Introduction
MSMEs (“Micro Small and Medium Enterprises”) form the backbone of India’s urban, semi-urban, and rural economies. They play a pivotal role in generating employment across diverse sectors and are instrumental in driving inclusive economic growth. With approximately 63 (sixty-three) million MSME’s, India possesses the second-largest base of MSMEs globally, following China. These enterprises contribute around 30 (thirty) percent to the national GDP and account for 40 (forty) percent of total exports. Significantly, MSMEs serve as one of the largest sources of employment in the country, providing livelihoods to nearly 120 million people. Recognizing their strategic importance, the Government of India has consistently prioritized the promotion and development of the MSME sector, especially under the flagship ‘Atmanirbhar Bharat’ (Self-Reliant India) initiative, which envisions a resilient and self-sustaining economy.
Despite their impressive scale and significant support extended by the government, MSMEs continue to face persistent challenges in their day-to-day operations. Many enterprises struggle with limited access to formal credit, complex compliance requirements, and vulnerability to market volatility and inflationary pressures. In recent years, events such as the COVID-19 pandemic, ongoing global supply chain disruptions, and geopolitical and macroeconomic uncertainties have further intensified these structural weaknesses.
It is therefore imperative to continuously strengthen policy implementation, foster adaptive and forward-looking regulatory frameworks, and build a robust and sustainable support ecosystem Such an approach would ensure that MSME’s are not equipped to withstand short-term disruptions, but are also empowered to achieve long term innovation with enhanced resilience and global competitiveness.
Evolution of MSMEs in India
Key Government Initiatives Supporting MSMEs in India
The Government of India has undertaken sustained efforts to improve the ease of doing business for MSMEs through serios of targeted schemes, policy reforms and legislations. These initiatives are aimed at enhancing liquidity, easing compliance burdens, fostering innovation, and facilitating integration with global value chains.
Some of the most significant schemes include the Emergency Credit Line Guarantee Scheme (ECLGS), which approved 19.90 lakh guarantees, amounting to a total of Rs. 2.44 lakh crore in 2024, thereby securing vital cash flow for MSMEs. Schemes such as Central Government such as the PM Vishwakarma and MSME-Trade Enablement and Marketing Scheme (MSME – TEAM), Product Linked Incentives (PLI’s) as well as the ‘Make in India;’ campaign has played a role of paramount importance in the growth of the MSME sector.[v] These schemes mainly were enacted to secure the cash flow for MSMEs.
The introduction of GST has streamlined the indirect tax structure, eliminated inter-state checkpoints, leading to faster transit times and cost savings. The authorities have introduced tax incentives, eased regulations, favourable policies, and loans at lower interest rates to facilitate the ease of starting up a manufacturing business and to boost the growth of the sector. The Government of India’s foreign trade policy provides measures for promoting exports and imports and trade facilitations, which would be helpful for MSMEs planning an integration in the global supply chain. The Government of India has further planned to introduce a comprehensive policy for MSMEs that will provide for easier credit and reduced documentation to help their integration in the global supply chains[vi]. Global initiatives such as the World Bank-sponsored Raising and Accelerating MSME Productivity (“RAMP”), which s a 500 million USD operation to support the government of India for increasing the productivity and competitiveness of MSMEs in India[vii]. Additionally, schemes like the Credit Guarantee Trust Fund for Micro and Small Enterprises (“CGTMSE”) and the Technology Upgradation Fund Scheme (“TUFS”) have been instrumental in providing financial and technical support to MSMEs. Skilling and capacity-building initiatives under the Skill India Mission have also helped MSMEs in training manpower, thus aligning workforce development with industry requirements. The integration of digital infrastructure such as the TReDS platform (Trade Receivables Discounting System) has helped MSMEs get early payments from large buyers, reducing dependency on credit. Collectively, these initiatives are aimed at increasing liquidity, simplifying processes, encouraging innovation, and promoting global trade alignment.
Operational Bottlenecks and Legal Complexities Affecting MSMEs
Despite support from the authorities and multiple schemes and regulations from the government for the betterment of the MSMEs, the real-world impact that has been achieved is still a topic of debate. One of the most significant issues in the MSME sector is the delay in payments. Sections 15 to 23 of the MSME Development Act, 2006 deal with delays in payments, for ensuring time-bound payments to MSMEs. Delayed payments amount to around Rs. 10.7 lakh crore annually, which significantly impacts the financial condition and the daily operations of the MSMEs, often leading to huge losses and delays in the delivery of products[viii].
Although section 18 of the MSMED Act, 2006[ix] empowers Micro and Small Enterprises Facilitation Council (MSEFC) to adjudicate disputes regarding delayed payments. But the solution provided under Section 18 is often hampered by jurisdictional challenges and the complexity of overlapping contractual obligations and arbitration clauses, although the courts have tried to assist the MSME’s at numerous instances by providing them the dual option for dispute resolution i.e., the MSME unit can choose between statutory resolution or contractual arbitration[x]. Moreover, MSMEs often lack the legal expertise or financial muscle to enforce their claims through prolonged litigation or arbitration. There is also limited awareness about the existence or functioning of MSEFCs among small businesses. Further, access to skilled manpower, R&D, and automation remains scarce in many remote areas.
Lack of technology and efficient management are the major issues in the proper functioning and overall growth of the MSMEs. Addressing these issues might also be helpful in the integration of MSMEs in local as well as global supply chains. Technology and efficient management can play a significant role in getting the edge in the competitive market. These problems can be brought at by arrangements such as partnerships with third parties like Logistics and Warehouse Providers, IT Service providers who can act as an aid in improving their business and supply chain management. These third-party service providers possess the necessary experience and access to resources that an MSME may lack, enabling them to facilitate the smooth functioning and management of a supply chain. MSMEs can improve their efficiency primarily by standardising the processes. This can be achieved by issuing standard operating procedures, which would ensure that tasks are performed in the most efficient and consistent manner possible. These steps will help in improving efficiency, reducing errors, and maximising business profits over a period[xi]. Hence, overcoming these challenges demands a blend of regulatory support, capacity building, technology adoption, and strategic partnerships. Only then can MSMEs compete effectively and contribute meaningfully to the larger economy.
Conclusion
The MSME sector forms the backbone of India’s economic framework and plays a crucial role in significant fields such as employment generation, GDP contribution, and exports. Despite the remarkable figures and governmental support, MSMEs continue to face continuous challenges, primarily concerning delayed payments, lack of technological integration, and inefficient supply chain management. The evolution of the legal framework, particularly through landmark legislations such as the MSMED Act, 2006, and significant tax reforms under the Finance Act, 2023, highlights the Government’s commitment to addressing long-standing structural issues and enhancing accountability towards MSMEs. Furthermore, initiatives such as the ECLGS, PLI schemes, PM Vishwakarma, and the RAMP programme underscore a strong policy inclination towards improving financial accessibility and enhancing productivity and competitiveness.
However, the gap between policy and implementation has not been bridged as intended by the impact of these schemes on ground-level MSME operations. The issue of delayed payments, despite statutory remedies and judicial intervention, continues to affect the sector, severely, by disturbing cash flow and sustainability. Moreover, many MSMEs lack access to modern technology and effective business management strategies, which hinders their ability to conduct efficient operations and integrate into larger supply chains at both domestic and global levels. As India aims to achieve its trillion-dollar economy vision and deeper participation in global trade, empowering MSMEs will be a game-changer. The government’s role must now evolve into a facilitator that promotes transparency, encourages digital transformation, and bridges infrastructural gaps. Focus should also be on sustainable and green manufacturing practices to align with global environmental standards.
Addressing these concerns requires not just statutory and policy measures but also active ecosystem-level collaborations. Partnerships with third-party logistics providers, IT service providers, and business consultants can act as enablers for process standardization and efficiency enhancement. Encouraging the use of standard operating procedures and digital tools will help MSMEs streamline their operations, reduce inefficiencies, and become more competitive in the market.
Therefore, while substantial progress has been made, the path to full integration of MSMEs into robust supply chains lies in bridging the implementation gap, fostering public-private collaboration, and promoting innovation and digitisation. Only through a holistic and sustained approach can the sector realise its full potential in building a self-reliant and globally competitive India.
References:
[i] The Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006)
[ii] The Finance Act, 2023 (8 of 2023)
[iii] Income Tax Act, 1961 (43 of 61) s. 43
[iv] Ministry of Finance, ‘Budget 2023-24: Amendments to Encourage Timely Payments to MSMEs’ (1 February 2023) accessed 13 March 2025.
[v] ‘Year End Review for Micro and Small Enterprises 2024’ (Press Information Bureau, 1 January 2025) accessed 13 March 2025
[vi] Economic Times, ‘Niti Aayog Working to Integrate MSMEs with Supply Chains’ (Economic Times, 14 June 2023) accessed 13 March 2025.
[vii] https://msme.gov.in/whatsnew/inviting-comments-stakeholders-draft-environmental-and-social-assessment-essa-under-world. accessed 13 March 2025
[viii] Policy Circle, ‘State of MSME Sector 2023: Challenges and the Way Forward’ (Policy Circle, 25 January 2023) accessed 13 March 2025
[ix] The Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006) s.18
[x] Principal Chief Engineer v. ManiBhai and Bros (2022) 2 SCC 608.
Detailed Guide on Handling Notices Under the MSMED Act, 2006 (Abhishekh Bagga, 6th August 2024) accessed 13 March 2025
[xi] Kinara Capital, ‘Logistics and Supply Chain Management: Importance, Benefits, and Challenges’ (Kinara Capital, 2023) accessed 13 March 2025.
Gaurav Gupta is the Founder and Managing Partner at Bridge Counsels & Rishabh Kumar Jha, Graduated from Galgotias University.
