Opinion
The budget gives MSMEs a big boost to help make India self-reliant
Summary
- It lowers financing and other hurdles to help make micro, small and medium enterprises the ‘second engine’ of India’s growth story
Micro, small and medium enterprises (MSMEs) are the backbone of India’s economic structure, contributing nearly 30% to gross domestic product (GDP), 45% to exports and generating employment for over 75 million people. Despite their crucial role, MSMEs have long grappled with financing bottlenecks, infrastructural gaps and slow technological adoption. The 2025-26 budget takes a decisive step to address these structural challenges and fuel MSME growth in line with India’s self-reliance vision.
Enhancing credit availability and financing mechanisms: In line with the government’s recognition of MSMEs as the ‘second engine’ of economic expansion, the 2025-26 budget introduces key reforms to enhance financial accessibility, technological adoption and market linkages.
Also Read: Capital allocation that reaches deserving MSMEs will result in inclusive growth
The government’s vision aligns with broader industry expectations and takes significant strides in bolstering the MSME sector, setting the stage for sustained growth and competitiveness. While there is always room for further enhancements, the budget marks a decisive step in the right direction.
It introduces an expansion in the classification criteria for MSMEs, raising investment and turnover limits by 2.5 and 2 times, respectively. This move aims to incentivize businesses to scale up without fear of losing MSME benefits. Additionally, enhancement of the credit guarantee cover from ₹5 crore to ₹10 crore for MSMEs is expected to unlock an additional ₹1.5 trillion of financing in the next 5 years, addressing one of the sector’s most pressing challenges of limited access to affordable credit.
For startups, the credit guarantee cover has been raised from ₹10 crore to ₹20 crore, with a reduced 1% guarantee fee for loans in 27 focus sectors critical to the Atmanirbhar Bharat goal. The decision to introduce customized credit cards for registered micro-enterprises, with a ₹5 lakh limit, is another significant stride that aligns with the need for improving working-capital availability.
Also Read: How India’s credit guarantee scheme for startups can spur economic growth
A November 2024 ASSOCHAM report, MSMEs Facing Challenges in Doing Business, underscored the importance of transitioning from collateral-based lending to cash-flow-based financing. While the budget does not explicitly mandate this shift, its measures, including enhanced credit guarantees, expanded digital trade infrastructure and targeted supply chain financing, indicate a move towards greater flexibility in MSME credit assessment.
Innovation, digital transformation and infrastructure support: MSMEs are key drivers of technological innovation, but lack of capital and research support has limited their ability to compete globally. The budget expands the Fund of Funds for Startups, committing an additional ₹10,000 crore, over and above the ₹91,000 crore already committed under the Alternate Investment Fund (AIF) framework. This initiative is a step in the right direction to support high-growth startups and MSMEs engaged in cutting-edge industries, such as clean- tech, artificial intelligence (AI) and deep tech.
Further bolstering MSME innovation, the budget outlines a National Manufacturing Mission that includes small, medium and large industries. This mission is designed to provide policy support, technology upgradation, and capacity-building, thus making MSMEs more competitive in domestic and international markets.
Strengthening women entrepreneurship and inclusive growth: Women-led MSMEs often face greater financial and operational hurdles. To address this, the budget introduces a new financing scheme for first-time entrepreneurs from Scheduled Castes and Scheduled Tribes, and women entrepreneurs, that will provide term loans of up to ₹2 crore over the next five years. This initiative aligns with ASSOCHAM’s push for gender-inclusive financial policies, ensuring greater access to finance for women entrepreneurs.
The digital ecosystem and market access expansion: Digital infrastructure remains central to MSME growth, and the budget rightly focuses on expanding financial inclusion through platforms like the Unified Lending Interface (ULI) and Bharat Trade Net (digital trade infrastructure). Expanding market access is another focus area, particularly through e-commerce export hubs set up under a public-private partnership (PPP) model. These hubs will offer MSMEs access to global supply chains, providing logistics, finance and compliance support.
Also Read: India’s drive to globalize Digital Public Infrastructure: Time to take stock
Road ahead—Implementation and policy coherence: The budget for 2025-26 reflects a strong commitment to enhancing MSME growth and resilience, reinforcing their position as the second engine of the economy. The policies introduced provide robust financial backing, technological support and global market integration, but the success of these measures will depend on their effective implementation.
Going forward, fostering collaboration between policymakers, financial institutions and MSMEs will be crucial to make India’s small businesses globally competitive. With sustained reforms, India’s MSMEs can emerge as a global force, contributing not just to domestic employment and industrialization, but also to India’s vision of becoming an economic powerhouse.
The author is president of ASSOCHAM and founder of Sorin Investment Fund.
