India’s MSME Revolution: Growth, Gaps & Stocks to Watch

Introduction: Small Businesses, Big Future

MSME growth in India isn’t just a policy buzzword — it’s the backbone of Bharat’s future.

Yet, a new report by NITI Aayog reveals how we can unlock this sleeping economic giant. But behind the vision lies a trillion-rupee gap — and for investors, a billion-rupee opportunity.

Imagine building a skyscraper with toothpicks. Sounds insane, right? Yet that’s exactly what India is trying to do — run a $3.7 trillion economy with an MSME sector that’s overworked, underfunded, and often invisible.

Micro, Small, and Medium Enterprises (MSMEs) are the silent warriors of India’s economy. With 63 million registered units, they contribute nearly 29.2% of India’s GDP, produce 36.2% of total manufacturing output, and are responsible for 45% of exports. Globally, they represent 90% of all businesses and over 50% of employment.

But here’s the catch: despite this massive contribution, over 80% of MSMEs are still micro enterprises, with most of them operating as proprietorships. And worse — only 19% of their credit needs were met through formal banking channels as of FY21. That’s right — a sector that fuels nearly a third of India’s economy is surviving on scraps.

The recently released NITI Aayog report on “Enhancing Competitiveness of MSMEs in India” doesn’t just point out these issues — it lays down a roadmap for transformation. And for investors, this roadmap could very well be a treasure map.

Because where there’s reform, there’s opportunity. Especially for those who know where to look.

Credit Crunch Slowing MSME Growth in India

If MSMEs are the heart of India’s economy, then credit is the oxygen. But right now? This heart is gasping for air.

In FY17, only 16% of MSME credit demand—out of a massive ₹69.3 trillion—was met through formal financing. By FY21, this improved to 19%, but that still left a staggering ₹58.4 trillion gap. And it’s not just about quantity — it’s about the cost too. Informal loans for MSMEs come with interest rates ranging from 30% to 60%. That’s not financing — that’s slow-motion strangulation.

The silver lining? There has been momentum. According to RBI data, the credit share of micro and small enterprises rose from 14% in 2020 to 20% in 2024. Medium enterprises saw their share grow from 4% to 9% during the same period. More encouragingly, the CAGR of bank credit to micro and small enterprises was a whopping 29.08% between Sept 2020 and Sept 2024 — far ahead of large enterprises at just 3.54%.

But growth from “abysmal” to “barely enough” isn’t victory. It’s a beginning.

Stocks That Could Ride the Credit Wave

As credit to MSMEs becomes more formal, the biggest beneficiaries are likely to be:

Company	Why It Benefits
AU Small Finance Bank	Strong MSME lending book and rural outreach
Equitas SFB	Focus on small borrowers and women-led MSMEs
UGRO Capital	Specialised in MSME lending using data-driven credit models
Muthoot Microfin	A major microfinance player with PAN India reach (watch for IPO)
Kinara Capital	Fast-growing private NBFC with a pure-play MSME focus

Also keep an eye on SIDBI — not listed, but critical. The government plans to expand it into 168 out of 242 MSME clusters with 24 new branches. If you’re a long-term investor, track funds or policy initiatives tied to SIDBI’s growth.

Tech Trouble: MSMEs & the Digital Divide

Picture this: a small textile unit in Tirupur using WhatsApp to manage orders and Excel sheets from 2007 to track inventory. Meanwhile, its global competitors are using AI to predict demand, manage logistics, and automate quality checks.

That’s the digital divide India’s MSMEs are caught in.

According to a Nasscom-Meta study, 74% of Indian MSMEs believe AI can help their businesses grow, but they simply don’t have the skills to implement it. Worse, 72% struggle to access proper training to upskill their workers. And let’s be real — most MSMEs can’t just “hire a data scientist” like the big guys.

It’s not just about lack of awareness. Basic infrastructure is missing. Many units still deal with patchy internet, poor power supply, and zero digital literacy. And when they do go digital? They’re bombarded with tools they don’t understand, priced like they’re Fortune 500.

The NITI Aayog report rightly calls for tailored tech policies, shared workspaces, and MSME-specific digital support. But till then, who helps these businesses plug into the future?

Stocks That Bridge the MSME-Tech Divide

Company	How It Helps MSMEs
IndiaMART	India’s largest B2B marketplace, helping MSMEs sell online
Tata Elxsi	Offers affordable digital transformation services for small auto and textile units
Persistent Systems	Strong client base in manufacturing, now expanding to mid-size firms
Zoho (private)	SaaS tools designed for MSMEs, from CRM to accounting (keep an eye if it IPOs)
TCS / Infosys	Not just big clients — now rolling out MSME-specific automation solutions

This is not just about coding. It’s about empowering that corner shop in Kanpur to compete with a Chinese factory using the same tech tools. When tech becomes affordable, scalable, and understandable — MSMEs don’t just survive; they thrive.

Cluster Gaps Hindering MSME Growth

India’s cluster development policy is older than most of today’s startup founders. Launched in 1987, it was supposed to turn local business hubs into engines of innovation, efficiency, and exports. Fast-forward nearly four decades — and more than 100 infrastructure projects under the MSE-CDP scheme are still incomplete.

As per the latest data:

• Out of 208 sanctioned Common Facility Centres (CFCs), 111 remain unfinished.
• Out of 309 Infrastructure Development Projects, 111 are still ongoing.
• The revamped MSE-CDP digital portal introduced in 2022 is promising — but execution lags behind ambition.

Despite these gaps, some states shine. Tamil Nadu leads in textiles, Uttar Pradesh in food processing, and Gujarat in chemicals. But even in these strongholds, wage-to-workforce ratios reveal deep productivity mismatches. For instance, Tirupur contributes nearly 50% of Tamil Nadu’s textile workforce, but productivity per worker varies dramatically across districts.

India has 964 MSME clusters, but over 60% of districts still show low regional specialization (Location Quotient < 2). Translation: we’re spreading peanut butter too thin instead of building focused powerhouses.

Stocks Tied to Winning Clusters

Company	Cluster/State	Why It Matters
KPR Mill, Page Industries	Tamil Nadu – Textiles	Strong links to Tirupur clusters; labor-rich, export-oriented
Godrej Agrovet, Vadilal	Maharashtra, Gujarat – Food	Tied to value-added food clusters and processing hubs
Aarti Industries, Navin Fluorine	Gujarat – Chemicals	Gujarat dominates upstream chemical MSME clusters

🏞 Infographic Tip: Map of India showing top MSME clusters by sector and productivity (textiles, food, chemicals)

MSME clusters can drive localized economic booms. But unless we fix infrastructure, streamline digital adoption, and improve logistics, they’ll remain islands of potential — not bridges to prosperity.

Sector Spotlight: MSME-Heavy Industries to Watch

India’s MSMEs are not evenly spread. They’re concentrated in specific industries — especially those that require low capital, manual skills, and flexible production. Let’s look at three sectors that dominate the MSME landscape and offer solid potential for stock market investors.

Textiles & Apparel: The Fabric of Bharat’s MSMEs

With over 19% workforce share in Tamil Nadu alone, the textile sector is a top employer for micro and small enterprises. Districts like Tirupur and Bangalore are buzzing with stitching machines, dyeing units, and export orders.

But here’s the irony: West Bengal ranks second in textile workforce (16.24%) but has just 2.93% wage share, signaling poor productivity. In contrast, Haryana, with just 0.39% workforce, commands 8.31% of wages. Skill gaps and outdated machinery explain the gap.

📈 Stocks to Watch:

• KPR Mill – Tirupur-based with strong export business
• Page Industries – Brand owner of Jockey India, backed by textile clusters
• Welspun India – Global exporter, linked to Gujarat and Maharashtra clusters
• Lux Industries, Rupa & Co. – Major players in West Bengal

Food Processing: India’s Quiet Economic Workhorse

Employing 43 lakh workers, the food processing sector is the unglamorous backbone of rural MSMEs. Uttar Pradesh leads in workforce (15.12%), but Maharashtra dominates wages, particularly in Mumbai Suburban and Thane.

The government aims to fund 50 food irradiation units, and infrastructure is evolving via the PMFME (Pradhan Mantri Formalisation of Micro Food Enterprises) scheme.

📈 Stocks to Watch:

• Heritage Foods – Strong dairy processing MSME ecosystem
• ADF Foods – Export-oriented processed food business
• Tasty Bite Eatables – US-focused ready-to-eat meals
• Anik Industries – Linked to regional dairy and food clusters

Chemicals: MSMEs Fueling India’s Industrial Backbone

MSME participation is exploding in the chemical sector, especially in Gujarat. Gujarat owns 27% of the workforce and 14.45% of the wage share in upstream chemical clusters. Districts like Bharuch, Vadodara, and Kheda are leading both in employment and high productivity.

The sector includes everything from basic chemicals to man-made fibers, and value addition here is on the rise.

📈 Stocks to Watch:

• Aarti Industries – Major player in Gujarat’s chemical MSME hub
• Navin Fluorine – Specialty chemicals, MSME supplier connections
• Balaji Amines, Vinati Organics – Linked to Maharashtra and Telangana clusters

📊 Table Suggestion:

Sector	Workforce Strength	Wage Productivity	MSME Presence	Stocks to Watch
Textiles & Apparel	Very High	Low to Medium	Very High	KPR Mill, Page Ind., Welspun
Food Processing	High	Medium	High	ADF Foods, Tasty Bite, Heritage
Chemicals	Medium	High	Growing Fast	Aarti Ind., Navin Fluorine, Balaji

Policy Gaps & Fixes: The Good, Bad & Ugly

India has no shortage of MSME policies. But if policies could build factories, we’d be the next China by now.

The Good

• The Public Procurement Policy mandates 25% of government purchases come from MSMEs — plus 4% reserved for SC/ST entrepreneurs.
• The TReDS platform is finally getting more teeth: the threshold for mandatory buyer onboarding is dropping from ₹500 crore to ₹250 crore.
• SIDBI’s expansion with 24 new branches aims to cover 168 out of 242 MSME clusters in just 3 years.

The Bad

• Of the 208 sanctioned Common Facility Centres, 111 are still incomplete. That’s infrastructure money gathering dust.
• Over 100 infra projects under the MSE-CDP scheme are still ongoing years after approval.
• Credit remains stuck: NBFCs saw the fastest MSME credit demand growth (39%) in Q1 FY24, but they lend at 15–25% interest rates.

The Ugly

• Labour productivity is declining: -4.3% for Indian MSMEs vs -2.8% globally.
• Real sales growth? India: -1.5%, Global: +0.7%.
• MSME innovation rate in India is 5.8%, vs 36% globally. That’s a full-blown innovation drought.

📌 Quick Fixes Needed:

• Fast-track infra completion in MSME clusters
• Focus on high-LQ (Location Quotient) districts for investment
• Implement skill and AI-based training across rural MSMEs
• Incentivize compliance with ESG, export standards, and women-led units

India’s policy intent is headed in the right direction — but execution needs a Project Tiger-level urgency.

Conclusion: Time to Bet on MSME Growth in India

India’s MSMEs are loud in numbers but quiet in power — and that’s about to change.

The NITI Aayog 2025 report shows that the future of MSME growth in India depends on one thing: closing the gap. The credit gap. The tech gap. The gender gap. The productivity gap.

And for investors? That’s where the alpha is hiding.

Your MSME Action Plan:

• Track credit enablers: NBFCs like UGRO, AU SFB, and platforms working with SIDBI.
• Follow cluster signals: Stocks like KPR Mill, ADF Foods, Aarti Industries have exposure to high-performance MSME clusters.
• Watch for digital enablers: IndiaMART, Persistent Systems, and Tata Elxsi are helping MSMEs leapfrog the tech divide.

This isn’t just a market opportunity. It’s a Bharat story — and it’s being written in micro units, small clusters, and medium-sized breakthroughs.

Want to Find the Next MSME Multibagger?

With Angel One, you can explore MSME-focused smallcap stocks, apply filters based on sector exposure, and build a portfolio aligned with India’s industrial growth.

🔗 Open Your Demat in 5 Minutes — Because the next big wave won’t come from the metros. It’ll come from the MSMEs.

FAQs: MSME Growth in India

1. What is the contribution of MSMEs to India’s GDP?

As per the NITI Aayog 2025 report, MSMEs contribute approximately 29.2% to India’s GDP and account for 45% of total exports.

2. What are the main challenges facing MSME growth in India?

Key challenges include limited access to formal credit, low technology adoption, poor infrastructure in clusters, and minimal participation from women entrepreneurs.

3. Which sectors have the highest concentration of MSMEs in India?

The top three MSME-heavy sectors are Textiles & Apparel, Food Processing, and Chemicals, with strong regional clusters in states like Tamil Nadu, Gujarat, and Uttar Pradesh.

4. Which listed companies could benefit from MSME growth in India?

Stocks like KPR Mill, ADF Foods, Aarti Industries, IndiaMART, and AU Small Finance Bank are well-positioned to benefit from increased MSME activity and policy support.

5. What government initiatives are supporting MSME growth in India?

Key initiatives include the Public Procurement Policy (25% MSME sourcing mandate), the revamped MSE-CDP, SIDBI expansion, and TReDS onboarding for faster invoice discounting.

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