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Micro, small and medium enterprises (MSMEs) are said to be the backbone of the Indian economy. Rightly so, the contribution of Indian MSMEs to Gross Value Added (GVA) in the country’s GDP in FY20 stood at 30% while the sector’s contribution in manufacturing segment revolved around 37% in the same year. In short, MSMEs contribution in the growth of Indian economy, especially the role of MSME in rural development has been unmatched in last few years.

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When it comes to MSME and rural development, there is the valuable role of small-scale industries in rural India, and the contribution of the cottage industry. Traditional businesses such as cotton weaving, silk weaving, handicrafts, etc., have been instrumental in the growth of the region, by ways of eradicating poverty, generating employment, contributing towards  economic growth and so on.

This article explains how MSMEs have been instrumental in the development of rural areas of the country.

How do MSMEs promote rural development?

MSMEs have a big role to play in rural development. They help rural population and facilitate development in various ways. The government recognises the contribution of the MSME sector to India’s GDP and has from time to time come wup with relevant programmes to boost and encourage the sector. The PMGSY scheme is one such programme which aims to build all-weather roads to unconnected habitations and rural areas to improve connectivity, employment and economic activities.

On that note, let’s understand how MSMEs promote rural development. Here is how:

  • Employment generation

MSMEs in rural areas create employment opportunities for youth in the nearby villages. Apart from direct employment, the business also creates opportunities for other businesses indirectly.

For example, a small-scale food manufacturing unit in the village generates employment for workersin the factory. Additionally, it also creates opportunities for allied sectors such as local raw material suppliers, machinery and tool manufacturers, logistics and transport service providers, and so on. As the rural population gets employment and business, it helps in eradicating poverty in the region. In other words, MSME sector acts as tool for poverty eradication.

Government schemes, like the ASPIRE scheme of 2015, is centred around supporting entrepreneurship in agro-based businesses in rural India for employment generation and economic development.

  • Making workforce employable

Many a times, MSMEs provide initial training to enable the local workforce to undertake specific jobs. This gives local people an opportunity to learn new skills and be relevant with current time and age.

For example, the local workforce may not have the skills required to work on a new high-tech machine. However, with training they can be taught and acquire new skills and be ready for this job and similar opportunities. Also, it helps the workforce to be more employable in the future and grow in their careers.

  • Economic development of the rural area

By generating employment and creating business opportunities, the role of small-scale industries in rural India development is enormous. They provide better earnings that translates to better quality of life for the rural population. As the buying capacity of the rural population increases, it leads to the economic development of the region too.

  • Getting recognition on the global map

The MSME sector, especially the cottage industry like saree weaving, carpet weaving etc., are classic examples of family run businesses (or generational businesses).

Generally, the entire family is engaged in the business and in some cases, the whole village. Through the arts, the artisans’ creativity gets exposure in the national and global markets. Many traditional sarees such as Banaras silk from Uttar Pradesh, Kanchipuram silk sarees from Tamil Nadu, Paithani from Maharashtra, etc., are known for delicate work. They are not only popular in the country but are also exported globally.

  • Generating foreign exchange

As mentioned, many MSMEs in the rural sector are engaged in exports and generate foreign exchange, in turn helping the national economy to grow. For example, India is the 5th largest exporter of leather goods and accessories, according to Invest India. Leather exports reached $4.03 billion in FY 2020-21. Each exporting MSME has contributed to reach this milestone.

  • Self-reliance or Aatmairbharata

As the MSMEs in the rural areas mostly source raw materials and workforce locally, they are aligned with the central government’s mission of self-reliant India or Aatmanirbhar Bharat.

How can your business help rural development?

  • Source locally: Procurement strategy of sourcing locally can help your business to be cost effective. Additionally, you generate business for another local/rural business and help it grow too.
  • Hire local workforce: You can hire local talent. If the need be, they can undergo training to acquire new skills for the job. Many large companies having manufacturing units in the rural region have a policy of acquiring a certain percentage of talent from the local area.
  • Collaborate with rural businesses: Instead of competition, forge collaborations with alike or complementing businesses in the region. This will help you as well as other businesses grow and expand.


MSMEs have a big role to play in rural development. There may be several challenges that MSMEs in the rural areas face, but with the right strategy and approach you can grow your rural business too.

There are also several government schemes and initiatives that can aid MSME development in rural areas. For example, the National Small Industries Corporation or NSIC was set up to foster MSME growth and provide support for marketing, finance, technology and more.

Swati Deshpande

Swati is a passionate content writer with more than 10 years of experience crafting content for the business and manufacturing sectors, and helping MSMEs (Micro, Small and Medium Enterprises) navigate complexities in steel procurement, and business services. Her clear and informative writing empowers MSMEs to make informed decisions and thrive in the competitive landscape.