The reality of self-employment

The rising number of MSMEs masks job distress; India’s policy focus must shift to enterprise sustainability and outcomes

The micro, small and medium enterprises (MSMEs) sector has long been a key driver of the Indian economy, absorbing a substantial share of the workforce and contributing to around 30per cent of GDP. Recent data show a rise in self-employment, especially in the unincorporated sector. According to the latest Economic Survey, 58.4 per cent of the workforce is self-employed, up from 52 per cent in 2017–18. Unincorporated sector enterprises, meanwhile, have grown in number by 12.84 per cent in 2024 over the previous year. While these trends reflect rising entrepreneurial activity, they are not entirely positive. For most Indians, self-employment remains a coping mechanism in the face of joblessness. 

Many such enterprises, largely household-based, are engaged in low-investment, low-growth activities with little prospect of scaling up. The latest Annual Survey of Unincorporated Sector Enterprises (ASUSE) shows that about 86% of non-agricultural enterprises are own-account units without hired workers – essentially single-worker, subsistence operations. The expansion of self-employment, therefore, signals less entrepreneurial dynamism and more an underlying weakness in the employment structure. This is not an argument against entrepreneurship but a call to recognise the reality of Indian self-employment and to build an ecosystem that enables subsistence activities, where feasible, to evolve into sustainable businesses.

Despite the necessity-driven nature of most enterprises, promoting entrepreneurship is still a pragmatic strategy for generating long-term employment, given India’s limited capacity to absorb the workforce into formal jobs. Another concern is low female labour force participation, estimated at around 35.3% by the Periodic Labour Force Survey 2026. Here, entrepreneurship can play an enabling role. Women-led enterprises have grown in recent years, aided by the flexibility entrepreneurship offers compared to formal work. 

Beyond credit

Successive Union budgets have expanded credit guarantees, start-up schemes, tax incentives and targeted MSME packages to encourage entrepreneurship. The 2026 Budget continues this emphasis, focusing on MSME growth in rural and semi-urban areas to foster more balanced regional economic development.

The problem, however, is that policy discussions remain heavily focused on credit and subsidies. Finance can ease entry barriers, but it is only part of the story. Growth and sustainability depend on a broader entrepreneurial ecosystem — institutional, regulatory, market, and physical conditions within which enterprises operate. These elements are interdependent; without coordination, enterprise quality is unlikely to improve. If credit is available but markets are fragmented, enterprises remain disconnected from buyers, suppliers and logistics networks. Production may rise, but without market access, it leads to stagnation and failure.

The same holds for physical infrastructure. Reliable electricity, for instance, remains uneven across regions. The average daily hours of power supply in rural Uttar Pradesh and Rajasthan are only 18.1 hours and 21.7 hours, respectively. Such interruptions are costly for small firms that cannot afford inverters or generator backup.

Government-funded programmes and schemes for the upgradation and growth of enterprises do exist, but there is a lack of awareness about them. Along with enabling programmes, knowledge networks deserve much greater policy attention. Thus, without these different elements of the ecosystem, additional credit can end up financing survival rather than enabling growth. Firms do not go out of business, but they subsist on borrowed money in low-productivity activities. 

Though the direction of policy is largely appropriate, the focus must shift from expanding enterprise counts to improving enterprise outcomes. This requires strengthening the ecosystem so that necessity-driven entrepreneurship can evolve into viable businesses. At the same time, it is important to recognise that many of these enterprises will never experience high growth or scale. Even so, a meaningful share of the public resources and private effort devoted to promoting entrepreneurship should translate to stable and sustainable livelihoods. 

As the American economist William Baumol argued, entrepreneurship will always exist; what matters is the nature of the entrepreneurship generated, whether it is productive or unproductive. This, in turn, depends on the ecosystem that shapes entrepreneurial behaviour. Policy must therefore move beyond loan disbursement targets, and enterprise counts towards improving the ecosystem. This will ultimately determine whether India’s entrepreneurial push strengthens its long-term employment or merely eases short-term pressures.

The writer is a senior research associate at the Entrepreneurship Development Institute of India, Ahmedabad.

(Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.)