Borzo Study Reveals Key Challenges Faced by MSMEs in India

India’s economic growth is greatly attributed to MSMEs, which aren’t just economic and employment drivers that contribute to the country’s GDP but also add to the country’s substantial growth, driven by policy support, digital transformation, and increasing global demand for Indian goods and services. This mix of growth, opportunity, and regional empowerment lays the foundation for a dynamic and thriving future for MSMEs in India.

As per data presented in the Lok Sabha, over 61,000 MSMEs had shut down by November 2024, with 12,000 closures occurring within just four months—from August to November 2024 due to various reasons. This raises critical questions about the persistent challenges MSMEs face in sustaining their operations. To gain deeper insights into these challenges, Borzo (formerly WeFast), a global intra-city delivery service, conducted a study exploring the ‘Business perspective of MSMEs’. The study examines key factors affecting their growth, awareness of government schemes, profitability concerns, and the evolving role of quick commerce in their business landscape.

With a detailed survey, the report focuses on providing valuable insights, highlighting MSME pain points, operational challenges, future outlook, automation, cost and logistics concerns, and market awareness. The survey included MSMEs from 20+ cities across India including Tier I and II cities like Mumbai, Delhi, Bengaluru, Hyderabad, Jaipur, Ahmedabad, Kolkata, Chennai, Pune, Gurgaon, Noida, Lucknow, Indore, Chandigarh, Surat, Amritsar, Vadodara, Thane, Kanpur, Bhopal, Haridwar, Guwahati, Ludhiana, Pimpri Chinchwad, Raebareli, Kalyan, Chapra, Palghar, Kashipur, Nashik, Jalandhar, Saharanpur, Rohtak etc.

The key findings of the survey are:

1. Business

• Business Type: Most of the MSMEs surveyed are in the business of manufacturing 31.2%. MSMEs operating as D2C brands comprise of 20% while 18.1% operate in Retail. A considerable percentage deal in Trading and Services (30.7%) operating in various industries such as food, fashion, medical, NGOs, and dry cleaning, reflecting the diversified industry segment of MSMEs.

• Business Turnover: Majority of MSME respondents (73.1%) have a turnover of less than 1 crore, while a mere 16.9% have a turnover between 1 crore and 5 crore, indicating most of the companies are in the Micro and Small enterprise segment. Only 4.6% of MSMEs respondents have a turnover of 5 crores to 10 crores with fewer (3.1%) in the bracket of 10 crores to 25 crores, and a mere 1.2% each in the bracket of 25 crores to 50 crores and 100cr +.

• Team Size: The majority of MSMEs are small-sized businesses, with 71.9% employing between 1 and 10 people, reinforcing the fact that MSMEs are largely owner-driven. Another 15.4% have between 11 and 50 employees, while only 3.5% have a workforce ranging from 51 to 250 employees.

• Women Owned/ Women Run Businesses: The survey points out that 62.3% of MSMEs are woman-owned or woman-run, reflecting the increasing role of women in entrepreneurship and MSME ownership.

• Cities Delivered: The majority of MSMEs (70.8%) supply goods and services to 5–10 cities, indicating strong regional presence but limited national reach. Meanwhile, 12.3% cater to 10–20 cities, and only 4.6% have a wider distribution network spanning 20–30 cities. Notably, around 9.2% of MSMEs have a significant presence, delivering to 50 or more cities.

• Average Workforce Age: The workforce in MSMEs is predominantly young, with 40.8% aged between 21–30 years and another 40.8% between 31–40 years. This highlights a dynamic and agile workforce essential for innovation and adaptability. In contrast, only 9.2% of employees fall within the 41–50 age group, while those aged 50+ make up just 2.3% of the workforce."

2. Challenges

• Challenges Faced by MSMEs: A key challenge for MSMEs is the availability of skilled manpower, cited by 24.6% of businesses, followed by operational hurdles (20.8%). Financial constraints are also a major concern, with 17.7% struggling with customer acquisition and 10% facing difficulties in managing working capital. Additionally, 16.2% of firms highlight challenges in accessing finance and borrowing, while 10.8% of respondents identify labor training as another pressing issue.

• Impact of Inflation and Rising Costs: Increasing production costs (29.6%) and logistics costs (28.8%) are of greatest concern for MSMEs, followed by the cost of manpower (13.5%) and decreasing consumer spending (16.2%). Technology and upgradation costs and other factors contribute to 8.5% and 3.4%, respectively.

• Challenges in Acquiring Funds: MSMEs are confronted with a number of challenges in acquiring funds, with high cost of interest (33.8%) and low cash flow (29.6%) being the greatest hurdles. Insufficient collateral (15%) and complicated application procedures (21.5%) are also some of the contributing factors.

• Profitability: In spite of these issues, a vast majority (79.2%) of MSMEs remain profitable, with only 20.8% facing profitability challenges. The drivers of profitability issues most commonly cited are increasing cost of operations (41.5%) and competition with large players (24.6%), followed by high interest rates (8.1%) and customer credit/debt (10%).

• Areas of improvement: MSMEs identified a few areas of improvement. The most critical factors identified are improved logistics (26.9%), availability of skilled manpower (26.5%), low interest rates (18.8%), growth subsidies (18.5%), and credit security (9.2%).

3. Supply Chain - Logistics and Quick Commerce

• Logistics Challenges: MSMEs are severely challenged in logistics, with high delivery expenses (59.2%) and inconsistent delivery schedules (21.2%) being the most prominent challenges. Delayed pick-ups (13.5%) and complicated return procedures (4.6%) are other major challenges.

• Preferred Delivery Timeline: With Quick Commerce gaining prominence, Quick delivery is a priority for MSMEs, with 59.6% of companies wanting deliveries between 15 and 60 minutes. Other MSMEs prefer deliveries between 3 and 4 hours (20.8%) and anytime same-day delivery (16.2%), whereas only 6.2% are open with next-day delivery.

• Need for Quick Commerce: A large percentage (71.9%) of MSMEs believe that fast delivery within 10 to 30 minutes is essential to cater to the needs of rapid e-commerce, with a mere 28.1% opposed to it.

• Delivery Management: Most MSMEs use third-party logistics providers (37.7%) or Next-day courier services (45.8%), while 13.8% use in-house fleets for deliveries.

4. Awareness and Outlook

• Awareness of Government Schemes: MSMEs are aware of multiple schemes that help businesses. Most MSMEs were aware about Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), National Manufacturing Competitiveness Programme (NMCP), Pradhan Mantri MUDRA Yojana (PMMY) and MSME Innovative Scheme.

• Business Outlook for FY2026 and FY2027: MSMEs are confident of future expansion, with 53.5% projecting expansions in the market, 18.8% laying emphasis on technology uptake, and 20% looking into establishing their own delivery networks. Other areas include opting for government subsidies (4.2%) and applying for patents/copyrights of products (3.5%).

5. Automation

• Adoption of Automation: A vast majority (77.7%) of MSMEs are willing to automate their businesses, seeing the potential advantage of enhanced efficiency, but 22.3% are not in favour of moving towards automation.

• Challenges in Automation: MSMEs consider the biggest hurdles to automation or deciding against it to be the lack of affordable solutions (48.1%) and the high cost of training (22.7%). Additionally, concerns such as downtime during implementation (7.3%) and the need for seamless integration across all production levels (21.9%) are also seen as significant challenges.

• Estimated Losses for Not Automating: A substantial percentage of MSMEs (68.8%) estimate their losses from not automating at under 1 lakh INR, while 25.8% estimate losses up to 10 lakhs INR, and smaller portions, such as 3.1% and 2.3%, estimate higher losses of 50 lakhs and upto 1 crore respectively.

Alina Kisina, CEO, Borzo said, "MSMEs, especially those in Tier 2 and Tier 3 cities, are shaping India's growth by driving innovation, creating jobs, and transforming industries. While MSMEs continue to face fundamental challenges such as a skilled workforce shortage, rising production and logistics costs, competition from larger players, and limited access to finance and new markets, they remain resilient. Many MSMEs are actively exploring automation to stay competitive and integrating new delivery models to enhance efficiency. With growing awareness of government schemes and the increasing influence of quick commerce, metro expansions, and evolving delivery needs, MSMEs require robust logistics solutions to scale effectively and seize new opportunities.”

In India, Borzo has a fleet of over 50,000 delivery partners who serve the enterprise hyperlocal and SME segment.