MSMEs shine online, but lag in productivity

Micro, small and medium enterprises (MSMEs) in India are facing structural challenges like limited access to formal credit, which is impairing their productivity, but their digital readiness remains a bright spot, a Deloitte India report said on Wednesday.

MSMEs in India contribute nearly 30 per cent to GDP, and account for 45 per cent of exports and provide livelihoods to over 240 million people. The study shows that despite exhibiting a significantly higher degree of digital readiness than OECD peers, Indian MSMEs operate at just 18 per cent of large-enterprise productivity compared with 45-70 per cent in OECD economies.

This gap limits their competitiveness compared to global counterparts. Deloitte India Economist Rumki Majumdar said India’s MSME space is marred by several structural and persistent challenges, including limited access to formal credit, outdated technology, regulatory complexity and infrastructure bottlenecks.

The credit gap is estimated at Rs 30 lakh crore or about 24 per cent of total demand. It is significantly higher for services (27 per cent) and women-owned MSMEs (35 per cent), with severe implications on their scaling opportunities and growth prospects,” Majumdar said. The intensity of challenges becomes more pronounced in non-metro regions, where these enterprises are concentrated, she added.

According to ‘Deloitte’s MSME challenge index’, MSMEs in sectors such as readymade garments face severe credit constraints because of the high perceived risks associated with the sector, characterised by low margins and intense global competition, making their products highly substitutable.