India’s micro, small and medium enterprises (MSMEs), which contribute nearly 35% of the country’s manufacturing output and employ an estimated 320 million people, are increasingly facing climate-related disruptions, with extreme heat and flooding emerging as major threats to production, workers and business continuity, according to a new study by WRI India. The report, Resilience of Micro, Small and Medium Enterprises to Climate Risks, based on a survey of 310 MSMEs across industrial clusters in Chennai, Coimbatore and Surat, found that while climate impacts are becoming more severe, most businesses continue to rely on short-term coping measures rather than investing in long-term resilience.
The study found that 92 per cent of MSMEs reported heat stress affecting their business operations, while over 90 pc of enterprises located in flood-hit areas experienced operational disruptions, underlining how climate change is steadily eroding the resilience of India’s manufacturing sector.
“MSMEs are the last-mile connectivity of economic growth and green transitions. Climate change increases risks and presents significant challenges to the MSME sector. This study by WRI India is a critical contribution in terms of providing an in-depth understanding of the vulnerabilities, highlighting the possible solutions and pathways to build resilience,” said Dr Nambi Appadurai, executive director, Climate Resilience Practice, WRI India.
Echoing the need for mainstreaming climate resilience into industrial development, Madhav Pai, CEO, WRI India, said the findings show that strengthening MSMEs is critical not just for protecting businesses but also for sustaining India’s manufacturing ambitions. “As India advances its industrial growth and climate transition agendas, there is a significant opportunity to embed MSME resilience within broader economic and industrial development strategies. Enhancing resilience at the MSME level is not only critical for safeguarding enterprises and livelihoods but also for strengthening supply-chain stability, sustaining manufacturing competitiveness, and supporting India’s long-term economic and development objectives in a climate-constrained future,” he said.
The report notes that climate risks are no longer confined to physical damage caused by floods. Rising temperatures are reducing worker productivity, increasing absenteeism and raising energy costs, while erratic rainfall and flooding are disrupting supply chains, delaying deliveries and cutting off market access. The impacts often extend beyond factory premises, with disruptions to transport, electricity and logistics affecting production across industrial clusters.
Researchers found that 86 pc of enterprises observed rising summer temperatures and 76 pc noticed changing rainfall patterns over the past few years. Chennai and Surat reported greater concerns over flooding, while industries in Coimbatore were found to be more vulnerable to prolonged heat stress.
Floods were found to have severe economic consequences, particularly for micro enterprises that operate with limited financial buffers. Nearly three-fourths of affected MSMEs were forced to temporarily shut operations during flood events, while almost two-thirds reported revenue losses and rising recovery costs. The report says these cascading impacts are often more damaging than the floodwaters themselves, as supply chain disruptions and delayed market access prolong recovery. Nearly 80 pc of the enterprises surveyed reported disruptions to transport, logistics and market connectivity during flood events. Heat, on the other hand, has emerged as a chronic but often overlooked business risk. Nearly eight out of every ten MSMEs surveyed said worker productivity declines during periods of extreme heat, while more than half reported increased absenteeism. Around 41 pc of enterprises also reported heat-related illnesses among workers. Despite these recurring impacts, most businesses continue to treat heat as an unavoidable working condition rather than a risk requiring strategic planning.
The study found that climate preparedness among MSMEs remains weak. Only 13 pc of surveyed enterprises have a business continuity plan, and investments in long-term adaptation measures such as cool roofs, insulation, flood-proofing and climate-resilient infrastructure remain limited. Instead, businesses largely depend on temporary measures such as relocating inventory during floods, improving ventilation or providing drinking water to workers. While 96 pc provide drinking water, only 12 pc have adopted measures such as cool roofs or insulation to reduce workplace heat.
Financial and institutional barriers continue to slow adaptation. Only 21 pc of MSMEs reported having access to emergency funds to cope with climate shocks. More than half were unaware of government schemes supporting resilience, while many of those aware said procedural hurdles prevented them from accessing assistance.
The report describes this as an ‘actionability gap’, where enterprises recognise that climate change is affecting their business but lack the information, technical expertise and financial resources to translate that awareness into meaningful action.
It also warns that climate change is emerging as a systemic economic risk rather than merely an environmental concern. With MSMEs accounting for around 30 pc of India’s Gross Value Added (GVA) and 46 pc of exports, their vulnerability has wider implications for industrial growth, employment and supply-chain stability.
The study recommends integrating climate resilience into industrial development policies through improved climate-risk information, business continuity planning, resilient infrastructure, worker safety measures, easier access to climate finance and insurance, and stronger collaboration between governments, financial institutions and industry associations.
It concludes that strengthening MSME resilience will be essential not only to protect millions of livelihoods but also to ensure India’s manufacturing sector remains competitive as climate extremes become more frequent and intense.