India’s manufacturing MSMEs operated at 52% capacity utilisation

India’s manufacturing Micro, Small and Medium Enterprises (MSMEs) operated at 52% capacity utilisation in CY2025, against 74% for manufacturing facilities overall. The 22-percentage-point gap indicates that aggregate factory utilisation did not produce equally sustained use of machines and labour among MSME suppliers, which contributed about 35% of manufacturing output in FY2022.

Why were MSMEs at 52% capacity utilisation in 2025?

MSMEs were at 52% utilisation in CY2025 because fragmented suppliers had limited demand visibility, retained capacity for intermittent peaks and faced barriers to moving idle capacity between industries. Capacity utilisation is the share of installed production capability that is operating. The source reports the MSME measure at the Small and Medium Enterprises, or SME, level for the first quarter of each calendar year and assumes MSME utilisation is the same as SME utilisation.

Limited order-book visibility is the first mechanism identified in the source. Geographically dispersed MSMEs generally see their own orders rather than aggregate industry demand, while shared demand signals and standard operating processes are absent. This reduces demand predictability, creates uneven production schedules and leaves machinery, labour and shop-floor resources idle between orders.

Peak-driven planning is a second mechanism. Suppliers retain enough capacity to accommodate surge orders even when peaks occur only intermittently, so realised order volumes can remain below the capacity used in planning. Limited cross-industry use is a third constraint because technical requirements, approvals, operating processes and commercial terms can prevent an idle machine from serving another sector. During India’s automotive slowdown caused by the semiconductor chip shortage, automotive-component manufacturers operated below capacity although some computer numerical control, or CNC, machining assets could technically produce aerospace precision components.

How wide was the MSME capacity-utilisation gap?

The MSME capacity-utilisation gap was 22 percentage points in CY2025, with MSMEs at 52% and manufacturing facilities overall at 74%. Overall utilisation rose from 72% in CY2022 to 74% in CY2023 and then remained at 74% in CY2024 and CY2025. MSME utilisation was more variable, falling to 42% in CY2023, rising to 58% in CY2024 and declining by 6 percentage points in CY2025.

The comparison shows that the change was in how utilisation was distributed, rather than in aggregate facility utilisation. Overall facilities held at 74% for three consecutive calendar years, while MSMEs ended CY2025 5 percentage points below the CY2022 level of 57%. A narrower gap would require steadier order flows, visibility across more demand sources or processes that allow capacity to be allocated across buyers and industries.

How dependent is Indian manufacturing on MSMEs?

Indian manufacturing depends materially on MSMEs: India had about 76.11 million registered MSMEs in CY2025, nearly 21% of which operated in manufacturing, while manufacturing MSMEs contributed about 35% of total manufacturing output in FY2022. The output contribution and utilisation estimate cover different reference periods, but together they show why supplier-level operating conditions affect domestic value chains.

The supplier base is also geographically organised. The source places automotive upstream inputs in Odisha and Gujarat, midstream assembly in Pune and Chennai, and downstream ecosystems near major consumption centres. These clusters create installed capacity in aggregate, but capacity can remain siloed when cross-cluster sourcing is difficult. A buyer can therefore encounter delivery delays or quality variability despite capacity existing elsewhere in the manufacturing system.

The source describes comparable fragmentation in the United States. The US had about 33.27 million small businesses in CY2020, including about 592,500 small manufacturing enterprises that represented about 97% of manufacturing establishments. This comparison does not establish a US utilisation rate, but it illustrates how specialised small-firm networks can distribute production capacity across many facilities.

What risks follow from low MSME utilisation?

Low and unstable utilisation can create delivery, quality and working-capital risks because production is scheduled around confirmed orders and available cash rather than a continuous production plan. MSMEs with few buyers can face irregular orders and uneven payment cycles, while the source describes credit as largely collateral-based and flexible working-capital financing as scarce. Suppliers may avoid large orders, shorten production runs and restrict inventory building without confirmed demand.

These conditions can defer maintenance, tooling replacement, process stabilisation, automation and quality-system investment. The source states that machines and factories may then operate as backup buffers rather than under a steady production plan. It links uneven process controls, operator skills and deferred maintenance to quality escapes, defined as defects detected during assembly, integration or at the end-customer stage, which can require rework and disrupt schedules.

Reliability matters in categories with long procurement cycles. Power-transformer manufacturing lead times range from 30 to 36 months in India, compared with 36 to 42 months in the United States. India procurement times are stated as 8 to 16 weeks for electric-vehicle battery enclosures and 24 to 28 weeks for data-centre module development. Delays in ramp-up, milestones or batch quality can affect downstream assembly and increase inventory-buffer requirements.

Can manufacturing platforms improve capacity allocation?

Manufacturing platforms are presented as a coordination mechanism rather than evidence that MSME utilisation has already improved. The source defines them as digital aggregation and orchestration layers that connect buyers with distributed suppliers, standardise how work is specified and monitored, and allocate work across multi-tier networks without owning production assets. Their proposed mechanisms are demand aggregation, capacity pooling, common data flows and quality-governance frameworks.

The stated India total addressable market, or TAM, for manufacturing platforms was Rs 10.26 lakh crore to Rs 12.57 lakh crore in FY2026. TAM is the procurement pool considered serviceable by these platforms, not the whole manufacturing-procurement market. The source limits addressability to durable-goods procurement in industries where time-to-market pressure, diversified demand and multi-tier supplier fragmentation require active coordination.

The model would depend on suppliers being discoverable, able to meet specifications and willing to use standardised processes. It would also need to address sector-specific approvals, technical requirements and commercial terms that restrict cross-industry capacity use. The source notes that supplier bases in China, South Korea and Italy were initially dispersed and became more coordinated as industrial systems matured, with greater coordination generally coinciding with improved utilisation and operational efficiency.

Conclusion

The CY2025 figures show that a 74% overall manufacturing-facility utilisation rate can coexist with 52% utilisation among MSMEs. The 22-percentage-point difference is linked to fragmented demand signals, peak-based capacity planning, restricted capacity redeployment and working-capital constraints. Because manufacturing MSMEs contributed about 35% of output in FY2022, these factors can affect the reliability of a significant part of the industrial supply base.

The next issue is whether manufacturing platforms can aggregate demand and standardise supplier coordination without owning production assets. Their proposed effect depends on supplier onboarding, shared capacity data, quality controls and the ability to work through sector-specific approvals. Subsequent SME first-quarter utilisation data will indicate whether the decline from 58% in CY2024 to 52% in CY2025 persists or reverses.