The Infrastructural Bottleneck for MSME Growth India's vision of becoming a global manufacturing hub hinges on the growth and competitiveness of its MSMEs. However, without addressing fundamental infrastructure challenges, this vision will remain elusive.
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India's manufacturing sector has long been touted as a growth engine, poised to bolster economic expansion and job creation. However, despite its immense potential, micro, small, and medium enterprises (MSMEs) in the sector continue to grapple with fundamental infrastructure deficiencies that stifle their growth and expansion. From unreliable power supply to exorbitant land costs and inefficient logistics, these challenges are proving to be critical roadblocks in India's ambition to become a global manufacturing powerhouse.
Ajay DD Singhania, MD and CEO of Epack Durables, underscores the severity of the issue, noting that while his company is expanding its component manufacturing and diversifying into new product segments, operational hurdles remain formidable. "India's manufacturing sector holds immense growth potential, but high operational costs and inadequate infrastructure continue to hinder MSME expansion," Singhania explains. "Power reliability, logistics inefficiencies, and high land costs remain critical barriers to competitiveness."
The impact of these challenges is far-reaching. Infrastructure-related expenses, particularly those related to land acquisition and factory establishment, account for nearly half of industrial costs. This not only delays the return on investment for businesses but also slows down the overall scaling of MSMEs. Unlike countries with robust industrial policies where governments provide industrial land and ready-to-use factory spaces, Indian businesses are often forced to shoulder hefty upfront costs. This financial burden significantly hampers MSMEs from expanding their operations or investing in technological advancements.
A shift in policy, Singhania suggests, could alleviate this burden. "A policy shift where state governments proactively offer industrial land and plug-and-play facilities would ease this burden, allowing MSMEs to focus on technology and workforce investments," he says. Certain states, such as Andhra Pradesh, have successfully implemented cluster-based models like SriCity, attracting substantial investment by offering well-developed industrial ecosystems. If such models were replicated across the country, it could provide MSMEs with the much-needed impetus to scale efficiently.
Another significant challenge is the inadequacy of logistics infrastructure. Poor road conditions, inefficient railway networks, and congested ports add to operational costs and delays. Strengthening these critical supply chain elements would dramatically improve competitiveness for Indian MSMEs. "Better roads, rail, and port infrastructure are essential to enhance supply chain efficiency. Without these, Indian manufacturers will continue to struggle against global competitors," Singhania asserts.
Government intervention and budgetary allocations for infrastructure development in the MSME sector have been modest but insufficient. Padmanand V, partner and agriculture industry leader at Grant Thornton Bharat, and Kunal Sood, partner and government and business consulting leader at the firm, point out that while the Economic Survey 2025 highlights productivity increases of 10-15 per cent in MSME clusters under government-supported cluster development programs, financial outlays for infrastructure remain inadequate.
"In this context, the budgetary outlay of about INR 23,000 crore for the Ministry of MSME (MoMSME) includes subsidies and grants for the creation of necessary technical and physical infrastructure," says Padmanand. "Technical infrastructure, in the form of common facility centers for joint technology upgrading, and physical infrastructure, such as industrial estates and parks, are critical for sustainable growth."
Several ministries, including the Ministry of Food Processing Industries (MoFPI), Ministry of Commerce and Industry (MoCI), Ministry of Textiles (MoT), and the Department of Chemicals and Petrochemicals, have rolled out schemes to support infrastructure development. However, these programs are not exclusively designed for MSMEs, and their funding remains relatively limited. "Unfortunately, the outlays for each ministry under such schemes range from a few hundred to a couple of thousand crores, which is far from sufficient to bridge the infrastructure gap," Sood notes.
The skewed allocation of resources, where credit-related support schemes run into lakhs of crores while infrastructure investments remain constrained, poses another challenge. Padmanand and Sood argue that investment in infrastructure would yield better economic growth rates and increase the efficiency of capital expenditure. "A more judicious allocation of resources is needed, prioritizing infrastructure over credit-related schemes such as interest subvention and credit guarantees," Padmanand emphasizes.
State-level initiatives have demonstrated effective policy models that could be scaled nationally. The Government of Tamil Nadu's Private Industrial Estate Scheme, for instance, enables MSMEs to establish physical infrastructure on a public-private partnership (PPP) model. Similarly, states like Maharashtra, Tamil Nadu, and Haryana have introduced cluster development schemes to strengthen technical infrastructure. These initiatives highlight best practices that can be replicated across India to create a more enabling environment for MSMEs.
