Firm Survival and Transition: Does “Up‐or‐Out” Dynamics Exist in Indian MSMEs ?

ABSTRACT This paper examines the survival and transition dynamics of Indian Micro, Small, and Medium Enterprises using a unique 25‐year firm‐level panel dataset from the CMIE Prowess IQ (2000–2024), complemented with cross‐sectional evidence from the Annual Survey of Unincorporated Sector Enterprises. Kaplan–Meier survival curves, cohort survival estimates, Markov transition matrices, and transition‐duration analysis are used to capture firms' evolvement, exit, or stagnation across size categories. We observe steep size‐dependent gradients, that is, fewer than 10% of micro firms from the 2000 cohort survived to 2022, compared with more than half of large firms. Cohort analysis reveals high “infant mortality,” with nearly half of micro and one‐third of small entrants disappearing within 10 years. Transition matrices confirm weak upward mobility: annual micro‐to‐non‐micro moves rarely exceed 10%. Duration metrics highlight sticky trajectories; on average, it takes 5–6 years for micro firms to grow into small firms. Moreover, the regression analysis reveals that larger scale and capital deepening raise the odds of growth and transition, while firm age systematically depresses them. These findings imply that survival is a precondition but not a guarantee of growth, and that access to capital, early scaling, and policy realignment are essential to foster meaningful upward mobility.