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Do Merged Indian SMEs Exhibit Greater Productivity Growth Over 3–5 Years Than Comparable Non-Merged Firms? (Journal of Economics Finance and Management Studies)

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Research paperJournal of Economics Finance and Management StudiesOctober 202610 pages15 min readAadit BhayanaOriginal source
Key number
31.1%
MSME share of India's GDP (2023-24) p.1
What changed
2,007 to 2,186 deals
M&A and private equity deal volume (2022 vs 2024) p.1
Largest segment
over 99%
Micro enterprises share of registered MSMEs p.2

Summary

  • The gross value added (GVA) of MSMEs accounted for 31.1% of India's GDP in 2023-24, rising from 27.3% in 2020-21 and 30.1% in 2022-23.p.1
  • MSMEs accounted for 45.56% of India's total merchandise exports between April and September 2023, representing a major share of national trade.p.1
  • India's total M&A deal volume increased from 2,007 deals worth USD 127 billion in 2022 to 2,186 deals valued at USD 116 billion in 2024.p.1
  • Over 3.16 crore MSMEs were registered on the Udyam Portal by December 2023, with reported jobs exceeding 20.39 crore by mid-2024 across mostly micro enterprises.p.2
  • Credit guarantee cover under CGTMSE for micro and small enterprises was increased from Rs 5 crore to Rs 10 crore in Budget 2025-26 to support business scaling.p.7
  • The Pre-Packaged Insolvency Resolution Process (PPIRP) for MSMEs has seen minimal equity and uptake, with only ten applications admitted in its first three and a half years.p.7

Key insights

  1. Productivity gains from Indian SME mergers are moderate and occur primarily in horizontal, technology-sharing, and adequately financed deals rather than across all transactions.p.1
  2. More than 99% of registered small business entities in India are micro enterprises, creating high sector fragmentation and a strong structural case for consolidation.p.2
  3. Early accounting-ratio studies generally showed flat or declining post-merger operating performance because they lacked matched control groups to filter out macroeconomic trends.p.4
  4. Studies using difference-in-differences and propensity score matching confirm that merged firms achieve higher productivity growth than non-merged peers over a 3- to 5-year horizon.p.6
  5. Current Indian policies successfully improve the efficiency and speed of SME mergers but lack mechanisms to filter for or encourage specifically productive transactions.p.7
  6. Post-merger productivity improvements operate primarily through technology transfer, managerial restructuring, and crossing MSME size thresholds that unlock access to formal credit and export incentives.p.7
  7. Distress-driven acquisitions under the Insolvency and Bankruptcy Code require distinct evaluation benchmarks compared to voluntary strategic mergers.p.8

Topics and entities

M&A and exitsPrivate debt and venture debtPublic funding and grantsRegulationSME finance and lendingCentre for Monitoring Indian EconomyCompetition Commission of IndiaCredit Guarantee Fund Trust for Micro and Small EnterprisesMinistry of Corporate AffairsMinistry of Micro, Small and Medium EnterprisesNational Company Law TribunalReserve Bank of IndiaTrade Receivables Electronic Discounting SystemUdyam Portal

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