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How MSMEs in Tier 2 & Tier 3 Cities Are Fuelling India’s Growth
The rise of MSMEs in Tier 2 and 3 cities is transforming India's economy. Factors like lower operational costs government support and digital adoption are fueling their growth, enabling these businesses to secure funding and expand, ultimately contributing to local and national economic development.
India's Micro, Small, and Medium Enterprises (MSMEs) are the backbone of the economy, with over 51% of India’s 63 million registered small businesses based in Tier 2 and 3 cities, indicating their growing economic significance. Investor confidence in these regions has surged, with 35% growth in business activity and 44% of investors shifting focus beyond metropolitan areas.
Lower operational costs, emerging markets, and strong government support are driving this transformation. MSMEs in cities such as Mysore, Coimbatore, and Visakhapatnam are creating jobs, boosting exports, and strengthening local economies.
This article explores how MSMEs in smaller cities are reshaping India's growth and how access to business loans can fuel their expansion.
Why MSMEs Are Thriving in Tier 2 & 3 Cities
MSMEs in smaller cities benefit from multiple factors that make them highly competitive:
- Lower Operational Costs: Affordable land, lower wages, and reduced utility expenses allow businesses to maximise profits. This makes investing in innovation easier than in metro cities, where costs are significantly higher.
- Expanding Consumer Markets: With rising disposable incomes and shifting consumer behaviour, smaller cities are now important markets for industries like textiles, food processing, and e-commerce. Sales of branded packaged food products, for example, have grown 15% year over year in these regions.
- Government Incentives: Various tax benefits, subsidies, and loan schemes encourage businesses to establish themselves in smaller cities. These schemes provide financial support and reduce compliance burdens, allowing MSMEs to scale more easily.
Key Tier 2 and 3 Cities Playing a Vital Role in India’s Economy
1. Mysore - The Silk Hub
Mysore, Karnataka, is home to India's premium silk industry, producing some of the finest silk garments in the country. Government support, skilled labour, and increasing global demand have driven MSME growth in this region. Financial aid to silk farmers and research centres has improved production quality and market expansion.
2. Coimbatore - The Textile Hub
Known as the "Manchester of South India," Coimbatore is the heart of India's cotton and textile industry. With the largest number of cotton mills in Tamil Nadu, this city has created thousands of jobs and remains a key contributor to India's textile exports. MSMEs here are constantly upgrading technology, focusing on sustainable production, and expanding into international markets.
3. Surat - The Diamond and Textile Hub
Surat, Gujarat, is famous for its textile and diamond processing industries, employing millions of people. The city's MSMEs are responsible for a major share of production in both sectors, contributing to India's position as a global leader in textiles and jewellery exports. To stay ahead, Surat’s textile industry uses advanced digital printing, automation, and eco-friendly manufacturing.
How MSMEs Can Benefit from Business Loans
One of the biggest challenges for MSMEs is securing adequate financing. However, reputed lending institutions such as SMFG India Credit help MSMEs access critical funding required to manage working capital, expand operations, boost inventory, and invest in technology.
Business loans usually come with competitive interest rates and flexible repayment tenures (typically 12 to 48 months), allowing MSMEs to align their monthly repayments with their cash flow effectively.
Depending on eligibility and lender policies, these loans generally come with quick approvals, making them ideal for MSMEs looking to capitalise on time-sensitive opportunities. Interested applicants are encouraged to use a business loan EMI calculator for understanding their monthly outgo for a given loan amount, interest rate and tenure; and accordingly plan their loan.
Here’s a short ad film on how a small retailer grew his business by getting the funds he needed with a business loan* from SMFG India Credit to better manage his inventory and maintain his clothing store.
Other Factors Fuelling MSME Expansion
1. Skill Development and Workforce Training
MSMEs benefit from government-led Skill India programs, industry initiatives and digital learning platforms. Many businesses invest in in-house training and collaborations with local educational institutions to enhance skills and innovation.
2. Local Market and Supply Chain Development
Regional economies are growing due to stronger supply chains and localised business models. Farmers' markets, handicraft exhibitions, and regional trade fairs allow small businesses to reach wider audiences.
3. Improved Infrastructure and Connectivity
Smaller cities are improving infrastructure, with better roads, rail networks, and smart industrial parks. The UDAN (Ude Desh ka Aam Naagrik) scheme boosts regional air connectivity, enabling faster logistics and market access, making Tier 2 and Tier 3 cities attractive for MSME growth.
4. Digital Transformation & E-commerce Growth
Rising digital adoption in smaller cities is transforming MSMEs. With 30% higher data consumption than metros, businesses use social media, e-commerce, and AI-driven automation to scale. Online payments and digital marketing help MSMEs expand reach, streamline operations, and compete effectively in broader markets.
Conclusion
The rise of MSMEs in Tier 2 and 3 cities represents a significant shift in India's economy. With continued government support, improved infrastructure, and better access to business loans, these enterprises are poised to drive the next phase of India's growth. With strategic planning and sound financial management, MSMEs can use tailored business loans to scale operations, boost innovation, and achieve long-term sustainability.
*T&C apply. Loan eligibility, loan terms, and loan disbursement processes are subject to the lender’s policy at the time of loan application.
Note to readers: This article is part of Mint’s paid consumer connect Initiative. Mint assumes no editorial involvement or responsibility for errors, omissions, or content accuracy.
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Business NewsFocusHow MSMEs in Tier 2 & Tier 3 Cities Are Fuelling India’s Growth
First Published:10 Mar 2025, 03:06 PM IST
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