State-wise Distribution of MSMEs in India: Patterns, Gaps and Growth Potential
New Delhi:
Micro Small and Medium Enterprises (MSMEs) form the backbone of India’s economic system acting not only as feeders to large industries but as independent engines of employment, innovation and regional development. From rural manufacturing clusters to urban service hubs, MSMEs anchor local economies and absorb a significant share of India’s workforce. However a closer state-wise examination of the MSME landscape reveals stark regional disparities highlighting uneven development, structural bottlenecks and untapped growth potential across the country.
According to the latest compiled estimates India is home to approximately 23.22 million MSMEs spread across 28 states and 8 Union Territories. Yet this number represents only a partial snapshot of the sector. Data from the Udyam Registration Portal indicates that over 5.70 crore MSMEs had registered by December 2024 underscoring the vast size of the enterprise ecosystem and the significant gap between formal recognition and on-ground economic activity.
This divergence between estimated and registered enterprises points to the continued dominance of informal and semi-formal businesses particularly in states with weaker institutional outreach limited digital penetration and lower awareness of regulatory frameworks.
| Rank | State / Union Territory | Number of MSMEs |
|---|---|---|
| 1 | Maharashtra | 37,12,000 |
| 2 | Tamil Nadu | 21,74,000 |
| 3 | Uttar Pradesh | 20,28,000 |
| 4 | West Bengal | 18,00,000 |
| 5 | Rajasthan | 15,57,000 |
| 6 | Gujarat | 15,53,000 |
| 7 | Andhra Pradesh | 13,00,000 |
| 8 | Karnataka | 12,00,000 |
| 9 | Bihar | 10,00,000 |
| 10 | Madhya Pradesh | 10,00,000 |
| 11 | Kerala | 9,00,000 |
| 12 | Haryana | 8,00,000 |
| 13 | Telangana | 8,00,000 |
| 14 | Assam | 7,50,000 |
| 15 | Punjab | 7,00,000 |
| 16 | Odisha | 6,50,000 |
| 17 | Delhi | 5,00,000 |
| 18 | Chhattisgarh | 4,50,000 |
| 19 | Jharkhand | 4,00,000 |
| 20 | Uttarakhand | 3,00,000 |
| 21 | Himachal Pradesh | 2,50,000 |
| 22 | Jammu & Kashmir | 1,50,000 |
| 23 | Goa | 50,000 |
| 24 | Tripura | 25,000 |
| 25 | Puducherry | 25,000 |
| 26 | Manipur | 20,000 |
| 27 | Chandigarh | 20,000 |
| 28 | Meghalaya | 15,000 |
| 29 | Dadra & Nagar Haveli and Daman & Diu | 15,000 |
| 30 | Nagaland | 12,000 |
| 31 | Mizoram | 10,000 |
| 32 | Andaman & Nicobar Islands | 5,000 |
| 33 | Arunachal Pradesh | 5,000 |
| 34 | Ladakh | 5,000 |
| 35 | Sikkim | 5,000 |
| 36 | Lakshadweep | 1,000 |
Table 2: Percentage Share of MSMEs by State/UT
| Rank | State / Union Territory | Percentage Share (%) |
|---|---|---|
| 1 | Maharashtra | 17.55 |
| 2 | Tamil Nadu | 10.28 |
| 3 | Uttar Pradesh | 9.59 |
| 4 | West Bengal | 8.51 |
| 5 | Rajasthan | 7.36 |
| 6 | Gujarat | 7.34 |
| 7 | Andhra Pradesh | 6.14 |
| 8 | Karnataka | 5.67 |
| 9 | Bihar | 4.73 |
| 10 | Madhya Pradesh | 4.73 |
| 11 | Kerala | 4.25 |
| 12 | Haryana | 3.78 |
| 13 | Telangana | 3.78 |
| 14 | Assam | 3.54 |
| 15 | Punjab | 3.31 |
| 16 | Odisha | 3.07 |
| 17 | Delhi | 2.36 |
| 18 | Chhattisgarh | 2.13 |
| 19 | Jharkhand | 1.89 |
| 20 | Uttarakhand | 1.42 |
| 21 | Himachal Pradesh | 1.18 |
| 22 | Jammu & Kashmir | 0.71 |
| 23 | Goa | 0.24 |
| 24 | Tripura | 0.12 |
| 25 | Puducherry | 0.12 |
| 26 | Manipur | 0.09 |
| 27 | Chandigarh | 0.09 |
| 28 | Meghalaya | 0.07 |
| 29 | Dadra & Nagar Haveli and Daman & Diu | 0.07 |
| 30 | Nagaland | 0.06 |
| 31 | Mizoram | 0.05 |
| 32 | Andaman & Nicobar Islands | 0.02 |
| 33 | Arunachal Pradesh | 0.02 |
| 34 | Ladakh | 0.02 |
| 35 | Sikkim | 0.02 |
| 36 | Lakshadweep | 0.00 |
Concentration of MSMEs in a Few States
The distribution of MSMEs across India is highly uneven with a handful of states accounting for a disproportionately large share of enterprises. States such as Uttar Pradesh, Maharashtra, Tamil Nadu, West Bengal, Gujarat and Rajasthan consistently emerge as major MSME hubs. Their dominance can be attributed to a combination of factors including population size historical trading networks, industrial infrastructure access to finance and relatively mature ecosystems for entrepreneurship.
Uttar Pradesh for instance, benefits from a large labour pool and deeply rooted traditional industries such as textiles, leather goods and handicrafts. Maharashtra and Tamil Nadu on the other hand leverage stronger industrial bases port connectivity and integration with global supply chains. Gujarat’s MSME strength is closely linked to its manufacturing-oriented growth model and long-standing culture of small enterprise ownership.
Together these states form the core of India’s MSME economy driving employment generation and contributing significantly to gross value added (GVA).
Lagging Regions and Structural Constraints
In contrast several eastern northeastern and hill states report significantly lower MSME densities. Regions such as the North-East, parts of central India and Union Territories with smaller populations continue to lag behind despite targeted policy interventions. Limited physical infrastructure, poor logistics connectivity, constrained access to formal credit and smaller local markets remain persistent challenges.
In many of these regions MSMEs are predominantly micro-scale family-run operations with minimal capital investment and low productivity. The absence of industrial clusters and weak backward-forward linkages further restricts their ability to scale or integrate into broader value chains.
Moreover lower levels of formal registration in these states suggest that a large portion of economic activity remains invisible to policymakers complicating efforts to design targeted support mechanisms.
The Registration Gap: A Policy Signal
The contrast between estimated MSME numbers and Udyam registrations offers important policy insights. While the Udyam framework has simplified registration and improved transparency, adoption remains uneven across states. States with higher digital literacy, stronger local governance and proactive industry departments show higher registration rates, enabling better access to credit schemes, subsidies and government procurement opportunities.
Conversely states with low registration penetration risk being excluded from formal support systems perpetuating a cycle of low productivity and limited growth. Bridging this gap will require more than digital portals it demands on-ground facilitation, awareness campaigns and integration with local business networks.
Growth Potential and the Road Ahead
Despite regional imbalances the MSME sector holds immense growth potential, particularly in underrepresented states. Rising domestic consumption expanding e-commerce platforms and improved logistics infrastructure offer new opportunities for decentralised industrial growth. If supported with targeted credit flows, skill development and cluster-based development models, lagging regions could witness a rapid expansion of enterprise activity.
Experts argue that the next phase of MSME-led growth must focus on quality over quantity formalisation, productivity enhancement and market access rather than merely increasing enterprise counts. Strengthening state-level implementation, tailoring policies to regional realities and improving data accuracy will be critical in achieving this transition.
India’s MSME Map Reveals Strong Regional Concentration Amid Broad-Based Economic Diversity
India’s micro small and medium enterprises (MSMEs) sector often described as the backbone of the national economy presents a complex picture of geographic concentration balanced by regional diversity. While MSMEs are spread across the country, recent enterprise data shows that economic activity remains heavily clustered in a handful of states with a long tail of regions sustaining smaller yet economically vital enterprise ecosystems.
At the apex of this hierarchy is Maharashtra which alone hosts approximately 3.71 million MSMEs, representing 17.55 per cent of all enterprises captured in the dataset. The state’s dominance is neither accidental nor recent. Its extensive industrial base strong financial infrastructure, access to ports and deep urban markets particularly around Mumbai and Pune have consistently positioned Maharashtra as India’s most enterprise-intensive state. MSMEs here span manufacturing, services, trade, logistics and emerging technology-driven activities, reinforcing the state’s role as a national economic anchor.
Following Maharashtra is Tamil Nadu with an estimated 2.17 million MSMEs, accounting for 10.28 per cent of the national total. Tamil Nadu’s MSME strength is rooted in a long-standing manufacturing tradition, particularly in textiles, leather goods, automotive components, engineering and electronics. A dense network of industrial clusters spread across cities such as Coimbatore, Tiruppur, Salem and Chennai has enabled small enterprises to integrate into both domestic and global supply chains.
Close behind is Uttar Pradesh which supports around 2.03 million MSMEs or 9.59 per cent of the total. Unlike Maharashtra and Tamil Nadu, Uttar Pradesh’s MSME landscape is marked by its sheer scale and diversity. From leather goods in Kanpur to brassware in Moradabad, carpets in Bhadohi and food processing across rural districts the state’s enterprises are deeply embedded in traditional industries while increasingly tapping into modern markets and digital platforms.
Taken together these three states account for nearly 35 per cent of all MSMEs in India, highlighting a pronounced spatial concentration within the national economy. This clustering reflects the advantages of established infrastructure, skilled labour pools, better access to credit and proximity to large consumer markets factors that continue to attract and sustain enterprise growth.
Beyond this top tier lies a second cluster of strong-performing states that reinforce India’s economic depth. West Bengal, Rajasthan and Gujarat each host more than 1.5 million MSMEs, underscoring their enduring role in the national production system. These states are characterised by a mix of traditional manufacturing, trade, handicrafts and small-scale industrial activity often organised through long-established clusters and family-run enterprises.
In West Bengal MSMEs remain closely linked to trade, food processing, textiles and artisan industries, particularly in and around Kolkata and key district hubs. Rajasthan’s enterprise base reflects its strength in handicrafts, stone and marble processing, gems and jewellery and tourism-linked services, while Gujarat’s MSMEs benefit from a strong entrepreneurial culture, export orientation, and integration with larger industrial ecosystems in chemicals, textiles, engineering and pharmaceuticals.
Collectively this second cluster illustrates that India’s MSME growth story is not confined to megacities or a single industrial model. Instead it is sustained by region-specific strengths often rooted in traditional skills and local resources that continue to adapt to changing market conditions.
The broader national picture, therefore is one of concentration with diversity. A relatively small number of states dominate in absolute numbers, but MSMEs across the rest of the country play a critical role in employment generation, regional income stability and local supply chains. As policymakers focus on formalisation, access to finance, digital adoption and infrastructure expansion the challenge will be to deepen enterprise growth in lagging regions without undermining the established strengths of leading states.
In doing so India’s MSME sector can evolve not only as a driver of aggregate economic growth but also as a stabilising force that bridges regional disparities and anchors development at the grassroots level.
Why Maharashtra Leads by a Wide Margin: The Structural Foundations of MSME Dominance
Maharashtra’s commanding lead in India’s Micro Small and Medium Enterprises (MSME) landscape is neither sudden nor coincidental. It is the product of a long-term accumulation of structural advantages that few other states have managed to replicate at scale. The state’s economic dominance reflects how sustained investments in urban infrastructure, finance, industry and institutional capacity can translate into measurable outcomes over decades.
At the core of Maharashtra’s advantage lies its dense and diversified urban network, anchored by Mumbai and Pune. Mumbai, India’s financial capital, provides unparalleled access to capital markets, banking institutions, venture finance and corporate headquarters. Pune, meanwhile, has evolved into a major hub for automotive manufacturing, information technology, engineering services and higher education. Together, these cities form an economic axis that continuously feeds entrepreneurship, innovation and industrial expansion.
Maharashtra’s industrial base is among the most diversified in the country. MSMEs operate across traditional sectors such as textiles, chemicals and food processing while simultaneously playing a critical role in advanced industries including pharmaceuticals, automotive components, electronics and information technology services. This diversity acts as a shock absorber: downturns in one sector are often offset by resilience in others, allowing the overall MSME ecosystem to remain stable even during periods of national or global economic stress.
Equally significant are the strong backward and forward linkages that exist within the state’s industrial clusters. MSMEs in Maharashtra rarely function in isolation. Instead they are deeply embedded in supply chains that connect them to large domestic manufacturers, multinational corporations, exporters and service providers. These linkages lower entry barriers for smaller firms, improve access to steady demand and facilitate technology transfer and skill upgrading. As a result, MSMEs are better positioned to integrate into national and global value chains compared to their counterparts in less industrially networked states.
Another critical factor is the relatively higher level of formalisation within Maharashtra’s MSME sector. Enterprises in the state are more likely to register with government authorities, maintain formal accounts, access institutional credit and participate in digital procurement and compliance platforms. This formal orientation has multiple effects. It improves firms’ access to bank finance and government support schemes, enhances regulatory oversight and increases their visibility in official datasets. Consequently, Maharashtra’s MSME strength appears especially pronounced in government statistics when compared to states where informal enterprises still dominate economic activity but remain largely unrecorded.
Financial depth further reinforces this advantage. Maharashtra benefits from deep financial intermediation with a high concentration of banks, non-banking financial companies, cooperative institutions and capital market intermediaries. MSMEs operating in such an environment face fewer constraints in accessing working capital, term loans and trade finance. Over time, easier access to credit translates into higher survival rates, faster scaling and greater productivity.
Logistics and market access also play a decisive role. Proximity to major ports, airports, highways and rail networks reduces transportation costs and delivery times, making Maharashtra-based MSMEs more competitive in both domestic and export markets. Efficient logistics enable small firms to meet the reliability and scale requirements of larger buyers, further strengthening their integration into formal supply chains.
The state’s experience underscores a broader economic reality: MSMEs do not thrive on entrepreneurial spirit alone. While entrepreneurship is necessary it is insufficient without a supportive ecosystem. Finance, logistics, skilled labour, regulatory capacity and market access must converge in a coordinated manner. Maharashtra’s lead demonstrates how the intersection of these factors, sustained over decades can create a self-reinforcing cycle of industrial growth.
At the same time this concentration raises important policy questions at the national level. The wide gap between Maharashtra and many other states reflects uneven development rather than a lack of entrepreneurial potential elsewhere. Replicating Maharashtra’s success will require long-term investments in urbanisation, industrial clustering, financial inclusion and formalisation—processes that cannot be achieved through short-term incentives alone.
Maharashtra’s dominance, therefore is not merely a story of one state’s success. It is a case study in how economic ecosystems shape outcomes and a reminder that MSME growth is ultimately driven by the depth and quality of the environment in which enterprises operate.
Southern India’s MSME Ecosystem: A Balanced Model of Industrial Depth and Service-Led Growth
Southern India has emerged as one of the most structurally balanced and institutionally grounded regions for Micro Small and Medium Enterprises (MSMEs) in the country. Unlike regions dominated overwhelmingly by either traditional manufacturing or informal services the southern states present a hybrid growth model combining industrial clustering, technological adaptability and relatively strong governance capacity. This balance has enabled the region to sustain MSME growth while adapting more smoothly to formalisation, digitisation and market integration.
Manufacturing Strength Anchored in Tamil Nadu
Among the southern states Tamil Nadu stands out for its manufacturing-led MSME ecosystem. The state has built a dense network of small and medium enterprises across automobile components, textiles, leather goods, electrical equipment and general engineering. These enterprises are not isolated units but form part of mature industrial clusters linked to large anchor firms, export markets and global supply chains.
Tamil Nadu’s advantage lies in its long-standing industrial corridors, access to multiple ports and a workforce skilled in shop-floor manufacturing. MSMEs in the state often operate as tier-2 and tier-3 suppliers to major automotive and industrial manufacturers giving them scale stability and technology exposure. This embeddedness has helped many enterprises withstand economic shocks better than fragmented informal units elsewhere.
Karnataka’s Service-Driven MSME Trajectory
In contrast Karnataka illustrates a service-oriented MSME model shaped by technology and innovation. With an estimated 1.20 million MSMEs the state’s enterprise landscape has been significantly influenced by its startup and digital economy. The presence of Bengaluru as a global technology hub has generated demand for a wide array of MSMEs operating in IT support services, software testing, design, logistics, professional consulting, digital marketing and back-office operations.
Many of these enterprises are micro in scale but highly formalised, operating through digital platforms, cloud-based tools and online marketplaces. Their growth trajectory differs from traditional manufacturing units; they are less asset-heavy but more adaptive, benefiting from rapid scalability and lower entry barriers. This has allowed Karnataka’s MSMEs to integrate quickly into both domestic and international service value chains.
Complementary Roles of Andhra Pradesh and Kerala
Beyond Tamil Nadu and Karnataka, Andhra Pradesh and Kerala play complementary roles in strengthening the southern MSME ecosystem. Andhra Pradesh has focused on developing industrial parks, food processing clusters and port-linked manufacturing zones, supporting MSMEs in agro-processing, pharmaceuticals and light engineering. Its emphasis on infrastructure-led industrialisation has attracted both domestic and export-oriented small firms.
Kerala, meanwhile, reflects a service-heavy and skill-driven MSME profile. Enterprises in the state are prominent in areas such as tourism-linked services, healthcare support, food products, coir and knowledge-based activities. High literacy rates, workforce participation and social development indicators have enabled MSMEs to operate with relatively higher productivity and compliance levels.
Institutional Capacity and Formalisation Readiness
One of the defining features of the southern MSME model is institutional depth. Compared to many other regions, southern states have demonstrated stronger administrative capacity, higher digital penetration and better awareness among entrepreneurs. This has translated into smoother adoption of formalisation initiatives such as GST registration, digital payments and enterprise financing through formal channels.
Higher human development indicators particularly in education and health have also contributed to managerial competence and labour stability within MSMEs. As a result, enterprises are more likely to maintain records, adopt technology and engage with government support mechanisms, enhancing their long-term viability.
A Template for Sustainable MSME Growth
Taken together the southern states represent a diversified MSME architecture that blends manufacturing resilience with service-sector flexibility. Rather than relying on a single growth engine the region benefits from sectoral plurality industrial clusters in Tamil Nadu, digital services in Karnataka, infrastructure-driven manufacturing in Andhra Pradesh and skill-intensive services in Kerala.
As India continues to reposition its MSME sector as a driver of employment, exports and innovation the southern model offers important lessons. Balanced sectoral composition, strong institutional support and integration with both domestic and global markets appear to be critical factors in building a resilient and future-ready MSME ecosystem.
Uttar Pradesh: Scale Driven by Population and Policy
Uttar Pradesh’s ascent to the third position nationally in terms of Micro Small and Medium Enterprises (MSME) presence marks a notable shift in India’s industrial and economic geography. Long viewed as a state with limited formal industrial depth relative to its population size the latest MSME expansion signals how demographic scale when paired with targeted policy interventions can reshape economic outcomes.
For decades Uttar Pradesh’s economic narrative was dominated by agriculture, informal employment and outward migration in search of work. The recent growth in MSMEs reflects a gradual but meaningful diversification of the state’s economic base. This transformation has been driven not by a single industrial hub but by a dispersed, district-level approach to enterprise development.
At the center of this shift is the One District, One Product (ODOP) scheme which has encouraged local specialization based on traditional skills, regional resources and historical strengths. Districts across the state have been nudged to focus on specific product categories ranging from handicrafts and handlooms to food processing, leather goods, brassware, pottery and small-scale manufacturing. By aligning policy support, branding and market access around these localized industries the state has enabled thousands of small enterprises to formalize and expand.
Uttar Pradesh’s MSME ecosystem is predominantly labour-intensive a characteristic that aligns closely with the state’s vast workforce. These enterprises have played a critical role in absorbing surplus labour, particularly in semi-urban and rural areas where large-scale industrial employment remains limited. In several regions the expansion of local MSMEs has helped slow distress-driven migration by creating livelihood opportunities closer to home. This is especially significant in districts historically dependent on seasonal or low-productivity agricultural work.
The scale of MSME growth, however, also reflects the state’s sheer population size. With India’s largest population, Uttar Pradesh naturally generates a high volume of small enterprises, many of which operate at the micro level. Formal registration drives, improved digital onboarding and easier compliance mechanisms have further boosted official MSME numbers. As a result the state’s ranking captures both genuine enterprise expansion and the gradual transition of informal units into the formal economy.
Yet beneath the headline figures lie persistent structural challenges. MSME distribution across Uttar Pradesh remains highly uneven. A relatively small number of districts account for a disproportionate share of registered enterprises, while others continue to lag due to weaker infrastructure, limited market connectivity and lower access to institutional support. Urban and peri-urban clusters tend to benefit more from policy initiatives than remote or backward regions.
Productivity disparities are another critical concern. Many MSMEs operate with outdated technology, limited mechanization and low value addition. Access to affordable credit remains inconsistent, particularly for micro enterprises and first-generation entrepreneurs. Despite the availability of government-backed loan schemes, awareness gaps, documentation hurdles and risk aversion among lenders continue to constrain growth. Skill shortages both managerial and technical further limit the ability of enterprises to scale beyond subsistence operations.
Infrastructure quality plays a decisive role in determining MSME performance. Districts with better road connectivity, reliable power supply, industrial estates and digital access tend to attract and sustain more competitive enterprises. In contrast, areas with poor logistics and fragmented supply chains struggle to convert entrepreneurial activity into sustained economic output.
Uttar Pradesh’s MSME surge, therefore, represents both progress and paradox. On one hand, it underscores the effectiveness of decentralized, product-focused industrial policy in a large, diverse state. On the other it highlights the risk of mistaking numerical expansion for uniform economic development. The challenge ahead lies in improving enterprise quality alongside quantity—raising productivity, strengthening market linkages and ensuring that growth is geographically and socially inclusive.
If these gaps are addressed Uttar Pradesh’s MSME sector could evolve from a scale-driven phenomenon into a durable engine of employment, income generation and regional economic balance. The state’s recent ranking is not an endpoint but an early indicator of what sustained policy focus and structural reform could achieve in one of India’s most complex and consequential economies.
Eastern and Northern India’s MSMEs: Quiet Contributors with Structural Significance
While India’s MSME (Micro Small and Medium Enterprises) landscape is often discussed through the lens of high-growth industrial hubs the eastern and northern regions reveal a more understated but deeply resilient enterprise story. States such as West Bengal, Rajasthan, and Gujarat illustrate how diverse economic models can sustain large and impactful MSME ecosystems without relying on a single formula for growth.
West Bengal: Legacy Enterprises Sustaining Local Economies
West Bengal emerges as a notable contributor in eastern India, hosting approximately 1.80 million MSMEs, a significant share rooted in small-scale manufacturing, trade, food processing and informal services. Unlike states driven primarily by large industrial clusters, West Bengal’s enterprise strength lies in its long-established tradition of household and community-based businesses.
From handloom weaving and food products to repair services and small retail trade these enterprises play a critical role in absorbing labor and supporting district-level economies. Although formal industrial expansion has been relatively modest in recent decades the continuity of small enterprises has helped stabilize incomes and preserve economic activity, particularly in semi-urban and rural regions.
This structure highlights an alternative development path one where economic resilience is maintained through dense networks of micro and small businesses rather than rapid industrial scaling alone.
Rajasthan: Culture-Driven Enterprise and Tourism Linkages
In northern India, Rajasthan’s MSME ecosystem reflects the close interlinkage between culture, craftsmanship and commerce. The state’s strengths lie in handicrafts, textiles, jewelry, leather goods and tourism-linked enterprises, many of which are family-run and geographically dispersed.
Artisan clusters in towns and heritage cities continue to feed domestic and export markets, while tourism generates sustained demand for locally produced goods and services. These MSMEs not only preserve traditional skills but also serve as critical employment engines in regions where large-scale industry is limited.
Rajasthan’s experience demonstrates how cultural capital when combined with market access and branding can support a viable and enduring MSME base.
Gujarat: Networks, Industrial Estates and Export Orientation
In contrast Gujarat represents a more market- and infrastructure-driven MSME model. The state’s enterprises benefit from well-developed industrial estates, strong trading communities, efficient logistics and an export-oriented business culture.
MSMEs in sectors such as engineering goods, chemicals, textiles and processing industries are deeply integrated into national and global supply chains. Dense business networks and relatively streamlined regulatory ecosystems have allowed small and medium firms to scale operations more rapidly and compete beyond local markets.
Gujarat’s model highlights how policy consistency, infrastructure and entrepreneurial networks can amplify MSME productivity and global competitiveness.
No Single Path to MSME Success
Together these states underline a critical insight for policymakers and economists: MSME density and sustainability do not depend on a single growth trajectory. West Bengal’s household enterprises, Rajasthan’s culture-based clusters and Gujarat’s industrial and export networks each represent distinct yet effective enterprise ecosystems.
Their experiences suggest that MSME growth is shaped by a combination of historical context, cultural practices, geographic advantages and policy frameworks. Recognizing and supporting these varied models is essential for inclusive economic development, especially as MSMEs continue to serve as the backbone of employment generation and regional economic stability across India.
As national strategies increasingly emphasize MSMEs as engines of growth, the quieter contributions of eastern and northern states offer valuable lessons: resilience can be built not only through rapid industrialization but also through sustained support for diverse, locally grounded enterprise systems.
Small States and Union Territories: Low Numbers, High Dependence
While India’s economic narrative is often dominated by industrial powerhouses and metropolitan hubs a quieter yet equally consequential story unfolds in the country’s smaller states and Union Territories. Regions such as Lakshadweep, Sikkim, Arunachal Pradesh and Ladakh report comparatively modest numbers of Micro Small and Medium Enterprises (MSMEs), typically ranging between 1,000 and 5,000 units. In national statistics these figures appear almost negligible. On the ground, however, their significance is profound.
In these geographically remote and demographically smaller regions, MSMEs are not merely contributors to the economy they are its foundation. Unlike larger states where diversified industrial ecosystems provide multiple employment avenues, smaller states and Union Territories often rely heavily on MSMEs as the primary source of livelihoods. Tourism-based enterprises, traditional handicrafts, agro-processing units and locally driven service businesses dominate the economic landscape, absorbing a substantial share of the workforce.
The structural limitations facing these regions are substantial. Geographic isolation raises transportation and logistics costs, while difficult terrain and sparse connectivity restrict access to larger markets. Infrastructure gaps ranging from limited industrial land to inconsistent power supply and digital connectivity further constrain the ability of enterprises to scale. As a result, MSMEs in these areas tend to remain small, localized and heavily dependent on seasonal demand, particularly in tourism-centric economies.
Yet scale does not equate to relevance. In Lakshadweep for instance a few thousand enterprises can support a significant proportion of the working population. In Himalayan and border regions such as Arunachal Pradesh and Ladakh, MSMEs play a dual role driving economic activity while also contributing to social stability by reducing migration and sustaining local communities. Handloom clusters, food-processing units and small hospitality businesses often serve as anchors of both income and cultural preservation.
The contrast with states like Maharashtra, which alone accounts for millions of registered MSMEs, underscores a deeper and more persistent regional inequality. This disparity is not merely about enterprise count; it reflects uneven access to capital, infrastructure, markets and policy attention. While larger states benefit from economies of scale, dense supply chains and proximity to financial institutions, smaller regions remain structurally disadvantaged despite their strategic and social importance.
Policy frameworks that prioritize numerical growth alone risk overlooking these vulnerabilities. For smaller states and Union Territories, targeted interventions such as improved logistics support, region-specific credit mechanisms, digital market integration and infrastructure development are critical. Without them, MSMEs in these areas remain trapped in low-growth cycles, despite their central role in sustaining local economies.
As India advances toward broader economic ambitions, bridging this divide will be essential. Recognizing the outsized importance of MSMEs in smaller states and Union Territories is not simply a matter of equity; it is a prerequisite for balanced and inclusive national development.
Formal vs Informal: The Hidden Layer Beneath India’s MSME Numbers
India’s micro small and medium enterprise (MSME) sector is often described as the backbone of the economy, employing millions and contributing substantially to industrial output and exports. Yet beneath the headline figures lies a complex and largely invisible reality one where formal registration data tells only part of the story.
Recent data comparing officially counted MSMEs with national registration estimates reveals a striking disparity. While Udyam registrations have crossed 5.70 crore enterprises, this figure masks the presence of a vast number of operating units that remain outside the formal system. The gap is particularly pronounced in several eastern, northern and northeastern states, where enterprise activity is vibrant but underrepresented in official records.
A Divide Beyond Numbers
The divergence between registered and unregistered enterprises is not merely a statistical anomaly; it reflects structural and administrative asymmetries across states. In regions with stronger governance capacity, wider digital penetration and sustained outreach by local administrations, MSME registration density tends to be significantly higher. These states are better equipped to bring enterprises into formal databases through awareness campaigns, simplified digital processes and institutional support.
Conversely, states with limited administrative reach or weaker digital infrastructure often show lower registration figures despite hosting large numbers of active businesses. Many of these enterprises function informally not by choice alone but due to procedural barriers, lack of awareness or limited access to registration mechanisms.
Implications for Credit and Policy
This undercounting carries tangible economic consequences. Formal registration is frequently a prerequisite for accessing institutional credit, government subsidies, insurance schemes and technology upgrade programs. Enterprises that operate outside official recognition are more likely to rely on informal finance, face higher borrowing costs and remain excluded from productivity-enhancing interventions.
For policymakers the skewed distribution of registered MSMEs complicates effective targeting. Resource allocation, sectoral support schemes and employment estimates are often based on registration data, which may not accurately reflect the true scale or geographic spread of enterprise activity. As a result, states with large informal ecosystems risk being overlooked in national policy design.
Measuring Productivity and Growth
The registration gap also distorts productivity measurement. When a significant portion of economic activity occurs outside formal accounting systems, official statistics may underestimate output, employment and growth potential in certain regions. This creates an uneven picture of state-level economic performance and can influence investment decisions, both public and private.
In this sense the state-wise distribution of registered MSMEs serves as a proxy not only for economic dynamism but also for administrative effectiveness. High registration numbers often indicate robust state capacity efficient institutions, digital readiness and proactive governance rather than superior enterprise activity alone.
Bridging the Formal–Informal Divide
Closing this gap will require more than expanding registration portals. It demands targeted outreach in underrepresented regions, simplification of compliance requirements, multilingual support systems and trust-building measures that demonstrate tangible benefits of formalization to small entrepreneurs.
As India seeks to strengthen its MSME sector as a driver of inclusive growth, recognizing and addressing the hidden informal layer beneath the numbers will be critical. Without it, official statistics risk offering a partial view of an economy that is far more expansive, diverse and regionally uneven than the data alone suggests.
Conclusion
The state-wise distribution of MSMEs in India reveals a sector marked by both remarkable vitality and deep structural imbalance. A small group of states led by Maharashtra, Tamil Nadu and Uttar Pradesh dominate enterprise counts, reflecting decades of accumulated advantages in infrastructure, finance, industrial clustering and administrative capacity. At the same time a vast landscape of smaller states, eastern regions hill states and Union Territories sustains MSME ecosystems that are numerically modest yet economically indispensable at the local level.
What emerges clearly is that MSME concentration is not merely a function of entrepreneurial spirit but of ecosystem depth. Where finance, logistics, skills, market access and governance converge, enterprises formalise, scale and integrate into value chains. Where these conditions are absent or uneven, MSMEs persist largely in informal, low-productivity forms often invisible in official data yet central to livelihoods. The wide gap between estimated enterprises and Udyam registrations underscores this reality and signals that registration density reflects state capacity as much as economic activity.
Equally important is the diversity of viable MSME models across India. Manufacturing-led clusters in Tamil Nadu, service-driven ecosystems in Karnataka, scale-based expansion in Uttar Pradesh, culture-linked enterprises in Rajasthan, legacy household businesses in West Bengal and export-oriented networks in Gujarat demonstrate that there is no single path to MSME success. Smaller states and Union Territories further highlight that economic significance cannot be judged by numbers alone as MSMEs there form the backbone of employment and social stability.
Going forward India’s MSME strategy must shift from a narrow focus on enterprise counts to a broader emphasis on quality, productivity and inclusion. Bridging regional gaps will require long-term investments in infrastructure, finance and institutional capacity, alongside targeted efforts to formalise without overburdening micro enterprises. If policy design can align national ambition with state-level realities the MSME sector has the potential not only to drive aggregate growth but also to reduce regional disparities and anchor development where it is needed most.
Source: List of MSME Registered Units under UDYAM
Published by: indiadatareport.com