India’s economy grew 7.8 percent YoY in the April-June quarter of FY2025–26, surpassing expectations. Deloitte projects a baseline GDP of 6.7–6.9 percent for FY2025–26 and 6.5–6.9 percent for FY2026–27. Domestic demand resilience will be driven by tax exemptions, GST reforms, monetary policy and a US trade deal.

As India shows resilience, the next challenge is to empower MSMEs to drive inclusive, broad-based and sustainable growth. After all, in uncertain times, supporting MSMEs could drive an inclusive growth.

Amid global headwinds and tariff uncertainties, India’s MSME sector stands out as a potential engine of resilience and growth. MSMEs account for 30% of GDP, 45% of exports, and provide livelihoods to 240 million people, making them central to India’s economic fabric. These enterprises not only anchor employment and exports but also hold the key to sustaining domestic demand and driving innovation.

Recent trends, formalisation through Udyam registration, rising digital adoption, and improved credit access, signal a transformative shift. However, productivity remains a critical challenge: Indian MSMEs operate at ~18% of the productivity of large enterprises, compared to 45–70% in OECD economies.

Our analysis explores:

• Sector-wise exposure of MSMEs to recent US tariffs, identifying vulnerable segments such as textiles, auto components and general-purpose machinery.
• Structural challenges across sectors, including access to finance, technology adoption, regulatory compliance and infrastructure bottlenecks.
• A state-wise MSME ecosystem index, ranking states on formalisation, credit access, employment generation and digital adoption.