Times of Better Bharat

The shape of the problem

India's firm-size distribution is unusually barbell-shaped. There is a vast population of micro-enterprises, mostly informal and mostly unproductive, and a small population of large, competitive firms. The middle — firms of fifty to five hundred people, formal, growing — is thin relative to comparable economies.

This matters because that middle is where productivity growth typically happens. Firms in that band are large enough to invest in process and equipment, and small enough to still be improving rapidly. An economy short of them grows by adding workers rather than by making workers more productive, and income per head therefore rises more slowly than headline GDP.

Why firms stay small

Three mechanisms, all of which reinforce each other.

Credit is the most discussed. A firm without collateral and without a formal credit history cannot borrow at a rate that makes expansion sensible. Account-aggregator infrastructure and digital lending have genuinely improved this, and it is the area with the clearest recent progress.

Enforcement is the least discussed. A firm that cannot collect on invoices cannot finance growth from working capital, regardless of what credit is available — and the receivable it cannot collect is usually owed by a larger buyer who knows precisely how slow the remedy is.

Regulatory thresholds are the most perverse. Where obligations step up sharply at a headcount or turnover boundary, the rational move is to stay just below it, or to split into entities that each stay below it. Firms do exactly this, and the resulting fragmentation is then read as a cultural preference for small business rather than as the predictable response to a threshold.

How to read this

This is an argument, not a measurement. The charts above are sourced and checkable; the reasoning between them is editorial judgement and should be treated as such. Where a claim has no series behind it, it is stated as judgement rather than fact.