NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

India’s economic landscape is undergoing a significant shift, with small businesses — especially women-led micro, small and medium enterprises (MSMEs) — emerging as pivotal drivers of growth. This transition marks a departure from the dominance of large corporations, and it emphasizes the importance of inclusive economic development. According to an IFC report, the MSME sector contributes substantially to India’s GDP, employment and exports, underscoring its growing significance.

This shift not only fosters overall economic progress, it also promotes gender equality and social inclusion. About 14% of the MSMEs in India are owned by women, amounting to around 13.5 – 15.7 million businesses in total. The influence of these women-led MSMEs on the economy — and the well-being of other Indian women — is already substantial: These enterprises directly employ 22 – 27 million people.

However, with 432 million working-age women in India, there’s a growing need for more sources of women’s employment. These women-led small businesses have the potential to help meet that need, but to do so, they’ll require more support. The article below will explore how Indian MSMEs, especially those started by women, are boosting empowerment, creating jobs and promoting overall inclusive growth — and how the government and other stakeholders can build upon this momentum.

The Economic Impact of Women-Owned MSMEs

Studies indicate that women could be key contributors to India’s economy. In a 2018 report, McKinsey found that advancing women’s equality in India could add a staggering $770 billion to the country’s GDP by 2025. But the report also found that women’s contribution to India’s GDP was just 18%, one of the lowest proportions in the world, and that only 25% of the country’s labour force was female.

This gap underscores the significant potential of women entrepreneurs to not only create opportunities for themselves, but also to generate employment for other women — especially since startups with a woman founder have been shown to hire 2.5 times more women, and businesses with both a female founder and a female executive hire six times more women.

While Indian women face numerous challenges in starting and running a business — from limited access to financial resources, networks and mentorship opportunities, to gender bias, societal norms and family responsibilities — there are inspiring stories of female entrepreneurs who have launched successful enterprises and become role models for other women. The need of the hour is to cultivate more such women entrepreneurs who can drive the economy forward.

Factors Driving Women into Entrepreneurship

Several factors propel women to venture into entrepreneurship or join the workforce. Firstly, the desire for recognition serves as a significant motivator for women entrepreneurs. According to a survey conducted by Bain & Company, over 45% of Indian women entrepreneurs in rural areas initiated their business endeavours with the aim of seeking admiration and esteem.

Secondly, as one would expect, the prospect of establishing another income stream drives women to establish and lead startups. This incentive is particularly compelling for women because they make 85% of purchase decisions, giving them a unique window into the core financial needs of their household. This intrinsic drive to provide for the family motivates women to start businesses, contributing not only to their economic independence but also to the creation of a better lifestyle.

Finally, the educational landscape in India plays a pivotal role in encouraging women to explore entrepreneurship. With women comprising 43% of the country’s graduates in science, technology, engineering and mathematics (STEM) fields — a higher percentage than that of many developed countries — there is a substantial pool of skilled women ready to build businesses in various industries. This educational foundation can empower women to bring their expertise and innovation into the entrepreneurial realm, further fuelling the growth of women-led businesses.

This last point is important to recognize: In the development sector, many initiatives and discussions focused on women’s entrepreneurship revolve around opportunities in retail, agriculture, food, handicrafts and other businesses commonly pursued by lower-income, often-rural women. But the scope of these opportunities must extend beyond these traditional ventures to also encompass higher-level enterprises, such as tech startups and engineering firms, which have the potential to generate significant wealth, employment and economic growth. To maximize women entrepreneurs’ societal impact, it’s essential to support them across multiple sectors, including both traditional and high-tech industries.

Government Initiatives Supporting Women-Owned MSMEs in India

The Indian government has recognized the importance of supporting MSMEs and fostering women entrepreneurship. It has launched initiatives like Startup India and Stand Up India to provide support and opportunities for small businesses, and implemented various schemes geared toward women-owned MSMEs. For instance, the Ministry of Micro, Small and Medium Enterprises has been instrumental in launching initiatives such as the Prime Minister’s Employment Generation Programme (PMEGP) and the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).

PMEGP, a credit-linked subsidy program, aims to create self-employment opportunities for various marginalized or under-represented communities, including women. Similarly, CGTMSE provides crucial financial support by offering guarantee cover for credit facilities extended to micro and small enterprises (enabled by a fee charged to the lender), assuring lenders that they will not incur losses if the entrepreneur defaults on the loan. Notably, women entrepreneurs receive higher guarantee coverage, and lenders who finance them may have access to reduced guarantee fees under these schemes.

Other government initiatives, such as the Micro and Small Enterprises Cluster Development Programme and the Entrepreneurship Skill Development Programme, further contribute to the holistic development of the country’s women-owned MSMEs.

Paving the Way for a Woman-Centric Economic Future

As India aspires to become a $5-trillion economy, it’s paramount for the country to recognize — and expand — the role of women-led enterprises. To that end, government and other stakeholders must prioritize the digital transformation of the MSME sector, with a particular focus on women-led enterprises. These efforts should be part of a progressive approach aimed at fostering an inclusive and empowering environment that facilitates women entrepreneurs’ participation in the expanding e-commerce landscape.

But while this digital transformation is crucial, it’s not the sole measure needed to pave the way for women entrepreneurs. Other key priorities include:

• Access to Financial Resources: Ensuring equitable access to capital, loans and financial services that can enable women entrepreneurs to start and scale their businesses.
• Skill Development and Training: Providing training programs and capacity-building initiatives to enhance women’s entrepreneurial skills, including digital literacy, business management and marketing.
• Mentorship and Networking: Establishing mentorship programs and networking opportunities to connect women entrepreneurs with experienced mentors, peers and industry professionals who can offer guidance and support.
• Policy Support: Implementing supportive policies and regulatory frameworks that address gender disparities, promote women’s entrepreneurship and provide incentives for gender-inclusive business practices.
• Infrastructure Development: Investing in physical and digital infrastructure, such as reliable internet connectivity, logistics networks and e-commerce platforms, to facilitate business operations and market access for women entrepreneurs.

By adopting a holistic approach that combines digital transformation with these complementary measures, India can create an inclusive and empowering environment that allows women entrepreneurs to thrive. These efforts to unleash the untapped potential of women in business can help India elevate itself to unprecedented heights and solidify its position as a global economic powerhouse. The time to act is now. Breaking barriers for women entrepreneurs and building women-run MSME startups will not only empower women, it will also drive job growth. This will lead the nation towards sustainable and inclusive development, creating a brighter, more equitable and prosperous future that is truly woman-centric.

Umesh Singh is the Founder and Director of Tara Candles.

Photo courtesy of Crozet M., International Labour Organization.