The Central Government is considering a significant overhaul of the Goods and Services Tax (GST) structure, proposing a simplified regime with just two main tax slabs of 5% and 18%. This reform is expected to transform the Micro, Small, and Medium Enterprises (MSME) sector, which is the backbone of India’s economy. Along with digital processes, lower penalties, and schemes like QRMP and Udyam Assist, these changes are set to make MSMEs more competitive and future-ready.
MSMEs contribute nearly 30% of India’s GDP and are rapidly digitising, with almost 60% projected to go fully digital by 2025. Under Prime Minister Narendra Modi’s vision of a self-reliant India, MSMEs are emerging as strong drivers of growth. They are also the second-largest source of employment after agriculture, providing jobs to 12 crore people, including 2.18 crore women. With 97% being micro enterprises and over 3.25 crore units located in rural India, they ensure inclusive and balanced growth across regions, strengthening India’s grassroots economy.
Exports from MSMEs have tripled in just four years, growing from ₹3.95 lakh crore in 2020-21 to ₹12.39 lakh crore in 2024-25. The number of exporting MSMEs has surged from 52,849 in 2020-21 to 1,73,350 in 2024-25. Their share in India’s total exports has risen consistently, reaching 43.59% in 2022-23, 45.73% in 2023-24, and 45.79% in 2024-25, making them central to India’s emergence as a global export hub and a vital contributor to foreign exchange earnings.The proposed GST reform will significantly ease the compliance burden through its two-slab structure of 5% and 18%, with the Composition Scheme threshold raised to ₹1.5 crore. Small taxpayers with turnover up to ₹5 crore will benefit from the QRMP scheme, faster digital refunds, SMS-based nil return filing, and reduced penalties, making compliance simpler, transparent, and business-friendly. For lakhs of small units that earlier struggled with multiple tax filings, this move represents a breakthrough in cost and time savings.
GST rate rationalisation is also expected to reduce retail prices by 4-5%, spurring domestic consumption and directly benefiting MSMEs. The consumption boost alone is projected to add 0.5-0.6% to GDP annually, underlining Modi Ji’s pro-growth and pro-MSME reforms. By pushing more enterprises into the formal tax net through the digital trail, Reverse Charge Mechanism, Udyam Assist, and preference for formal suppliers, the reforms are steadily increasing the level of formalisation in the economy. This ensures fair competition, better access to institutional credit, financial stability for entrepreneurs, and enhanced government revenues, all of which support sustainable long-term growth.
The reforms are also acting as a cushion at a time when global challenges are mounting. US tariffs of 50% on ~$48 billion worth of exports have hit MSME-heavy sectors like textiles, gems, leather, and auto parts. Yet India’s strong domestic consumption, which accounts for nearly 60% of GDP, has emerged as a natural buffer against such shocks. Backed by easy credit, flexible repayment options, export insurance, and diversification support, MSMEs are better prepared to withstand external disruptions.
The contrast with the Congress rule is stark. Under Congress, MSMEs were left struggling with outdated tax systems. Before GST, they faced multiple levies, endless paperwork, and high compliance costs, a clear failure to modernise. In 2015, India ranked 142nd in Ease of Doing Business, exposing Congress’s inability to reform. Thanks to Modi’s decisive reforms, the country improved dramatically, rising to 63rd by 2020. During the Congress rule, India was also labelled a “Fragile Five” economy, highlighting weak fiscal and policy management. Without reforms, MSMEs would have remained paralysed, trapped in bureaucratic hurdles and unable to compete globally. Poor governance would have further worsened India’s global standing, while Modi’s bold policies have lifted India to the rank of the world’s fourth-largest economy.
Today, MSMEs are more digitally empowered, globally connected, and economically resilient than ever before. They are driving exports, creating jobs, and building India’s rural as well as urban economies with equal strength. With continued reforms in GST, credit access, and export promotion, they are set to play a defining role in shaping India’s economic trajectory. Under PM Modi’s leadership, MSMEs are not just surviving global shocks but thriving, positioning India as a global economic powerhouse built on the foundation of self-reliance and inclusive growth.
