India’s Job Challenge: Why Stronger MSME Clusters Could Hold the Key

New Delhi, Aug 12 (KNN) With underemployment widespread and artificial intelligence (AI) expected to disrupt existing jobs, India needs stronger job-creation engines, with the micro, small and medium enterprise (MSME) sector emerging as a potential driver, according to an article in The Indian Express by Nilanjan Banik and Pradeep Racherla, professors and co-founders, Economic Policy Centre, Mahindra University.

MSMEs Face Structural Constraints

India’s MSME sector employs more than 320 million people and contributes around 31 per cent of GDP, 35 per cent of manufacturing output and 49 per cent of exports. However, the sector remains largely informal and fragmented, with many firms concentrated in low-value activities.

The authors noted that smaller enterprises continue to face challenges such as limited access to affordable credit and compliance requirements related to GST, labour, environmental regulations and taxation. 

The Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026 could help by addressing delayed payments, improving dispute resolution and easing some compliance requirements, but broader reforms are needed to unlock the sector’s employment potential.

Shift From Individual Firms to Industrial Clusters

The authors argued that India should move from supporting individual MSMEs to building specialised industrial clusters. 

The US and China have developed industrial strength through dense ecosystems that bring together suppliers, skilled workers, research institutions and capital.

The Research Triangle in North Carolina, anchored by Duke University, the University of North Carolina at Chapel Hill and North Carolina State University, illustrates how universities can support technology and pharmaceutical ecosystems. 

Similarly, China’s Guangdong region, particularly Shenzhen, has used infrastructure, industrial zones and incentives to build strong supplier networks.

Build Specialised MSME Ecosystems

India already has initiatives such as the MSME Cluster Development Programme and PM MITRA textile parks, but the authors said these should evolve beyond infrastructure-focused programmes. They recommended specialised clusters centred on specific industries, such as auto components, pharmaceuticals and electronics.

The authors also proposed an Indian version of China’s ‘Little Giant’ programme to identify high-performing MSMEs in specialised areas such as precision castings, speciality chemicals and defence components. 

These firms could receive targeted credit, research and development support, faster patent processing and preferential procurement opportunities.

Cluster-Based Finance and University Partnerships

The authors further suggested shifting towards cluster-level financing, under which banks could assess shared collateral, buyer-supplier relationships and collective performance rather than evaluating firms in isolation. They cited the Tiruppur textile cluster as an example that could potentially be expanded through SIDBI and cluster-focused NBFCs.

Closer links between universities and MSMEs were also identified as important. Universities could support clusters through skilled talent, applied research, laboratories and innovation, following models seen in the US and China.

From MSME Support to Ecosystem Building

The authors concluded that India’s MSME strategy should move beyond isolated support measures towards ecosystem-building. Stronger industrial clusters, improved access to finance and deeper university-industry partnerships could help MSMEs expand their contribution to employment, productivity and exports.

(KNN Bureau)