Extreme Weather is Reshaping How India’s MSMEs Operate, Compete and Grow, Finds Survey

Indian MSMEs are highly vulnerable to climate risks because they face a double challenge: high exposure and limited capacity to adapt.

Our research across textile and automotive manufacturing clusters in Gujarat and Tamil Nadu shows that flooding and extreme heat are no longer isolated events, but recurring business disruptions affecting production, workers, supply chains and market access.

Micro and small enterprises are particularly exposed due to limited financial buffers, inadequate insurance coverage, and low preparedness.

Among the 310 MSMEs surveyed, only 13 per cent had a business continuity plan, and just one in five had access to emergency funds. A key finding was that climate impacts often extend beyond physical damage.

Businesses whose factories were untouched still had to shut because roads were inaccessible, supplies were delayed, and workers could not reach workplaces.

We also found an "actionability gap": while MSMEs recognise changing weather patterns, few treat them as strategic business risks requiring long-term planning and investment.

Extreme weather is already reshaping how MSMEs operate, compete and grow. Our findings show that floods and extreme heat are disrupting production, labour productivity, supply chains and market access, while increasing operational costs.

More than 90 per cent of MSMEs in flood-affected areas reported operational disruptions, nearly three-fourths faced temporary closures, and almost two-thirds experienced revenue losses and rising recovery costs.

The impacts vary across regions. In Chennai, MSMEs in Ambattur and Perungudi faced major disruptions during the 2015 floods and Cyclone Michaung in 2023, leading to production stoppages and supply-chain delays.

In Surat, repeated flooding and waterlogging disrupted manufacturing and logistics across key textile clusters.

Heat stress is emerging as an equally serious risk. Across surveyed MSMEs, 78 per cent reported lower worker productivity and over half reported higher absenteeism during extreme heat, alongside rising energy costs and lower efficiency, limiting future growth.

The responses are mostly through short-term coping strategies, rather than long-term planning. For many businesses, the priority is getting through the next disruption, rather than investing in future resilience.

In flood-prone areas, businesses move inventory to safer locations, avoid storing valuable assets in vulnerable areas, and rely on backup arrangements.

Longer-term investments, such as retrofitting facilities or elevating critical assets, remain rare with only 19 per cent of surveyed MSMEs adopting such measures.

The response to heat is similar. Most enterprises rely on low-cost measures such as drinking water and basic ventilation, while structural interventions such as cool roofs, insulation, eat protocols, shaded rest areas or workload modifications remain limited.

A recurring theme was that many MSMEs continue to normalise climate impacts and absorb the losses that come with them.

Overall, Indian MSMEs remain in a coping phase, underlining the need for better access to finance, climate information, and technical support.

Our research suggests that the financial sector is only beginning to engage with the climate risks facing MSMEs.

For smaller businesses, climate considerations are still not part of routine lending or insurance decisions, leaving many to rely on self-financing to cope with disruptions.

Only 21 per cent of MSMEs reported having access to emergency funds for climate-related shocks.

Insurance coverage showed a similar pattern. Most insured businesses were covered for traditional risks, such as fire, assets or health, while climate-related coverage remained limited, particularly among micro enterprises.

There are signs that the financial sector is paying greater attention to climate risks, driven in part by regulatory and ESG expectations.

Limited climate data, affordability concerns, and a lack of tailored solutions, makes it challenging to translate these into products. Closing this gap will be critical to building resilience before disasters strike.

India already has several schemes that could support MSME resilience, from energy efficiency and technology upgrades to credit access and worker welfare.

The challenge is that many smaller enterprises are still unable to benefit from them.

Our survey revealed a clear gap between policy availability and policy access. More than half of MSMEs were unaware of relevant government schemes, while another 30 per cent knew about them, but struggled with complex procedures.

The study shows that resilience cannot rest on MSMEs alone. Businesses need coordinated support through policy, finance, infrastructure and institutions.

MSMEs highlighted the need for climate-risk information, early warning systems and technical guidance, alongside affordable credit, emergency liquidity, and climate-responsive insurance. Ultimately, resilience must be integrated into industrial and economic policy, rather than treated as a standalone climate issue.

The report's central recommendation is simple: building climate resilience among MSMEs requires action at both the enterprise and the ecosystem levels.

For policymakers, that means integrating resilience into mainstream MSME and industrial programmes, improving access to climate information and early warning systems, and making finance and insurance products more accessible for smaller businesses.

For manufacturers, the first step is to recognise climate risk as business risk by assessing vulnerabilities and preparing for disruptions. Protecting workers

through stronger safety measures and climate-adaptive practices will be equally important. Building resilient supply chains will ultimately require greater collaboration across industry and government.