Executive Summary

There’s an ancient Tamil proverb that resonates deeply in today’s business landscape: “Pulleeyar puliikka, karungu mudiyum kadhei”, emphasizing that with the right foundation, extraordinary outcomes become achievable. As we stand at the crossroads of global trade realignment and India’s digital transformation, our nation’s 63 million SMEs represent this foundational opportunity — one that could redefine not just our domestic economy, but our position in global value chains.

The convergence of US tariff pressures, technological democratization, and India’s unique demographic dividend has created an unprecedented moment. The question is whether India can carpe-diem, and how quickly we can build the required financial and technological infrastructure to unleash this potential.

The Perfect Storm: Global Shifts Meet India’s Demographic Advantage

The global trade architecture is experiencing its most significant restructuring since the post-war era. US tariff policies have accelerated “friend-shoring” — the strategic relocation of supply chains to trusted partner nations.

For India, this represents a $1 trillion opportunity as global manufacturers seek alternatives to traditional sourcing models.

However, India’s current export share of 1.8% compared to China’s 13% reveals our untapped potential. While India’s MSME exports have grown from ₹3.95 lakh crore in 2020-21 to ₹12.39 lakh crore in 2024-25, reaching 45.79% of total exports, we’re still capturing only a fraction of available opportunities. Companies relocating from China increasingly look at India not just for cost arbitrage,but for innovation capability, skilled workforce, and democratic stability.This opportunity aligns perfectly with India’s demographic reality. With 68% of our 1.46 billion population in the productive 15-64 age group, we’re experiencing the “demographic dividend” that powered China’s rapid growth phase.

This window won’t remain open indefinitely — making swift action imperative for capturing global market share through our SME ecosystem.

The Tier 2/3 Revolution: India’s Hidden Manufacturing Powerhouse

The Tamil concept of “Vidhaiyum aruppum” — the cycle of sowing and harvesting — captures the strategic imperative before us. While metros have been harvested extensively, our Bharat i.e. Tier 2 and Tier 3 cities represent fertile ground for the next growth cycle.

Consider the numbers: 68% of India’s SME manufacturing units are located outside major metros, yet they face a $350 billion credit gap. These enterprises possess unique competitive advantages — lower operational costs, specialized skills passed through generations, and intimate knowledge of regional markets. Coimbatore’s textile clusters, Tiruppur’s knitwear ecosystem, Ludhiana’s sports goods manufacturing, and Salem’s steel processing units demonstrate what’s possible when local expertise meets global demand.

Yet these success stories remain islands of excellence rather than interconnected networks. The digital economy’s projected growth to $1 trillion by 2030 cannot be achieved through metropolitan centers alone. It requires activating the entrepreneurial energy of smaller cities, where English proficiency might be limited but engineering ingenuity runs deep, where global exposure might be nascent but production excellence is generational.

From Vision to Reality: The Infrastructure Imperative

Realizing India’s SME potential requires coordinated action across three critical dimensions:

Policy Innovation: Regulatory frameworks that recognize digital-first SMEs while ensuring appropriate risk management. This includes incorporating digital footprints, streamlined compliance procedures, and tax policies encouraging technology adoption and export orientation.

Our famed India Stack combined with Government initiatives like Digital India, Skill India, Atmanirbhar Bharat are the right steps in this regard.

Financial Infrastructure:
Beyond individual bank offerings, we need ecosystem-wide solutions — standardized APIs for seamless integration, shared KYC databases to reduce onboarding friction, and collaborative lending platforms that distribute risk while increasing access to capital. ULII, promoted by RBI Information Hub is a great beginning in this regard.

Bank-Tech Collaboration:
Traditional competitive mindsets must give way to collaborative models where banks, fintechs, and technology companies work together. Embedded Finance is the way forward here.

Embedded Banking: Building the Digital Silk Route

If the ancient Silk Route connected diverse markets through physical pathways, embedded banking represents the digital silk route — seamlessly integrating financial services into the fabric of business operations.

This isn’t about channels or touchpoints; it’s about making financial services invisible by making them indispensable. For SMEs, embedded banking eliminates the friction that has historically limited their growth.

A textile manufacturer in Erode can access trade finance while managing inventory, receive payments while tracking shipments, and optimize cash flow while planning production schedules — all within their operational platforms. This generates richer data streams enabling more accurate credit assessment, predictive analytics for business planning, and personalized product development.

Our partnership with Zoho exemplifies this transformation. By embedding YES Bank’s financial services directly into Zoho’s ecosystem, we’ve created seamless solutions addressing multiple pain points simultaneously. The results are compelling: SMEs using integrated Zoho-YES Bank solutions report 40% faster invoice processing, 60% reduction in payment collection cycles, and 25% improvement in cash flow predictability. These improvements enable them to take on larger orders, enter new markets, and compete more effectively against established players.

Conclusion: The Zero-to-One Opportunity

The convergence of global trade shifts, technological maturity, and demographic advantage creates conditions that may not recur for decades. Our response must match the magnitude of the opportunity — not just improving existing systems, but reimagining the entire SME ecosystem through the lens of embedded banking, strategic partnerships, and digital-first solutions.

At YES Bank, we’re committed to being more than a financial services provider; we’re a catalyst for SME transformation and are building the digital silk routes that will carry Indian SMEs from local champions to global leaders. It is a privilege for us to undertake this journey with Zoho, an incredibly innovative company founded by the visionary Padma Shri Sridhar Vembu, someone who not only lives this ethos in spirit but also in practice.

The question isn’t whether India can achieve double-digit SME growth; it’s how quickly we can build the infrastructure to sustain it. The foundation is being laid today, and like Lord Ganesha’s blessing, success will follow for those who embrace this transformative journey and lead India towards its Viksit Bharat ambition.