2025 Budget Impact on MSMEs
1 February, 2025
Synopsis
- Investment and turnover limits for MSMEs increased by 2.5x and 2x to support scalability and better capital access.
- The Union Budget 2025 highlights higher credit guarantees, ₹10,000 Crore Fund of Funds and new micro-enterprise Credit Cards.
- The government will provide dedicated schemes for key industries and an Export Promotion Mission for global integration.
The Union Budget 2025 brings significant policy measures aimed at strengthening the Micro, Small, and Medium Enterprises (MSME) sector. With over 5.7 crore MSMEs playing a crucial role in India’s economy - contributing 36% to manufacturing and 45% to exports - these new reforms seek to provide better credit access, technological upgrades, and growth incentives.
Here’s a look at the MSME budget allocation and budget impact on MSMEs:
Budget Highlights for MSMEs
1. Revision in MSME Classification Criteria
The investment and turnover thresholds for MSME classification have been increased by 2.5 and 2 times, respectively, to facilitate scalability, technological advancement, and improved access to capital. This will enable MSMEs to expand operations while still claiming the benefits of MSME government policies meant for the sector.
2. Strengthened Credit Guarantee Cover
Access to credit remains a key focus area, with expanded credit guarantee cover across different segments. To ensure greater access to credit, the budget proposes enhancements to the Credit Guarantee Scheme:
For Micro and Small Enterprises: The guaranteed cover has been increased from ₹5 Crore to ₹10 Crore, unlocking additional credit worth ₹1.5 Lakh Crore over five years.
For Startups: The guaranteed cover has been increased from ₹10 Crore to ₹20 Crore, with a moderated 1% guarantee fee for loans in 27 focus sectors vital for the Aatmnirbhar Bharat initiative.
For Exporter: Term loans up to ₹20 Crore will receive guarantee support, enabling growth in overseas markets.
3. Introduction of Credit Cards for Micro Enterprises
The government will introduce a customised financial product, the Credit Card for Micro Enterprises, offering registered enterprises a ₹5 Lakh limit on the Udyam portal. In the first year, 10 Lakh such cards will be issued to ensure seamless access to working capital, complementing MSME tax benefits designed to ease the financial burden on smaller businesses.
4. Expansion of the Fund of Funds for Start-ups
Building upon the success of existing Alternative Investment Funds (AIFs), the government has announced a new ₹10,000 crore Fund of Funds to support high-growth start-ups and entrepreneurship. This expands the scope of government-backed AIFs and supplements the existing ₹91,000 crore fund, boosting small business funding in budget to foster innovation and growth.
A Deep Tech Fund of Funds will be explored to support and catalyse the next generation of startups as part of this initiative.
5. Scheme for First-Time Entrepreneurs
A new scheme aims to support 5 Lakh first-time entrepreneurs from women, Scheduled Castes (SC), and Scheduled Tribes (ST). The scheme will provide term loans of up to ₹2 Crore over five years, along with online capacity-building programs to enhance entrepreneurial and managerial skills.
6. Focus on Labour-Intensive Sectors
The budget outlines special measures for labour-intensive industries, recognising MSMEs' role in employment generation. In this context, a detailed MSME sector budget analysis highlights these areas:
Footwear and Leather Industry: A dedicated scheme will support design capacity, component manufacturing, and quality enhancement, generating 22 lakh jobs and ₹1.1 Lakh Crore in revenue.
Toy Industry: Under the ‘Make in India' initiative, a structured plan will foster high-quality, sustainable, and innovative toy production, strengthening India’s position as a global toy hub.
Food Processing: A National Institute of Food Technology, Entrepreneurship and Management will be established in Bihar to boost food processing in the Eastern region, creating value addition opportunities for farmers and employment for youth.
7. National Manufacturing Mission & Clean Tech Manufacturing
The budget introduces a National Manufacturing Mission, aligning small, medium, and large enterprises with the Make in India initiative. With a special emphasis placed on Clean Tech manufacturing, the mission aims to:
Improve domestic value addition.
Develop an ecosystem for solar PV cells, EV batteries, wind turbines, electrolysis systems, and grid-scale batteries.
Strengthen clean technology manufacturing, supporting India's climate-friendly industrial transition.
8. Export Promotion Mission
An Export Promotion Mission will be launched to further integrate MSMEs into the global economy. Jointly driven by the Ministries of Commerce, MSME, and Finance, the initiative will focus on:
Easier access to export credit.
Cross-border factoring support.
Addressing non-tariff barriers for MSMEs in international markets.
The Union Budget 2025 introduces transformative measures that could shape the future of the MSME sector. The budget presents a comprehensive roadmap for strengthening MSMEs, with targeted tax reforms for MSMEs, credit access, and sectoral growth initiatives. These announcements aim to bolster India’s position as a global manufacturing hub.
With these measures, MSMEs are set to benefit from improved financial inclusion, enhanced productivity, and greater export competitiveness, reinforcing their role as a critical pillar of India’s economic landscape.
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