How MSMEs Propel Growth in Tier 2 and 3 Cities?

Do you know where the real heart of our economy lies? It's in Tier 2 and Tier 3 cities. Although these places never come in headlines, unlike metropolitan cities, in actuality, Tier 2 and Tier 3 cities are the real engines of economic growth.

From Jaipur to Jalandhar, or Jhansi to Jorhat, small businesses in Tier 2 and Tier 3 cities are creating more job opportunities and breathing new life into local economies. Let’s explore job opportunities in insurance in micro, small, and medium enterprises (MSMEs.

What are MSMEs?

MSMEs, or Micro, Small, and Medium Enterprises, fall under the business category classified according to a particular investment made in plant and machinery and annual turnover. According to the MSME Development Act, 2006, the updated criteria effective from 1 April 2025 are as follows:

Tier 2 and 3 cities - Why is their demand increasing?

Tier 2 and 3 cities like Nagpur, Surat, Coimbatore, Indore, Bhubaneswar, and Guwahati have become epicenters of opportunity due to the following reasons:

• Low cost of living and business operations.
• Availability of skilled and semi-skilled labor.
• Improvement in digital infrastructure.
• Seamless road connectivity.
• Government schemes pushing decentralization

How Do MSMEs Drive Growth in Small Cities?

MSMEs are transforming the economic fabric of the Tier 2 and 3 cities in several ways, including:
Employment Opportunities at the Local Level. According to the National Sample Survey Office (NSSO) and Udyam Registration data, MSMEs have created numerous job prospects across smaller cities, unlike large corporate houses that mainly focus on metropolitan areas. It helps reduce migration pressure and keeps talent rooted in the area. For example, in Tirupur (Tamil Nadu), the garment MSMEs employ lakhs of people. This has turned the small town into a global textile exporter. The city is also known as the Knitwear Capital of India.

Boosting a Sense of Entrepreneurship

MSMEs lower the entry barrier that comes between desiring and starting a business. Moreover, schemes like the Prime Minister’s Employment Generation Program (PMEGP) and MUDRA loans help youth in smaller cities realize their entrepreneurial dreams. They can get started with kirana stores, service centers, food processing units, and more. For example, a young woman from  Ranchi started her organic food MSME with the help of a MUDRA loan. Now, she is exporting her products to Dubai.

Localized Manufacturing Power

India’s ambition to become a manufacturing powerhouse cannot rely only on metro cities. MSMEs in Tier 2 and 3 cities are filling this gap, producing everything from auto parts in Aurangabad to leather goods in Kanpur and jewelry in Surat. Make in India is not just a slogan; it is being lived by MSMEs in these towns every day.

Women Empowerment

More than 20% of MSMEs in India are owned by women, mostly in Tier 2 and Tier 3 cities. Women using their traditional skills like baking, weaving, and tailoring are leading the MSMEs sector. For example, in Bihar's Bhagalpur, women-led MSMEs are reviving the centuries-old art of silk weaving and selling their products online.

Driving Digital India

Digital payments, e-commerce, and remote working tools have allowed MSMEs in small towns to operate like big players. With the help of UPI, GST, and WhatsApp business accounts, even a small shoe manufacturer is able to sell his shoes across India. As per the survey conducted by the Indian Council for Research on International Economic Relations (ICRIER) related to MSMEs, using online platforms like Flipkart, Amazon, or other e-commerce websites, selling products becomes much easier.

Regional Development and Urbanization

When MSMEs grow, they increase demand for housing, education, healthcare, and retail. It triggers a multiplier effect. A successful dairy MSME in Kolhapur does not just create jobs - it increases income, raises land value, and improves the standard of living for thousands.

How is the Government Fueling the MSMEs?

Refer to the table below for the government programs that are helping MSMEs grow in smaller cities:

MSMEs Going Global

The kind of support the Directorate General of Foreign Trade (DGFT) for e-commerce exports gives to  Tier 2 and 3 cities' MSMEs is helping them expand their reach in global markets, including Europe, the USA, and the Middle East.  In addition,  e-Commerce platforms like Amazon Global Selling, IndiaMart, Meesho, and ONDC are overtaking the traditional mediators and helping small players go big by providing direct access to a broader customer base.

Real Challenges MSMEs Still Face

Despite the world of possibilities ahead of them, MSMEs do face issues in tier 2 and 3 cities. Refer to the table below to understand the challenges they face and what needs to be done to further unlock the power of MSMEs in smaller cities:

Final Words

India’s Tier 2 and Tier 3 cities are the new growth frontier, and MSMEs are at the heart of this transformation. These small businesses may not always steal the show, but they are creating livelihoods, reviving local crafts, and driving India’s journey toward Atmanirbharta (self-reliance). As citizens, policymakers, and investors, it is time we look beyond metros and support the real builders of Bharat: our MSMEs.

Frequently Asked Questions