Mid-sized firms need focused policy support to overcome key biz challenges

India’s growth has long been underpinned by the dynamism of its micro, small, and medium enterprises (MSMEs). However, within this category, a critical segment, medium enterprises, has not attracted adequate policy interest. Comprising a mere 0.3 per cent of all MSMEs, medium enterprises contribute a staggering 40 per cent of MSME export income and are present in innovation-driven sectors such as pharmaceuticals, auto components, and services. A new report by the NITI Aayog has highlighted the policy vacuum surrounding this vital segment and urges course correction.  Each of these medium enterprises on average  generates over ₹39 crore in foreign-exchange income, employs nearly 90 people, and spends ₹2.07 crore on research & development (R&D).Yet, policy support remains skewed towards micro and small enterprises since they constitute 99 per cent of the MSME population. This policy asymmetry has led to what many call a “missing middle”. The distorted incentive structure is not without consequence. Many businesses do not have the incentive to scale up or formalise and like to stay within the comfort zone of policy incentives, forgoing innovation and productivity. This hinders growth in the long run.

 

In this context, the report proposes a multipronged policy approach, including dedicated financial support tailored to the higher working capital needs of medium enterprises. Unlike micro and small enterprises, these firms face significantly higher capital requirements but often lack access to concessionary finance. A credit card facility with a ₹5 crore pre-approved limit and a new working capital scheme could provide much-needed liquidity. Additionally, the integration of advanced technologies remains crucial. The report rightly suggests transforming existing Technology Centres into “India SME Competence Centres” focused on Industry 4.0 applications. These centres would provide medium enterprises access to cutting-edge tools, skilling, and consultancy, equipping them with knowledge of Industry 4.0 technologies. Perhaps the most forward-looking recommendation is the establishment of a dedicated R&D cell under the MSME ministry. Modelled on the European Union’s funding mechanisms, this body may be tasked with identifying cluster-specific R&D projects of importance and inviting proposals from medium enterprises to bridge them.

 

Such a framework fosters innovation that is also aligned with national priorities. Further, extending the Micro and Small Enterprises–Cluster Development Programme to include medium enterprises could enhance access to testing, product certification, and regulatory-compliance facilities. This is particularly needed in export-oriented sectors such as textiles, pharmaceuticals, and manufacturing, where a lack of quality assurance and regulatory bottlenecks can impact competitiveness. The report also calls for a centralised digital portal tailored to medium enterprises, enabling streamlined access to schemes, compliance information, and market research. Lack of awareness about schemes still remains a persistent issue with most medium-sized firms. Without targeted intervention for MSMEs, particularly the medium enterprises, India’s manufacturing ambitions and export potential will continue to face hurdles. Though small in number, medium enterprises lead in R&D investment in new technologies and participate in global value chains. It is therefore important to address the financial and innovation barriers faced by the firms through appropriate policy support.