India’s nearly 80 million micro, small and medium enterprises (MSMEs)—employing over 328.2 million people and contributing 31.1% to gross domestic product (GDP), 35.4% to manufacturing output, and 48.58% to exports—have been navigating a harsh global environment over the past five years. From the covid-19 pandemic-induced economic standstill to cost shocks triggered by the Russia-Ukraine war, recurring volatility in West Asia, and trade disruptions under the Trump administration, the sector has faced repeated stress. Mint explains how the sector has weathered these challenges.
What were the major global shocks affecting MSMEs?
The pandemic was a full-blown disruption—demand collapsed, supply chains broke, and labour migration stalled production. Just as activity resumed, the Russia-Ukraine war pushed up prices of crude oil, metals and fertilizers, sharply raising input costs. Tensions in West Asia added further volatility to energy prices and shipping routes. Even before this, US President Donald Trump's tariff actions had made export markets more uncertain. For MSMEs, this meant operating in an environment of volatile demand, rising costs and frequent supply disruptions rather than a single one-off crisis.
“Recurring tensions in West Asia have kept freight rates volatile, with container shipping costs rising nearly fourfold during peak disruption periods and remaining structurally elevated. Earlier, the US-China trade tensions (2018-20) had already weakened global demand and supply chain predictability, impacting export-oriented MSMEs,” said Vinod Kumar, president, India SME Forum.
How severe was the covid impact on MSMEs?
The covid shock was the deepest. Multiple surveys and policy assessments suggest many MSMEs saw their revenues fall sharply—by 30-60% during lockdowns—while fixed costs continued. Micro and informal enterprises were hit the hardest due to limited cash buffers and weaker access to formal finance. The sector also saw widespread job losses, given its large share of employment. Many units either shut down temporarily or scaled down operations significantly. The episode exposed structural vulnerabilities such as dependence on informal credit, low productivity and limited risk diversification.
A Centre for Monitoring Indian Economy (CMIE)-led assessment and industry surveys indicated that a significant number of micro units either shut down temporarily or saw revenues decline by 50-80% during 2020-21. Employment impacts were also substantial, with an estimated 120-140 million jobs lost during the peak lockdown months, a large share of them in informal and MSME-linked sectors.
What role did government support play?
Policy support was critical in preventing a wider collapse. The Emergency Credit Line Guarantee Scheme (ECLGS) supported 11.3 million borrowers by providing collateral-free, government-guaranteed loans amounting to ₹2.43 trillion. This ensured liquidity at a time when lenders had turned risk-averse. According to a State Bank of India (SBI) research report dated 23 January 2023, the ECLGS saved almost 1.46 lakh MSME accounts, of which about 93.8% were in the micro and small enterprise categories, from slipping into the non-performing asset (NPA) category.
How did subsequent global shocks affect MSMEs?
The biggest transmission channel was energy and input cost inflation, as highlighted in the April 2026 India SME Forum policy note. Volatility in global energy markets sharply increased the prices of fuel, gas, and coal substitutes, disproportionately affecting energy-intensive MSME clusters such as ceramics, glass, textiles, and foundries. This directly raised production and transportation costs, putting sustained pressure on margins.
At the same time, logistics and trade disruptions intensified. Shipping route uncertainties, higher freight charges, and rising insurance premiums led to delays and reduced reliability in exports—especially to regions such as Europe, Africa, and West Asia. However, unlike the pandemic, domestic demand remained relatively stable, preventing a sharp contraction in overall activity. The shocks also triggered labour-related stress. Rising living costs, reduced working hours, and income pressures led to early signs of “preventive migration”, with worker attendance declining by around 5-15% in some clusters rather than the mass reverse migration seen during the pandemic.
What has been the trend in the MSME sector NPAs?
The latest official data placed in Parliament (Lok Sabha) in February 2026 showed that the percentage of MSME loans that have turned NPAs stands at 3.27% in the current fiscal year. Total advances of Scheduled Commercial Banks (SCBs), which include both public sector and private sector banks, to the MSME sector stand at ₹35,83,337.55 crore, while gross NPAs amount to ₹1,17,186.88 crore as on 30 September, 2025 (according to the Reserve Bank of India data shared by the department of financial services). This reflects the current asset-quality position across the entire banking system’s exposure to MSMEs.
What is the outlook for MSMEs?
The outlook for India’s MSME sector, as highlighted in the 333rd report of the Rajya Sabha Standing Committee on Industry in March 2026, can be best described as structurally strong but operationally constrained, with significant upside if persistent bottlenecks are addressed in a time-bound manner.
However, the near-term outlook is weighed down by deep structural inefficiencies. The Economic Survey 2025-26 estimates that the ₹8.1 trillion locked in delayed payments is severely constraining working capital. Credit access also remains uneven despite mechanisms such as the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), with continued collateral demands, high rejection rates (40-50% in schemes like the Prime Minister's Employment Generation Programme (PMEGP), and excessive reliance on credit scores—particularly disadvantaging first-time entrepreneurs. Budgetary distortions, such as large allocations under defunct schemes like the Guaranteed Emergency Credit Line, further dilute the effectiveness of actual developmental spending.