MSMEs Account for 62% of Jobs in India, New Report Reveals

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A recent report by the McKinsey Global Institute (MGI) sheds light on the state of India’s Micro, Small, and Medium Enterprises (MSMEs), revealing disparities in their contribution to the country’s economy compared to their counterparts in other emerging markets.

Released on Thursday, the report underscores the challenges facing MSMEs and highlights opportunities for growth and collaboration.

 Productivity Gap and Contribution to India’s Economy

 According to the report, MSMEs in India are trailing behind their counterparts in other emerging economies in terms of their contribution to both employment and economic value.

Contrary to the robust employment provided by MSMEs in other emerging markets, those in India account for only 62 per cent of employment, significantly lower than the 77 per cent average.

Similarly, their contribution to the overall business value added is a mere 30 per cent, contrasting with the 49 per cent average in comparable economies.

“The majority of MSME employment in India is within micro-enterprises, which have only contributed around 10 per cent to the top cap companies over time, in contrast to approximately 20 per cent contribution observed in other sample countries,” the report notes.

The Interplay Between MSMEs and Larger Corporations

The report underscores the interdependence between MSMEs and larger enterprises, emphasizing the significance of their interactions.

Anu Madgavkar, a partner at McKinsey Global Institute, highlights this dynamic, stressing that “no MSME operates in isolation”.  

“No MSME operates in isolation. Its prospects are influenced by its interactions with other enterprises, and these interactions can be mutually beneficial: a win-win situation for both small and large businesses,” she states.

Potential for Growth

Despite the productivity gap, the report suggests that narrowing it could significantly boost India’s GDP by approximately 10.5 per cent.

This growth potential primarily lies in sectors such as computer programming, information services, telecommunications, manufacturing, and automotive.

“Some of these high-potential sub-sectors are in areas where India’s large companies are highly productive, and fostering networks between MSMEs and large enterprises can be beneficial,” the report added.

The Role of Business-to-Business Interactions

Moreover, the report reveals that when MSMEs engage in business-to-business interactions, their productivity improves, especially when dealing with larger entities.

This underscores the importance of fostering networks between MSMEs and larger corporations to drive mutual benefits and enhance productivity across