered small enterprises to focus on growth and innovation rather than navigating a maze of legal risks.

Additionally, the Bill rationalized penalties through a structured system where fines increase gradually over time, ensuring deterrence without penalizing businesses excessively. The creation of dedicated adjudicating authorities and appellate mechanisms further ensured that disputes were resolved quickly and fairly, minimizing interruptions to business operations. Outdated provisions that no longer served any meaningful purpose were also removed, eliminating unnecessary hurdles for entrepreneurs. For MSMEs, these reforms translated into tangible benefits: reduced compliance anxiety, lower legal costs, faster resolution of disputes, and a clearer, more predictable regulatory environment.

In essence, the Jan Vishwas Bill exemplifies Modi Ji’s focus on ease of doing business and MSME empowerment, reflecting a shift from punitive governance to a trust based approach that encourages compliance and enables small businesses to thrive. By simplifying laws and reducing unnecessary criminalization, the government ensured that MSMEs could dedicate more time, capital, and energy to growth, innovation, and employment generation, reinforcing their critical role in India’s economic development.

The impact of India’s MSME reforms goes far beyond policies or numbers; it is both psychological and structural. For decades, MSMEs operated in near invisibility, their struggles ignored and their voices drowned out in broader economic debates. Unlike previous administrations, Prime Minister Narendra Modi engaged with MSMEs not as a political constituency but as a vital engine of India’s growth, focusing on their needs and those of their employees. His words were backed by decisive action, from easing access to finance through MUDRA and CGTMSE, to building digital platforms like GeM, protecting domestic industries, and opening global opportunities, delivering results entrepreneurs could rely on and build upon.

MSMEs rarely engage in politics; they are absorbed in the daily challenge of sustaining and growing their businesses. Yet under Modi Ji, they feel recognized, valued, and genuinely supported. In more than 100 speeches, he has consistently highlighted their importance, sending a clear message that small businesses and their employees are central to the vision of a Viksit Bharat. This recognition has sparked a new wave of confidence: entrepreneurs are no longer focused solely on survival, they are innovating, taking risks, and dreaming bigger, secure in the knowledge that the government sees and backs them.

The contrast with the pre-2014 era is striking. MSMEs were once left to navigate crises on their own, neglected by policymakers, and excluded from opportunities. Today, they are at the center of India’s economic vision. Access to finance, inclusive programs like the National SC/ST Hub, digital infrastructure, transparent government procurement, and protective trade policies have brought millions of entrepreneurs into the formal economy, empowering women and marginalized groups, and giving small businesses a foundation stronger than ever before.

This transformation is not only domestic. At the G20, BRICS, and United Nations forums, India’s MSME reforms are cited as models for developing nations. Countries across Africa and Asia are studying India’s approach to digitalization, inclusion, and grassroots financial support. For the first time, India is not just catching up; it is setting global benchmarks.

The numbers underscore the impact: MSMEs today contribute 30% to India’s GDP, 45% to exports, and provide livelihoods to 110 million people. With continued reforms, digital empowerment, and deeper global integration, MSMEs are poised to become a primary driver of India’s rise to superpower status by 2047.

The journey from 2006 to 2014 was one of dormancy and missed opportunities. The journey from 2014 to 2025 has been one of activation, empowerment, and transformation. Modi Ji has not merely been a policymaker for India’s smallest entrepreneurs, he has been a catalyst, recognizing their potential, providing platforms, and placing them at the heart of the nation’s growth story. For the first time in decades, small entrepreneurs are no longer invisible; they operate within an ecosystem built for their success.

Having walked alongside India’s entrepreneurs for over two decades, first as a Trustee and then as a President of the India SME Forum, I have witnessed both their resilience and frustration, their determination to create livelihoods in the face of systemic challenges, and their despair when regulations suffocated rather than supported them. Today, the resurgence of MSMEs is inseparable from Modi Ji’s reforms. These two journeys, one of policy and vision, the other of enterprise and resilience, converge to create a story of empowerment, confidence, and sustainable growth.

At the India SME Forum, we believe it is time for MSMEs to move beyond being called the “second engine of growth.” With the right reforms, continued digital empowerment, and an enabling ecosystem, they are ready to take their place as the primary driver of India’s economic destiny. As India marches toward 2047, it will be millions of small entrepreneurs, shopkeepers, artisans, manufacturers, and innovators, who will not just fuel growth but define the nation’s future as a true global economic superpower.

The opinions expressed herein are personal and solely those of the author and do not necessarily represent the views of the affiliated organization or institution.