India’s Job Engine Is Stalling, As MSMEs Struggle To Stay Afloat

This spells trouble for a sector that provides jobs to about 27 crore people in the country. 

The latest data under the Prime Minister Employment Generation Programme (PMEGP), a credit-linked subsidy meant to generate self-employment opportunities through micro-enterprises, shows a worrying trend. There’s a sharp decline in job creation. 

In FY 2023-24, 7.12 lakh jobs were created, but this number fell sharply to only 4.77 lakh in FY 2024-25 (provisional), a staggering drop of 33 per cent, or 2.35 lakh fewer jobs.

Job Engine Running On Empty

MSMEs range from tiny family-run handicrafts businesses like making baskets, to potential bigwigs like medium-sized textile mills. 

These industries are the backbone of the modern Indian economy. They account for nearly 30 per cent of India’s Gross Domestic Product (GDP), 45 per cent of its manufacturing output, and over 40 per cent of its exports. 

Yet, many of these businesses are operating with low margins, limited access to credit, and vulnerability to market shocks.

While profitable industries are important for the country, so is employment through them. M B Patil, Karnataka Cabinet Minister for Large and Medium Industries and Infrastructure Development, explained this imperative. 

“For the same amount of investment, MSMEs generate significantly more jobs than large-scale industries. For instance, with an investment of Rs 10,000 crore, while large industries might create around 10,000 jobs, MSMEs can generate nearly 1.25 lakh jobs,” he said at an MSME conclave last week.

Shutting Shop

The latest figures reveal a worrying trend of closures. According to the Udyam Registration portal, 31,978 MSMEs shut down in FY 2024-25 (up to January 31).

This is a 61 per cent rise in closures from 19,828 in the previous year. In total, over 71,000 MSMEs have closed since FY 2021-22, with nearly half of these occurring in the last financial year alone. 

While there is no data provided on jobs lost due to these closures, they serve as a proxy for job losses across the country. 

Small Business, Big Trouble

Amid severe challenges like thinning bank credit, regulatory burdens, skilling crunch, and automation fears, the sector could see more job losses. 

Jitan Ram Manjhi, Union Minister for MSMEs, told The Secretariat that the government was aware of the challenges faced by the MSME sector, but was committed to providing all possible support and assistance to them. 

Despite government policies, experts say that a one-size-fits-all approach isn’t working. The government needs to ensure necessary credit flow doesn't get choked. Manjhi assured that all measures are being considered to support this key employment-generating segment.