What India must do to build globally competitive MSMEs at scale | OPINION

India's MSME sector is not a peripheral part of our economy; it is central to it. Over 7.47 crore enterprises contribute nearly a third of the country's GDP, account for close to half of India's exports, and support the livelihoods of more than 32 crore people. These are not numbers that need dramatising. They make the case on their own.

And yet, for too many of these enterprises, growth remains out of reach. Not because ambition is lacking, but because the systems around them create friction at every step. The Union Budget 2026-27 signals the right intent: equity support, liquidity, capacity-building. But intent needs to translate into specific, executable change. Here is where I believe that needs to happen.

1. Fix the 'missing middle'; it's structural, not motivational

India's MSME ladder has a broken rung. Millions of micro enterprises start up, survive, and then plateau. The transition from micro to small, and from small to medium, remains rare. The core problem is that the cost of formalisation rises faster than the benefits kick in.

Compliance burdens increase. Institutional credit remains difficult to access. For an entrepreneur crossing a certain revenue threshold, the system becomes more complicated, not less.

Fixing this requires tiered regulatory treatment, not just tiered definitions. A ₹2 crore business should not face the same compliance architecture as a ₹20 crore one. Simplification has to be graduated and deliberate.

2. Close the credit gap and go beyond awareness

India's MSME sector carries an estimated credit gap of ₹30 lakh crore. The standard response is that businesses don't know what schemes are available.

That's partly true, but even businesses that are fully aware frequently can't access credit because they lack formal collateral, because their financial records are inconsistent, or because the loan processing experience is too burdensome for a business owner who is simultaneously managing operations, sales, and compliance.

The Account Aggregator framework is genuinely important here; it enables cash flow-based lending rather than collateral-based lending. But the framework is only as good as its adoption.

Banks and NBFCs need to build products actually designed for this model. The infrastructure exists. The financial products haven't caught up yet.

3. Make digital infrastructure a daily utility, not a compliance obligation

GST, UPI, ONDC, GeM, TReDS: India has built some of the most ambitious digital infrastructure for small businesses anywhere in the world. And yet, for many entrepreneurs in Tier II and Tier III markets, these remain distant systems rather than tools they use with confidence.

Nearly 35 per cent of micro enterprises still operate outside formal registration systems.

The bottleneck today is rarely internet access; it's usability, trust, and awareness. A platform that requires a business owner to navigate multiple portals, upload numerous documents, and wait weeks for a response isn't a digital solution. It's the old problem in a new format.

The standard should be simple: if a government platform can't be used independently by a business owner with a smartphone and reasonable literacy, it needs to be redesigned. Simplicity is not a feature; it is the policy.

4. Resolve delayed payments—the impact is deeper than cash flow

Over ₹8 lakh crore is estimated to be locked in delayed MSME payments. For a large enterprise, a delayed payment is a reconciliation item. For a small business, it can mean missing payroll, defaulting on a supplier, or shelving a growth plan entirely.

Delayed payments aren't just a liquidity problem; they shape behaviour. Entrepreneurs learn not to invest, not to hire, not to expand, because they can't rely on money owed to them arriving on time. TReDS and the Samadhaan portal are steps forward, but voluntary frameworks with low adoption don't move the needle enough. Timely payment to MSMEs needs to shift from a best practice to an enforceable norm, with real accountability for large buyers who routinely default on it.

5. Build financial clarity, not just financial access

Most small business owners don't lack data; they lack clarity from that data. They know their bank balance. They don't always know their actual profitability, their working capital cycle, or which part of their business is quietly underperforming.

An entrepreneur running a ₹2 crore business deserves the same quality of financial visibility as one running a ₹200 crore business. Technology makes this possible—but only when it is designed around how a business owner thinks and operates, not how a finance professional does. The measure of good business software is not the depth of its features. It is whether a business owner, without a finance background, can understand the health of their business quickly and act on it. Technology that requires training to use has already failed its purpose.

6. Invest seriously in clusters: businesses scale faster in ecosystems

Some of India's most competitive MSMEs scaled not in isolation, but because they were embedded in ecosystems: Tiruppur's textile clusters, Surat's diamond processing hubs, Ludhiana's auto parts networks—where skills, suppliers, logistics, and buyers were all within reach of each other.

Cluster-based development deserves more sustained investment than it currently receives, not just in infrastructure, but in building integrated ecosystems that combine financing, skilling, market linkages, and technology adoption. When these inputs coexist, the pace of growth accelerates in ways that isolated policy interventions cannot replicate.

7. Prepare MSMEs for global supply chains—the window is open now

The ongoing diversification of global supply chains is a real and time-bound opportunity for Indian MSMEs. Companies actively looking beyond single-source dependencies represent genuine demand, but only for businesses that meet international standards for quality, documentation, digital traceability, and reliability.

This means investing in export readiness: helping MSMEs understand international compliance norms, adopt relevant certifications, manage cross-border documentation, and build a presence on platforms that global buyers actually use. This is not a future agenda. It is a current one.

India's path to a developed economy by 2047 runs through its MSME sector. The entrepreneurs driving that growth are already moving. What they need now are systems designed to support that pace, financial infrastructure that improves access, compliance frameworks that enable rather than impede, and technology that creates clarity rather than adding another layer of complexity.

The author is Chief Business Officer at Tally Solutions.

The opinions expressed in this article are those of the author and do not purport to reflect the opinions or views of THE WEEK.