Review: NITI Aayog’s Latest Report Sheds Light on Issues Plaguing Medium Enterprises
A recent report by the Administrative Staff College of India (ASCI), supported by NITI Aayog, titled ‘Designing a Policy for Medium Enterprises’ explores the specific challenges these businesses face and offers ideas to help them grow through better financing options, stronger tech support, and improved market connections.
Medium enterprises may not always be in the spotlight, but they play a significant role in driving India’s economy. While micro and small businesses often get more attention, it’s the medium-sized ones that are pushing innovation and growth, especially in manufacturing and services.
The MSME (Micro, Small and Medium Enterprises) sector as a whole makes up nearly 29% of India’s GDP, handles 40% of exports, and provides jobs to over 18 crore people, including about 5 crore women. But medium enterprises are just a tiny part of this ecosystem. There are approximately 6 crore unincorporated non-agricultural MSMEs (excluding construction) in the country engaged in different economic activities. Only 3.35 crore of these MSMEs are registered on the Udyam Registration Portal. 97% of registered MSMEs are micro enterprises, while medium enterprises account for just 0.3%. Despite their potential, medium enterprises are held back by a lack of access to finance, poor adoption of technology, and limited policy support.
This story looks at a report by the Administrative Staff College of India (ASCI), supported by NITI Aayog, titled ‘Designing a Policy for Medium Enterprises’. It explores the specific challenges these businesses face and offers ideas to help them grow through better financing options, stronger tech support, and improved market connections.
Note: A new classification of MSMEs was brought in starting 1 April 2025. However, the report is based on the previous classification of MSMEs, and the data calculations are according to the older classification.
Small in Number, Big in Impact
As mentioned earlier, though medium Enterprises are few in number, their impact is significant as compared to micro and small enterprises. While MSMEs offer employment to over 18 crore people, micro enterprises alone make up about 89% of all MSME employment in 2024, while medium enterprises contributed just 3%. But there’s a big difference when we look at the numbers per unit: each medium enterprise employs around 89 people on average, far more than small (19 people) or micro enterprises (just 5 to 6 people).
Similarly, in terms of exports, MSMEs contribute nearly 40% of India’s total exports. But, only about 1.36% of registered MSMEs actually export goods or services, and 64% of those have export sales of less than ₹1 crore. Most exporters are micro and small enterprises (91%), but they only account for 60% of the total MSME export value. Medium enterprises, though fewer in number (just 9% of exporting units), contribute a hefty 40% of MSME exports.
Further, a study of 8,686 medium-sized firms found that these enterprises earned USD 50.56 billion in foreign exchange in 2022-23, making up 40% of all MSME export income. They excel in sectors like textiles, pharmaceuticals, and auto components, where their export performance is especially strong. On average, a medium enterprise earned ₹39.95 crore in foreign exchange compared to just ₹1.39 crore for micro enterprises and ₹8.30 crore for small ones.
Even in the innovation capabilities, medium enterprises outshine micro and small enterprises. Medium enterprises account for 81% of the total R&D spending among MSMEs. On average, they spent ₹2.07 crore per unit on R&D, much more than small (₹0.84 crore) or micro enterprises (₹0.73 crore).
Growth Scenario Analysis: What more Medium Enterprises Could mean for India
As per the report, there are 67,923 Medium Enterprises (MEs) registered on the Udyam Portal in India. To understand their potential impact, the study analysed how even a modest increase in their numbers could affect three key areas: employment, R&D investment, and foreign exchange (forex) income.
Using the Multiplier Effect Methodology (Swaroop, 2021), which estimates the ripple effects of medium enterprises based on their per-unit contribution, the findings are as below.
- Jobs Missed: A 20% increase in the number of MEs could generate around 12 lakh additional jobs, a missed opportunity, especially in regions with high unemployment.
- Innovation Loss: With more MEs, R&D spending could rise significantly. A 20% growth in MEs would mean an extra ₹28,118.88 crore in R&D investment, especially in sectors like pharmaceuticals and auto technology. This would also push India closer to its 2% Gross Expenditure on R&D (GERD) target set by the Science, Technology, and Innovation Policy, 2013.
- Forex Gap: Fewer MEs also means lost export potential. Under a 20% growth scenario, India could have earned an additional ₹5,42,544.96 Crores in foreign exchange, an amount that would have strengthened the country’s forex reserves considerably.
Why Medium Enterprises struggle to scale
MSMEs in India face several challenges that make it hard for them to grow and stay competitive. Within this ecosystem, Medium Enterprises face a unique set of issues, they are often caught in the middle: too large to benefit from schemes meant for small enterprises, yet too small to access the advantages available to large corporations. Some of the key challenges they face include:
The study conducted surveys using questionnaires and Stakeholder Consultation Workshops, through which some of the challenges were identified.
Even though there are many government schemes to support them, about 90% of these enterprises have never used the online portals that provide information about such schemes. Most of them also use old technology—82% haven’t adopted advanced tools like AI or IoT, and 60% still depend on outdated machines, which affects their productivity and the quality of their products.
Skill development is another major issue. Around 88% of Medium Enterprises don’t take part in any government training or skill development programs. Many say the training offered doesn’t match their business needs—31% find it irrelevant, and 59% say it’s only somewhat useful. They also face a heavy compliance burden, with frequent inspections from labour, health, and safety authorities. These visits often overlap and disrupt work. On top of that, 78% say they face problems with GST compliance, and 65% struggle with delays due to complicated audits.
Only 22% of Medium Enterprises invest in research and development (R&D), while 60% of large companies do. This low R&D spending reflects a larger national issue—India spends just 0.68% of its GDP on R&D, much less than the 2% target set by the government. Access to finance is also a major challenge. Just 37% of Medium Enterprises are able to get loans, mainly because there aren’t enough dedicated MSME branches in public sector banks, especially in smaller towns and rural areas.
It is observed that while support mechanisms exist for these challenges, they are either underused or not well-suited to the specific needs of medium enterprises. This gap not only affects their day-to-day operations but also holds back their long-term growth.
What are the Recommendations?
The study lays out a targeted and well-structured policy approach to address these challenges. Some of the broader areas where intervention was suggested from the study are:
Additionally, the study highlighted some best practices globally and from States that have introduced innovative policies to support MSMEs, especially Medium Enterprises. Maharashtra’s Women Policy 2024 stands out for promoting entrepreneurship and innovation among women, particularly those from marginalised groups. In Tamil Nadu, the Plots/Sheds Allotment Policy (2016) helps MSMEs by offering developed industrial plots and sheds for sale, lease, or rent through a transparent process via the TANSIDCO website. Uttar Pradesh’s PLEDGE scheme (Promoting Leadership and Enterprise for Development of Growth Engines) encourages the development of private industrial parks across the state. Gujarat has taken a proactive step by launching a rehabilitation scheme for sick enterprises, covering all categories of MSMEs. Telangana’s TG-iPASS is a notable example of a single-window clearance system that simplifies and speeds up approvals for new industrial projects.
Globally, countries have also implemented helpful practices. Canada’s BizPaL and Singapore’s Go Business Licensing Portal make it easier for businesses to find and understand compliance and licensing requirements. Singapore has also introduced the Smart Industry Readiness Index (SIRI)—a free tool that helps Medium Enterprises assess how ready they are for Industry 4.0. It provides detailed feedback and suggestions to improve digital processes and boost operational efficiency.
These are some of the broader recommendations that could enhance the growth potential and competitiveness of Medium Enterprises in India, as highlighted by the study.