A Complete Guide to Explain the Role of MSMEs in the Economic Development of Karnataka

May 23, 2024
Updated on

Karnataka is an ideal place for various industries to flourish. Micro, Small & Medium Enterprises (MSMEs) are a significant and growing segment of India that contribute around 30% of the GDP and 50% of the country’s exports. Karnataka is home to more than 8.5 lakh MSMEs, which provide employment to over 55 lakh people. The state has invested about Rs. 4 lakh crore in the last 5 years and is in 5th place in the country in terms of industrial growth. Karnataka’s top 5 major industries are food processing, electronics, readymade garments manufacturing, automobile, and chemical plants. Bengaluru’s Peenya Industrial Area is home to more than 3,500 MSMEs from different sectors, making it one of Asia’s largest Industrial areas. The majority of the MSMEs in Peenya are in the light engineering and auto components sector.

Karnataka has been focusing on economic and industrial development with a progressive outlook for changing needs over the years. In today’s era of globalisation, there are several challenges that small businesses face as they try to establish themselves and succeed in a competitive market. They require entrepreneurial skills, credit, technology adoption, quality production, and a competitive edge to stay ahead in the market. It involves using digital marketing, online platforms, and other digital resources to increase visibility, engagement, and customer base. 

Karnataka, the largest state in South India, has demonstrated strong growth over the years. According to the economic survey released on 5th March 2022, Karnataka’s per capita Gross State Domestic Product of Rs 3.05 lakh, estimated for the financial year 2022, is the highest among the top five states. The state is generating 11% of all formal jobs in the country while contributing 8.7% to the national GDP in FY 22 and constituting less than 5% of the population. 

Having secured 46 geographical indications (GI) tags, Karnataka is one of the most recognised states in India. This is a testament to the immense diversity of Karnataka’s landscape and the unique products each region has to offer. The GI tags are a sign of authenticity and quality and signify the distinctiveness of the products produced within Karnataka or identify a product as originating from a specific area. Some of these products are Molakulmuru sarees, Ilkal Sarees, Dharwad Peda, Nanjangud Rasabale bananas, Mysore Agarbathi, Coorg Orange, Udupi Mallige, Bidar Bamboo handicrafts, Mysore Sandal Soap, Kinhal Toys, Channapatna Toys, etc.

Major Industries in Karnataka

Electronics and IT Industry

Karnataka is the hub for electronics manufacturing. The state is involved in producing various products such as consumer electronics, home appliances, IT products, auto components, and components required in the IT industry. The state government of Karnataka is providing several incentives to MSMEs in the Electronics and IT Industries in order to promote the growth of the industry. These incentives include tax benefits, subsidies, and loans to support the development of new projects. 

MSMEs in Karnataka are also taking advantage of the increasing demand for IT services in the state. According to a report by the Karnataka government, the IT industry in the state has seen steady growth over the past few years. Karnataka’s capital city Bangalore has the sobriquet of Silicon Valley of India, with total IT exports worth $58 billion during the financial year 2021–22, employing 1 lakh people directly and 30 lakhs indirectly. The state has more than 4,000 IT companies, including global technology giants such as Microsoft, IBM and Oracle, employing over 3.7 lakh people. 

The Government has also implemented a number of initiatives to boost the IT industry in the State, including setting up dedicated IT parks, providing financial assistance to IT startups, and investing in research and development. The IT industry has also been a major contributor to the State’s economy, accounting for 20.2% of Karnataka’s gross domestic product in 2022. These services have helped MSMEs in Karnataka to increase their market presence and reach out to more customers. 

Automobile Industry

Karnataka is the auto innovation hub of India, being home to leading global companies such as Mercedes (Daimler), Bosch, Toyota, Volvo, Scania, etc. It is also India’s 4th largest manufacturer of automobiles, accounting for 8.5% of the total national automobile output. The State is also home to Reva Mahindra, the country’s first indigenously built electric car, and 45+ EV innovation start-ups. These companies, as well as several smaller companies, rely heavily on MSMEs for components and services. 

MSMEs are also involved in the production of automotive components, parts and accessories for a wide range of vehicles, including cars, motorcycles, trucks and buses. These MSMEs are highly specialised and have established a strong foothold in the state’s automotive industry. MSMEs in the Automobiles Industry in Karnataka also helped the industry grow and become more competitive in the global market. They have brought in new technologies, improved efficiency, and provided employment opportunities for the people of the state. This has resulted in a boost to the economy of the state.

Textile And Apparel

Karnataka is one of the most prosperous states in India, with a vibrant economy and a flourishing textile and apparel industry. Known for its high-quality fabrics and apparel, Karnataka is one of India’s leading producers of cotton and silk. The state is also home to some of the oldest spinning mills in the country, and the industry has benefitted from a number of government policies, such as the Karnataka Textile and Garment Policy, which envisages an ambitious investment outlay of INR 15,000 crore and aims to generate employment to 5,00,000 people during the policy period i.e. 2018 to 2023. 

There are a large number of textile and apparel MSMEs in the state that are engaged in the production of various fabrics and garments. Textile and apparel MSMEs produce a wide range of fabrics, such as silk, cotton, wool, jute, and synthetic fibres. The garments produced by them include sarees, salwar kameez, and kurtas. They also produce a range of home furnishing products such as curtains, bed sheets, and cushion covers. The textile and apparel MSMEs in Karnataka are largely dependent on manual labour and small-scale machinery for their production. According to the World Bank, an estimated 70-90% of MSMEs in Karnataka are family-run and typically employ less than 10 people per business.

Exports in Karnataka in 2022

Karnataka is an export powerhouse in India with a wide range of trade opportunities. With the state’s robust infrastructure and strategic location, it is well-positioned to expand its current export capacity and become a global leader in exports. Now, let’s look closer into Karnata’s export in 2022. Karnataka was one of the largest exporters in India in 2022. This is due to its strong presence in the IT sector and its strategic location in the southern part of the country. The state is home to some of the most advanced IT parks and technology hubs in the country, making it an ideal destination for foreign firms looking to invest in India. 

In the last few years, Karnataka has seen a surge in exports from the IT, electronics, automobile, and manufacturing sectors. Karnataka has also seen a notable increase in exports of pharmaceuticals, textiles, and agricultural products. This is due to the state’s strong presence in the agro-processing industry and its proximity to the ports of Goa, Mangalore, and Kochi. The state is also home to the Bangalore International Airport, making it a major hub for international trade. Moreover, Karnataka is known for its high-quality products, which are exported to countries around the world. In FY22, the total exports from Karnataka stood at $25.87 billion. In overall exports, sectors such as petroleum products, iron & steel and organic chemicals were the key contributors. According to an EXIM Bank report, by 2024-25, Karnataka’s merchandise exports can reach $35.3 billion from 16.6 billion, and software and services exports can reach $150 billion by 2024-2025, up from $83.9 billion in 2019-2025. 

MSMEs have been growing rapidly in Karnataka, with over 6 million MSMEs operating in the state. MSMEs in Karnataka play a crucial role in boosting exports and making the transition smoother. These small businesses are responsible for a large portion of the export market and contribute significantly to India’s overall economic growth. MSMEs in Karnataka provide a wide range of goods and services to international customers and are often more flexible and responsive to the needs of customers than larger companies. This makes them well-suited to meet the fast-changing demands of foreign markets.

However, many MSMEs in Karnataka still face certain challenges that prevent them from growing to their full potential. Many of these challenges are related to the lack of access to reliable financing, the lack of a supportive legal and regulatory environment, and the difficulty of entering new markets. These challenges are far from insurmountable and can be addressed through better access to capital, adopting appropriate management practices and ease of doing business. With the right steps, MSMEs in Karnataka can play an even more important role in the Indian economy.

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Challenges faced by MSMEs in Karnataka

1. Lack of Access to Capital 

Karnataka is relatively underbanked compared to its neighbouring states. Businesses in Karnataka receive a lesser share of bank credit relative to their economical size, as many firms within the MSME sector are credit constrained. Karnataka’s share of loans sanctioned under the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) during FY 2020-21 is 9.2%, higher than its share of GDP. This shows that banks are ready to provide credit to constrained firms if part of the credit risk is shared by the Government. Yet Karnataka’s share of credit given through the Emergency Credit Line Guarantee Scheme (ECLGS) is lower than its GDP share. The State Government should encourage banks and NBFCs through the State Level Bankers Committee in India (SLBCs) to provide credit to businesses affected by Covid under ECLGS. The State Government can also devise a credit-linked subsidy scheme to encourage borrowing to small and medium businesses in specific sectors that are identified as highly credit constrained. 

2. Lack of Proper Management Practices 

Employees are the most important part of any business, and having a productive workforce is essential to the success of any organisation. Skill development support and streamlined management practices can boost productivity for businesses across the board but are especially necessary for MSMEs to flourish.

According to a report from the Reserve Bank of India, imparting training on management practice systems can improve the decision-making capabilities of existing and potential entrepreneurs resulting in higher productivity and profitability. These programmes are of short duration, and the curriculum is designed based on the needs of the industry and is customised if required by the clients. 

By implementing good management practices, businesses can create an environment that encourages employees to be as productive as possible.  The State Government should hold workshops and training programs to impart management practices based on simple principles of operation management to small business owners and entrepreneurs. 

3. Ease of doing business 

Karnataka’s rank on the ease of doing business index fell from 8th position in 2017 to 17th position in 2019. Reducing the regulatory burden and the compliance costs of small businesses would facilitate a business-friendly environment. Another hindrance in the growth of small businesses is the applicability of stringent labour laws to becoming medium-sized businesses. The Karnataka Government can amend the threshold for labour laws by increasing it to 300 workers like other states such as Rajasthan and Gujarat. The Government of India released a draft MSME policy. It has proposed 8 ‘action areas’ to overhaul the sector: intergovernmental role and responsibility, legislation/regulatory framework for MSMEs in India, access to finance/ financial assistance for MSMEs, technology upgradation, knowledge management, ease of doing business, skill development and exit code. Implementing this policy will significantly contribute to the growth of the state’s MSME sector.

4. Fall in Indian Rupee

Import activities of the MSMEs in Karnataka have been affected due to the fall of the Indian rupee to 81.94 against the dollar, as per a report by The Hindu. The raw material import bills of the MSME sector in Karnataka have increased at least 20% to 25% in the last six months as the rupee continued to slide, suggested data from trade bodies. The import duty component has also increased with the rise in import costs. Since the quantum of money involved has increased, bank transaction charges have risen too. There is a surge in logistics and landing costs, mostly paid in dollars, by 5-10%. Not only that, the finished products attract Goods and Services Tax (GST) in local markets. 

The fall in Indian Rupee has had a tremendous impact on MSMEs in Karnataka. It led to a rise in the cost of production, especially for those MSMEs that import raw materials from abroad. This, in turn, has caused a rise in the cost of products or services offered by these businesses, further impacting their profits. Additionally, MSMEs in Karnataka have been unable to take advantage of the global market due to the unfavourable exchange rate. It also made it difficult for MSMEs to repay their debts and loans, as the cost of borrowing has increased.


Karnataka is one of the most progressive and prosperous states in India, with a rich cultural heritage. It has a strong industrial sector and is home to some of India’s leading IT companies. Karnataka has a strong agricultural sector and is one of the largest producers of coffee, rice and tobacco in the country. The state is also known for its silk, gold and sandalwood exports. Karnataka is an important contributor to the Indian economy and plays a vital role in the country’s overall development. It is a vibrant state and has a lot to offer to tourists, students, investors and entrepreneurs. 

Karnataka is a state that already has a strong MSME base of 70,000 registered companies with a 17,000-strong factory and heavy engineering base. Accelerating this sector requires more assistance and funding that can help MSMEs expand and take their business to the next level. Through the provision of timely and affordable credit, Non-Banking Financial Companies (NBFCs) can provide much-needed financial support to MSMEs in Karnataka, facilitating their growth. 

NBFCs like Kinara Capital can provide a range of services that help MSMEs in Karnataka to manage their finances more efficiently. Headquartered in Bengaluru, Kinara Capital is one of the trustworthy lending platforms, and MSMEs can opt for a Business Loan. Small Business Owners can avail of fast & flexible loans from ₹1 lakh to ₹30 lakhs available within 24-hours from this leading last-mile lending firm. With its mobile-first approach, the company’s myKinara App is available in vernacular languages. Any registered MSMEs from manufacturing, trading and services sectors that need funding for their growth can opt for collateral-free Business Loans from Kinara Capital. 

Kinara has designed a special program called HerVikas for women MSME entrepreneurs to empower women-owned businesses. Through this program, women MSME entrepreneurs can get a 1% discount on interest rates without a separate application. Also, we have a dedicated customer support team available between Monday – Friday (9.30 AM – 6.00 PM) at our toll free number 1800-103-2683 for any questions or assistance. This ensures that entrepreneurs can get the help they need throughout the loan process.


1. What are the benefits of registering as an MSME in Karnataka? 

The benefits of registering with the MSMEs in Karnataka include access to government subsidies, loans, tax benefits, and other assistance. 

2. What documents do I need to submit for myKinara Business Loan? 

To apply for an Unsecured Business Loan from Kinara Capital, you will need to provide documents such as identity proof, business registration documents, income proof, bank statements, KYC documents and other financial documents.

3. What are the criteria for getting a myKinara Business Loan?

To be eligible for a Business Loan from Kinara Capital, you must be registered as an MSME in your respective states, and the minimum monthly turnover should be greater than Rs. 50,000 and less than Rs. 2 crores.

4. What types of businesses are eligible for a myKinara business loan in Bangalore?

Registered MSMEs in manufacturing for 1+ years, trading or services sectors for 2+ years can apply for Business Loans at Kinara Capital. 

5. How long does it take to get a collateral-free business loan in Bangalore? 

The time taken to get a collateral-free business loan in Bangalore will vary depending on the lender. Kinara Capital provides Unsecured Business Loans within 24-hours. Registered MSME owners can evaluate their eligibility for a loan in just 1-minute by starting the digital-first application process on the Kinara Capital website or by downloading myKinara App.

Check your Eligibility in 1-minute!

Check your Eligibility in 1-minute!

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