{"id":1550,"date":"2026-03-25T07:28:01","date_gmt":"2026-03-25T07:28:01","guid":{"rendered":"https:\/\/www.shdesigns.in\/design\/?p=1550"},"modified":"2026-03-25T07:28:01","modified_gmt":"2026-03-25T07:28:01","slug":"india-wants-msmes-to-innovate-but-most-are-stuck-firefighting-orders-not-building-new-products","status":"publish","type":"post","link":"https:\/\/www.shdesigns.in\/design\/2026\/03\/25\/india-wants-msmes-to-innovate-but-most-are-stuck-firefighting-orders-not-building-new-products\/","title":{"rendered":"\u201cIndia wants MSMEs to innovate, but most are stuck firefighting orders, not building new products.\u201d"},"content":{"rendered":"
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Deep Researched by S&H DESIGNS Team. Copyright \u00a9 2026 S&H DESIGNS. All rights reserved.<\/figcaption><\/figure>\n

\"Hrishikesh<\/h1>\n<\/header>\n
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Hrishikesh S Deshpande<\/h2>\n
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Founder & CEO, S&H DESIGNS | \u201cSchlau & H\u00f6her DESIGNS\u201d | Manufacturing Transformation Architect | 120-Day Embedded Results | Risk-Share Accountability<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n
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March 25, 2026<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n
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NPD for MSMEs: Closing the Funding, Capability & Digital Maturity Gap<\/h2>\n
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Executive snapshot<\/h3>\n

India\u2019s 6.8 crore MSMEs power roughly 30% of GDP, 35% of manufacturing output and 45% of exports, yet most operate with thin margins, low automation and ad\u2011hoc engineering.<\/p>\n

Their NPD ambitions collide with three hard constraints: chronic under\u2011investment in R&D, shallow design capability, and low digital maturity relative to large manufacturers.<\/p><\/blockquote>\n

While innovation economies invest 2.5\u20135% of GDP in R&D, India remains stuck around 0.64%, with private firms and MSMEs especially reluctant to fund the \u201cvalley of death\u201d between prototype and commercially deployable product.<\/strong> At plant level, most small manufacturers still treat CAD seats, simulation, testing rigs or IoT as discretionary capex\u2014nice to have once orders are secure\u2014rather than as the core infrastructure of competitive NPD.<\/p>\n

The good news: India is quietly building the scaffolding MSMEs need\u2014cluster-based Common Facility Centres (CFCs), new Translational Research Centres, and subsidised tech\u2011upgradation schemes that make shared labs, design cells and cloud tools a realistic on\u2011ramp to Industry 4.0\u2011ready NPD. When these are coupled with a disciplined, step\u2011by\u2011step NPD framework such as S&H DESIGNS\u2019 23\u2011step \u201ccook\u2011book,\u201d<\/a> MSMEs can de\u2011risk product bets, cut lead time and participate in higher\u2011margin, design\u2011led value chains.<\/p>\n

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The NPD trap for India\u2019s MSMEs<\/h3>\n

MSMEs are structurally important: they employ nearly 30 crore people and account for about one\u2011third of India\u2019s GDP. Yet most are trapped in a low\u2011innovation equilibrium\u2014running job work for OEMs, chasing short\u2011term orders and firefighting quality issues instead of building proprietary products or platforms.<\/strong><\/p>\n

Systemically, India\u2019s R&D spend is the first constraint. At roughly 0.64% of GDP\u2014versus 2.7% for China and over 5% for Israel\u2014the country underfunds exactly the stage MSMEs struggle with most: piloting, characterisation and scale\u2011up from Technology Readiness Level (TRL) 3 to TRL 7\u20139. The Economic Survey explicitly calls this the \u201cvalley of death,\u201d and notes that without shared translational infrastructure, MSMEs and startups cannot afford iterative prototyping or testing to global standards.<\/p>\n

This macro under\u2011investment shows up inside factories as missing NPD infrastructure: no structured concept reviews, no system\u2011level engineering calculations, weak documentation and trial protocols, and minimal budget for digital tools that could shorten the learning cycle. The result is late design changes, overruns and conservative product decisions\u2014exactly the opposite of what India\u2019s export and PLI ambitions demand.<\/p><\/blockquote>\n

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A three\u2011layer gap: funds, capability, digital maturity<\/h3>\n

A recent CII (Confederation of Indian Industry)\u2011linked assessment of Indian manufacturers shows a clear digital maturity gap: large enterprises average 3.4 on a 5\u2011point scale, medium manufacturers 2.9, while MSMEs lag at 2.4; the bottom quartile falls to 1.9. That gap translates directly into weaker NPD: limited CAD\/PLM usage, no real\u2011time data, and fragmented document control.<\/p>\n

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Most MSMEs have adopted basic digital payments, but use of intermediate and advanced tools\u2014cloud platforms, analytics, IoT, AI\u2014is still at a \u201cnascent stage,\u201d with better adoption only among larger, better\u2011educated owners. Multiple studies converge on the same barrier stack: financial constraints, lack of skills and fear of unclear ROI consistently outrank technology availability itself.<\/p>\n

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Capability is the second layer. Even when OEMs push for innovation, MSME design teams are typically one or two engineers juggling concepting, detailing, documentation, supplier coordination and trials\u2014with no formal process backbone. That makes it difficult to execute the kind of disciplined, multi\u2011gate NPD flow that global customers now expect.<\/strong><\/p>\n

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What disciplined NPD looks like (and why it feels out of reach)<\/h3>\n

The S&H DESIGNS NPD Framework is a 23\u2011step \u201ccook\u2011book\u201d that treats product development as a value stream, not a one\u2011off project. It starts with rigorous concept finalisation and HOD sign\u2011off, then flows through 2D\/3D sub\u2011assembly design, critical bought\u2011out lists, formal engineering calculations, detailed part drawings, BOM and circuit design, all the way to trials, validation, factory visits and as\u2011built specification sheets.<\/p>\n

Each step has a defined owner, quality gate and review\u2014design without review is treated as speculation\u2014and outputs are released via formal Design Release Notes (DRNs) to procurement, production and customers. This \u201cDesign Node\u201d is embedded in a broader Value Stream Networking (VSN) model so that errors are caught in CAD and calculations, not on the shop floor or at the customer\u2019s site.<\/p>\n

For a typical MSME, however, replicating this rigor solo is daunting. It implies access to licensed 3D CAD and simulation, pneumatic\/hydraulic\/electrical design tools, testing rigs, documentation control, and cross\u2011disciplinary reviewers\u2014none of which fit easily into a tight capex budget or a two\u2011person design office. This is exactly where shared labs, cluster COEs and cloud tools change the economics.<\/p><\/blockquote>\n

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Shared labs, COEs and clusters: Capex\u2011light NPD infrastructure<\/h3>\n

India has quietly scaled a powerful institutional form for MSMEs: cluster\u2011based Common Facility Centres (CFCs) under the Micro & Small Enterprises Cluster Development Programme (MSE\u2011CDP). These CFCs provide shared testing, training, design support, raw\u2011material storage and other common services to groups of MSMEs that could not have funded such infrastructure on their own.<\/p>\n

In parallel, the Economic Survey proposes Translational Research Centres (TRCs) and a \u20b91 lakh crore Research-Development-Innovation (RDI) Scheme precisely to underwrite prototyping, piloting and validation for startups and MSMEs, reducing unit\u2011level risk on new technologies. When these are configured as cluster\u2011anchored NPD labs or design cells\u2014co\u2011located with MSME parks\u2014they function like \u201cfractional R&D departments\u201d that small firms can rent by the hour.<\/p>\n

Conceptually, this shared model can cut the effective cost of NPD infrastructure by almost half compared to a standalone in\u2011house lab, and even further when layered with cloud tools and pay\u2011per\u2011use equipment access.<\/p>\n

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The challenge is not the concept\u2014it is usage design. CFC evaluations show that centres thrive when they are co\u2011owned by MSMEs with real skin in the game, professionally governed, and tightly linked to specific cluster roadmaps (e.g., precision machining, automation, textiles) rather than generic \u201ctesting centres.\u201d<\/p>\n

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Low\u2011capex digital tools MSMEs can adopt now<\/h3>\n

Technology economics have shifted decisively in MSMEs\u2019 favor. Cloud CAD, SaaS PLM and basic IoT stacks are now available on subscription, often bundled with training, which sharply lowers upfront investment. Industrial sensor costs have fallen and India\u2019s MSMEs already conduct nearly three\u2011quarters of their transactions digitally via UPI, creating both digital comfort and data exhaust that can feed Industry 4.0 use\u2011cases.<\/p>\n

Layer these tools onto a disciplined NPD process and the payoff compounds: CAD\u2011driven BOMs cut transcription errors, kinematic checks in 3D assemblies prevent costly rework, and structured data collection simplifies future variants and troubleshooting. Even basic IoT on bottleneck machines\u2014tracking OEE or failure modes during product trials\u2014can feed back into design iterations, directly improving product robustness.<\/p>\n

S&H DESIGNS\u2019 broader transformation work shows that when such digital and process disciplines are applied to material flow and layout, manufacturers achieve 30\u201340% throughput gains and up to 40% material\u2011handling cost reductions in under a year\u2014evidence that structured engineering plus digital visibility is a repeatable playbook, not a one\u2011off miracle. The same principles carry into NPD: small, well\u2011chosen digital tools embedded into a proven 23\u2011step framework can dramatically increase first\u2011time\u2011right outcomes.<\/p>\n

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Economic upside and a C\u2011suite action agenda<\/h3>\n

Empirical work on Industry 4.0 adoption by Indian MSMEs finds that when firms do adopt digital tools, competitive advantage and firm performance both improve significantly; the intention to adopt itself has a strong positive path coefficient to competitive advantage. Broader studies of MSME digitalisation confirm higher productivity and growth among enterprises that go beyond payments into platforms, cloud and analytics.<\/p>\n

At the network level, S&H\u2019s agile manufacturing research shows that distributed, digitally\u2011coordinated production networks and micro\u2011factories can unlock first\u2011year ROIs above 40% for mid\u2011market manufacturers by combining operational savings and disruption avoidance. Their material\u2011handling programmes report up to 40% operational cost reductions and dramatic safety and productivity gains at clients like Mahindra, TATA Motors and Norton Grindwell. These are the types of step\u2011change outcomes that become accessible to MSMEs when NPD, layout, and digital tools are treated as an integrated system rather than isolated projects.<\/p>\n

For OEMs and large buyers<\/strong><\/p>\n