Kerala’s micro, small, and medium enterprises (MSMEs) sector is facing a severe crisis, with 42,179 units shutting down over the past nine years, resulting in the loss of jobs for at least 1,03,764 workers, according to government data. While the state government has touted a surge in MSME registrations as a sign of economic growth, the ground reality paints a starkly different picture.
The worst-hit districts include Thrissur (7,962 closures), Ernakulam (6,560), and Thiruvananthapuram (6,309), which are traditionally strong economic regions. In contrast, districts like Alappuzha (89 closures), Kottayam (524), Idukki (608), and Pathanamthitta (978) recorded the lowest number of shutdowns.
Surge in MSME Registrations: A Misleading Narrative?
The Kerala government has claimed a significant increase in MSME registrations, with 3,43,491 new units registered in the past three years, compared to 85,333 units registered between 2016-17 and 2021-22. This spike has been attributed to the state’s “Year of Enterprises” campaign and improved ease of doing business. However, experts argue that the surge is largely due to the Centre’s UDYAM registration system, introduced in July 2020, which mandates registration for MSMEs to access loans and other benefits.
Economist Mary George pointed out that many defunct MSMEs, including those under Kudumbashree, registered under UDYAM in hopes of reviving their businesses. “This became a convenient tool for the state government to claim that new businesses were emerging due to its efforts,” she said.
A closer look at the sectoral composition of the newly registered MSMEs reveals that the majority fall under agro-food-based businesses and the services sector. While this aligns with Kerala’s economic structure, it raises concerns about sustainability. Service-based businesses are more prone to failure due to competition, customer dependence, and the difficulty in establishing tangible value compared to manufacturing units.
Despite claims of providing up to Rs 8 lakh in financial assistance to revive defunct units, the government admitted in the assembly that it has no specific program to rehabilitate workers who have lost their jobs due to business closures. This lack of support has left thousands of workers in the lurch, exacerbating the economic challenges faced by the state.
Kerala’s MSME registrations pale in comparison to neighboring states. Since the introduction of the UDYAM system, Kerala has registered 8.19 lakh MSMEs, including over 3 lakhs in the last three years. In contrast, Tamil Nadu recorded 32.74 lakh registrations, four times that of Kerala, while Karnataka registered 19.64 lakh, more than double Kerala’s numbers.
The state’s “Mission 1000” initiative, aimed at transforming select MSMEs into Rs 100 crore turnover companies within four years, has seen limited success, with only 213 applications approved so far. This highlights the gap between the government’s ambitious plans and the actual implementation on the ground.
The Economic Review 2024 acknowledges the MSME sector as a critical component of Kerala’s industrial economy. However, the data reveals a troubling trend of small businesses struggling to survive. With over 42,000 closures in nine years, the focus on quantity over quality in MSME registrations raises serious questions about the state’s economic policies.
Experts emphasize the need for a deep audit to determine how many of the newly registered MSMEs are operational and contributing to the economy. Without addressing the underlying issues, the state’s claims of MSME growth risk remaining a mere statistical illusion.
Dismayed to see that the Kerala start-up entrepreneurship story is not what’s been reported. The only silver lining is that at least the GoK’s claims point to the right intentions. We need more MSME start-ups — and not just on paper. Kerala must head this way! pic.twitter.com/tVc22YWyGl
— Shashi Tharoor (@ShashiTharoor) March 2, 2025
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