India’s MSME sector contributes nearly 30% to GDP, over 45% of exports and supports more than half of the country’s workforce. Yet the benefits of MSME growth remain unevenly distributed, with enterprise activity, credit flows and productivity concentrated in a handful of states and districts, according to a new research study by Piramal Finance.
The report, “The Geography of MSMEs: Why India’s Growth Is Concentrated, Not Broad-Based”, authored by Debopam Chaudhuri, Chief Economist, Piramal Group, examines the regional distribution of MSMEs, credit access patterns and sectoral composition across the country.
The study finds that Maharashtra, Uttar Pradesh and Tamil Nadu account for a disproportionately large share of India’s MSMEs, while formal credit continues to flow largely towards already-developed regions. States such as Uttar Pradesh and Bihar remain under-served in formal MSME credit relative to their enterprise base, reflecting persistent gaps in access to finance.
The report also estimates that nearly 42% of registered MSMEs more than 2.6 crore enterprises have never accessed formal credit, while the sector continues to face an estimated credit gap of nearly ₹30 lakh crore. According to the study, these financing gaps continue to limit the ability of enterprises to scale and contribute more broadly to economic growth.
The report further highlights sharp intra-state concentration. Nearly 80% of Maharashtra’s registered MSMEs are concentrated within its top districts, underscoring the extent to which India’s MSME ecosystem remains clustered around established industrial centres. It also notes that the top 10 states accounted for 66% of MSME credit sanctioned under guarantee schemes in FY25, indicating that policy benefits continue to be concentrated in a limited number of regions.
Among the key findings:
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MSME growth remains concentrated across a few states and industrial corridors.
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States such as Uttar Pradesh and Bihar remain under-served in formal MSME credit relative to their enterprise presence.
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Nearly 42% of registered MSMEs more than 2.6 crore enterprises have never accessed formal credit.
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The MSME sector faces an estimated credit gap of nearly ₹30 lakh crore.
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The top 10 states accounted for 66% of MSME credit sanctioned under guarantee schemes in FY25.
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Manufacturing-led states such as Gujarat and Tamil Nadu generate higher value addition than trading-heavy MSME ecosystems.
Commenting on the findings, Debopam Chaudhuri, Chief Economist, Piramal Group, said:
“India has made substantial progress in expanding MSME credit and formalisation. However, the next phase of development must focus on improving the distribution of growth. The challenge is no longer just about increasing credit volumes but ensuring that credit reaches underserved regions, supports productive sectors and helps create new centres of economic activity. A more balanced MSME ecosystem will be critical to achieving inclusive and sustainable growth.”
The report argues that future policy interventions should move beyond aggregate credit expansion and focus on geographically differentiated lending strategies, targeted guarantee mechanisms and the development of new MSME clusters across Tier-2 and Tier-3 markets.
According to the study, a more balanced MSME ecosystem will be critical for reducing regional disparities, improving productivity and supporting India’s long-term growth ambitions.