MSME’s Post Covid Future

The COVID-19 pandemic delivered an unprecedented economic shock globally, and India’s Micro, Small, and Medium Enterprises (MSMEs) bore a disproportionate brunt of this impact. As engines of inclusive growth, MSMEs contribute nearly 30% to India’s GDP and employ over 110 million people.

MSMEs not only regained momentum by FY 2022–23 but also led the resurgence in key sectors such as textiles, pharmaceuticals, and agro-products. Further, aggressive credit infusions under schemes like ECLGS and structural reforms including Udyam registration and turnover-based classification fueled sectoral resilience and formalization. Findings highlight that MSMEs added up to 3.26 percentage points to GDP growth in 2021–22 and nearly recovered 25 million lost jobs by 2023.

In 2025 and an optimistic outlook for 2026, India's MSME sector has shown remarkable resilience and is positioned for significant growth as a key driver of the nation's economic recovery post-COVID-19. Government initiatives, particularly those from the Union Budget 2025-26, are providing substantial support to address long-standing challenges related to credit access, formalization, and technological adoption.

Chief Advisor to the Chief Minister of Maharashtra, Kaustubh Dhavse highlighted that MSMEs form the “bedrock of the Indian economy,” contributing nearly 30% to GDP and employing over 120 million people. He emphasized that while significant progress has been made through initiatives like Stand Up India and PM MSME schemes, access to capital and simplification of processes remain key challenges.

In India, approximately 63.39 million MSMEs exist, with nearly 99.5% classified as micro enterprises. India's GDP contracted by 7.3% in 2020–21 due to the Covid-19 pandemic and associated restrictions. The pandemic impacted all businesses, but MSMEs-crucial to India’s economy-were hit the hardest. As main contributors to GDP and employment, they play an important role in promoting entrepreneurship, technological advancement, social stability, and industrial growth. MSMEs also cater to both domestic and international markets with diverse products and services. The COVID-19 outbreak and global policy responses led to a sharp decline in economic activity. Restrictions on mobility and workplace closures created widespread uncertainty, causing a fall in demand and major disruptions in global supply chains.

India is projected to be world’s fastest growing major economy (6.3% to 6.8% in 2025-26) where the micro, small, and medium enterprises (MSMEs) have long been referred to as the backbone of the country’s economy, generating employment, innovation, and inclusive growth. The sector alone contributes around 30% to India’s GDP. Yet, behind this vibrant narrative lies a sobering reality: nearly 90% of Indian start-ups and MSMEs do not survive beyond their first five years, and only a small fraction persists past a decade. The question, then, is not about the sector’s potential, but about what holds it back and how we can unlock its full promise.

There is a pattern that goes beyond insufficient funds or market volatility. In about 42% of instances, businesses fail because they get the market wrong, offering products or services that don’t find market acceptance. Around 23% fail due to inadequate skills, experience or organizational cohesion. Speedy market changes, inadequate planning and poor access to mentorship further worsen these problems.

The Union Budget 2025-26 is a turning point for India's MSME sector, addressing key challenges and creating opportunities for long-term growth. MSMEs will become India's economic growth engine through the revision of categorization, widened access to financing, tax relief, and encouragement of exports. These changes will unlock new potential, enabling companies to innovate, grow, and compete with the world.

For far too long, India's MSMEs have remained a sleeping giant in the international economy. To overcome this, the Union Budget 2025-26 focuses on initiatives to expand their export base.

The Export Promotion mission has been allocated ₹2,250 crore in the budget to support export credit, cross-border factoring, and overcome non-tariff barriers. It aims to achieve annual growth in MSME exports over the next three years.

The Focus Product Scheme will assist in the encouragement of labour-intensive sectors such as the footwear and leather industries. This scheme aims to create 22 lakh jobs, generate ₹4 lakh crore in turnover, and achieve ₹1.1 lakh crore in exports by 2030. MSMEs with environmentally friendly manufacturing processes and international quality standards are poised to compete globally.

India's MSME growth story from 2026 onwards is projected to be strong, driven by government support through policies like the Union Budget 2025-26, which includes measures for increased credit access and simplified regulations. The sector is expected to grow to $1 trillion by 2028, boosted by investments, a focus on export-oriented industries, and new initiatives like the National Manufacturing Mission and a planned 2026 survey to track the ease of doing business.