India’s Micro, Small and Medium Enterprises (MSME) sector continues to be a key driver of economic growth and employment generation, but a new report by Piramal Finance has highlighted a concerning trend: the benefits of growth remain concentrated among a relatively small segment of enterprises despite extensive policy support and increased access to financing.
The report suggests that while government initiatives, digital lending platforms and financial inclusion measures have expanded opportunities for millions of small businesses, a significant portion of MSMEs still struggles to scale operations, improve productivity and access formal credit. As a result, growth has remained uneven across the sector.
MSMEs contribute nearly 30% of India’s GDP and account for a substantial share of employment and exports. Over the past several years, the government has introduced multiple schemes aimed at strengthening the sector, including credit guarantee programs, emergency funding support, digitalization initiatives and measures to improve ease of doing business.
Despite these efforts, the Piramal Finance report indicates that a large share of business growth and credit expansion continues to be concentrated among relatively mature enterprises that already possess stronger financial records, digital capabilities and market access. Smaller and less formal businesses often remain outside the mainstream financial ecosystem.
According to the study, enterprises located in major urban centers and industrial clusters tend to benefit more from financing opportunities and policy interventions than businesses operating in rural and semi-urban regions. This has created disparities in growth rates across different geographies and business segments.
The report also highlights the role of digital transformation in shaping the MSME landscape. Businesses that have adopted digital payments, online sales channels and technology-driven operations have generally demonstrated stronger growth and better access to formal financing. In contrast, enterprises with limited digital adoption continue to face challenges in securing loans and expanding operations.
Experts believe that improving credit accessibility remains one of the most important priorities for the sector. Although lending to MSMEs has increased significantly in recent years, many small enterprises continue to rely on informal borrowing channels due to documentation challenges, lack of collateral and limited financial history.
Another challenge identified in the report is the concentration of financing among a limited group of borrowers. Financial institutions often prefer businesses with established repayment records and predictable cash flows, making it more difficult for first-time entrepreneurs and smaller enterprises to obtain funding on favorable terms.
Industry observers argue that bridging these gaps will require a combination of policy reforms, technology adoption and targeted support mechanisms. Strengthening digital infrastructure, enhancing financial literacy and expanding alternative credit assessment models could help bring more businesses into the formal financial system.
The findings come at a time when India is positioning the MSME sector as a crucial pillar of its long-term economic growth strategy. Policymakers have repeatedly emphasized the importance of empowering small businesses to drive manufacturing, exports, innovation and job creation.
The report concludes that while policy support has undoubtedly expanded opportunities for the sector, the next phase of MSME development must focus on ensuring that growth becomes more inclusive and widely distributed. Experts believe that unlocking the potential of smaller and underserved enterprises could significantly boost economic activity and create a stronger foundation for sustainable growth.
As India continues its journey toward becoming a major global economic power, addressing the concentration of MSME growth may emerge as one of the most important challenges—and opportunities—for policymakers, financial institutions and business leaders alike.
