Kamal Ghorui
India’s policy imagination around MSMEs has long been shaped by one central belief: if small businesses get easier and cheaper access to credit, they will grow, thrive, and generate employment. There is truth in that. Credit is necessary. No enterprise can expand, invest, or even survive periods of strain without access to finance. But credit alone cannot build resilience. And in times of widespread economic shock, it may even become an added burden.
This is particularly true when shocks do not affect one firm or one locality, but disrupt the wider economy. COVID-19 was one such event. Climate-related disruptions such as unseasonal floods, extreme rainfall, heatwaves, and cyclones are increasingly becoming another. Energy shocks, supply chain breakdowns, transport bottlenecks, or geopolitical disruptions can also trigger similar stress. In such circumstances, the challenge before MSMEs is not merely one of liquidity. It is one of continuity.
Insurance is often presented as the obvious solution to risk. Yet insurance has limits. It is designed as a monetary compensation mechanism. It can help an entrepreneur recover part of a loss, but it cannot by itself keep an enterprise functioning during a prolonged disruption. It cannot ensure that workers remain employed if the unit shuts down. And in the case of large scale economic or climate shocks, there may be limits to what is insurable at all, especially where force majeure conditions come into play. Compensation after closure is not the same thing as resilience before closure.
The policy response has therefore remained somewhat incomplete. Many government interventions, often backed by multilateral agencies, aim to facilitate access to credit for MSMEs. Some subsidize interest or provide guarantee support to make borrowing easier. These interventions are useful. But they are built on an assumption that businesses operate in a reasonably stable environment and merely need capital to perform. That assumption does not always hold.
An enterprise can borrow only when it can reasonably expect to produce, sell, and repay. In an unstable operating environment, debt can begin to resemble a hanging sword. Entrepreneurs, by temperament, often take risks and borrow in the hope that an optimistic future will unfold. Some can absorb setbacks. But many cannot. And the burden does not stop with the owner. When a business closes, it is not only the entrepreneur who suffers. Workers lose jobs, suppliers lose demand, and entire local economic chains weaken. This matters even more in the case of micro and small enterprises rooted in vulnerable social contexts. Think of a small textile unit producing for export.
Think of a food-processing enterprise run by a farmer collective. Think of units dependent on migrant labour, small farmers, women workers, or low-income households trying to make ends meet. These enterprises are not speculative ventures backed by deep reserves of capital. They are often survival-linked economic activities. For them, resilience is not about preserving valuation. It is about preserving livelihoods.
An important point here is that MSMEs can often survive partial disruption far better than total disruption. A business may be able to cope if production falls for a few days, if some workers are absent, if dispatches are delayed, or if only part of its operations are affected. It may stagger shifts, prioritize urgent orders, reduce output, or temporarily switch to limited operations. What proves far more dangerous is total disruption: when power fails completely, roads are cut off, raw materials do not arrive, buyers cannot be contacted, payments freeze, and production comes to a standstill.
Once operations stop entirely, losses pile up quickly, working capital evaporates, and the risk of permanent closure rises sharply. That is precisely why resilience-building measures matter so much. Their purpose is not always to prevent loss altogether, but to prevent a manageable shock from turning into a total shutdown. That is why mechanisms that help them cope with shocks while staying at least partially operational are important. Three kinds of support stand out.
- Digitisation: A digitally enabled enterprise can communicate with buyers and suppliers faster, track orders, manage inventory, receive payments, and adapt operations when physical disruption occurs. Even basic tools such as digital bookkeeping, online buyer communication, supplier databases, and digital payments can reduce downtime during shocks. Digitalisation does not eliminate risk, but it improves responsiveness and helps maintain partial continuity when normal business conditions break down.
- Complementary networks: MSMEs become more resilient when they are not isolated. Firms linked through supply chains, producer groups, clusters, or local business ecosystems can share orders, access backup suppliers, pool transport, exchange information, and support one another during disruptions. A firm that cannot produce for a week may still survive if another unit in the network can temporarily process or dispatch its order. Resilience, in that sense, is not just an individual capability. It is a collective one.
- Infrastructure continuity: Enterprises cannot function if roads are cut off, transport stops, logistics fail, or power supply breaks down. In many cases, the biggest damage from a shock does not arise from direct physical loss alone, but from the inability to keep operations moving. Continuity in transport, logistics, storage, and power is therefore central to MSME resilience. Backup power solutions, decentralized storage, alternative local logistics channels, and resilient last-mile connectivity can often determine whether a unit survives a disruption or succumbs to it.
What India needs, therefore, is a broader idea of MSME support — one that moves beyond credit access and toward resilience architecture. This may require the state to promote resilience clusters much in the way it has promoted industrial clusters. Industrial clusters were designed around scale, specialization, and productivity. Resilience clusters would be designed around continuity, redundancy, and adaptive capacity.
They would bring together enterprises, local logistics providers, digital service platforms, backup power arrangements, storage facilities, financial institutions, and local governments into a shock-ready ecosystem. Such clusters would not merely help firms grow in good times; they would help them endure bad times.
If MSMEs are truly the backbone of employment and local production, then the question is no longer whether they should receive credit. Of course they should. The real question is whether we are enabling them to remain functional when the ground beneath them shifts. In an age of recurring climate and economic disruption, resilience is no longer a secondary concern. It is the precondition for survival.
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