Mudra loans: Public Sector Banks are lagging significantly in meeting their disbursement targets under the Pradhan Mantri Mudra Yojana for the current financial year. As of October, PSBs and their Regional Rural Bank counterparts have achieved just 42% of the financial year 2024-25 target. Against a goal of Rs 2.3 trillion in loans, only Rs 97,094 crore has been disbursed. For the first time since the pandemic, PMMY loan disbursals have shown a decline, raising concerns about the program’s efficacy.
The disappointing uptake of Mudra loans persists despite recent government efforts to make the program more attractive, such as increasing the loan cap from Rs 10 lakh to Rs 20 lakh for repeat borrowers. Mudra scheme officials attribute the dip to a high base effect, but the muted demand also reflects deeper challenges facing India’s small business ecosystem.
READ | Wage stagnation: India must address growth without prosperity
With an estimated 60–70 million small and medium businesses, India prides itself on a vibrant entrepreneurial landscape that contributes nearly 30% of GDP and 45% of national exports. However, the strain on micro, small, and medium enterprises (MSMEs) is palpable. According to the Udyam portal, micro-enterprises dominate the sector with 44.8 million registrations, while small and medium enterprises trail significantly. Collectively, these enterprises employ 198 million people and are a cornerstone of nonfarm employment, particularly for women.
Mudra loans and challenges facing tiny enterprises
Despite their economic importance, India’s MSMEs face formidable challenges. Rising costs, competition, and cash flow difficulties are squeezing small businesses, according to a report by CPA Australia. Employee wages and material expenses have become particularly burdensome.
Access to affordable finance remains one of the greatest hurdles for SMEs. A CPA survey revealed that only 42% of respondents found it easy to secure funding in 2023, down from 69% the previous year. This difficulty is compounded by rising non-performing assets (NPAs) in the microfinance sector and the cautious lending policies of banks.
While programs like Mudra scheme offer much-needed financial support, they cannot fully address the funding needs of MSMEs, particularly in a high-interest-rate environment. Without affordable credit, small businesses struggle to invest in growth, create jobs, and contribute to economic expansion. Addressing the underlying issues in the microfinance sector should be a government priority.
Resilience amid adversity
Despite these challenges, Indian SMEs have shown remarkable resilience. Many are adopting technological tools and professional accounting services to manage costs and improve cash flows. Encouragingly, more than three-quarters of Indian small businesses reported growth in 2023, surpassing pre-pandemic levels.
To maintain growth momentum, SMEs must diversify their revenue streams and explore international markets. Exporting not only increases revenue but also exposes businesses to new ideas and heightened competition, fostering innovation. Businesses that grow their export revenue often experience overall growth as well.
Analysts argue that the government must shift its focus from incentivising large corporations to empowering small businesses. With youth unemployment hovering at troubling levels, SMEs could play a crucial role in job creation and economic recovery. Neglecting this sector risks stalling consumption, hampering growth, and exacerbating social and political instability.
Bridging the gap for small enterprises
To support MSMEs effectively, the government needs to refine its policies. While large-scale investments are incentivised through schemes like the production-linked incentive (PLI) program, MSMEs often fall outside these frameworks due to their smaller investment capacities. A dedicated MSME-focused incentive program is urgently needed.
Industry insiders also advocate for establishing an MSME-focused bank with branches in every district. The Small Industries Development Bank of India (SIDBI) currently does not directly cater to individual businesses, leaving a critical gap in support infrastructure.
Bureaucratic hurdles remain a significant obstacle for small enterprises. Streamlining approval processes and reducing red tape would make it easier for MSMEs to start and scale their operations.
India’s economic growth depends on the health of its small businesses. By addressing the challenges of finance, market access, and regulatory complexity, the government can empower MSMEs to drive job creation, innovation, and economic prosperity. Ensuring their success is not just an economic imperative but a social one, crucial for sustaining India’s growth momentum in the years to come.