Micro, Small and Medium Enterprises (MSMEs) play a pivotal role in strengthening the structure of the Indian economy by promoting inclusive growth, employment generation, export expansion, and balanced regional development. Recognized as the backbone of the economy, the MSME sector contributes significantly to India’s Gross Domestic Product (GDP), industrial output, and total exports. It acts as a catalyst for entrepreneurship development and innovation, particularly in rural and semi-urban areas, thereby reducing regional disparities and poverty. Despite its substantial contribution, the sector faces several structural and operational challenges, including limited access to institutional credit, technological obsolescence, inadequate infrastructure, intense market competition, and regulatory complexities. This paper examines the economic contribution of MSMEs, analyzes the key challenges hindering their growth, and explores future prospects in the context of sustainable development and global competitiveness. The study highlights that strengthening policy support, improving access to finance and technology, and fostering innovation are crucial for enhancing the resilience and long-term sustainability of the MSME sector in India.