The Union Budget 2025 has unveiled a ₹20 lakh crore credit allocation aimed at bolstering India’s Micro, Small, and Medium Enterprises (MSMEs) sector. This allocation represents a significant increase compared to the ₹22,138 crore earmarked in 2024, signaling the government’s renewed commitment to revitalizing a sector that continues to grapple with post-pandemic recovery challenges. The initiative focuses on enhancing access to credit, improving infrastructure, and fostering entrepreneurship to drive growth in a sector that contributes over 30% to India’s GDP and nearly 50% of the country’s exports.
Major Credit Initiatives for MSMEs
The budget introduces a series of measures aimed at expanding access to finance for MSMEs. Among the most impactful announcements is a revamped credit guarantee scheme that offers collateral-free term loans. This initiative is supported by a pooled credit risk fund, providing guarantees of up to ₹100 crore per applicant. Finance Minister Nirmala Sitharaman emphasized that these efforts are designed to help MSMEs become more self-reliant and globally competitive.
Additionally, public sector banks are developing advanced digital credit assessment tools. These tools will evaluate MSMEs based on their digital footprints, moving away from traditional asset-based lending. While this could expedite loan approvals and increase financial inclusion, experts have noted that smaller businesses with minimal digital infrastructure might still face challenges.
Another key measure involves raising the MUDRA loan limit for Tarun-category loans from ₹10 lakh to ₹20 lakh, providing enhanced financial support to entrepreneurs with proven repayment track records. Furthermore, the Trade Receivables Discounting System (TReDS) platform has been expanded. The turnover threshold for mandatory buyer registration has been reduced from ₹500 crore to ₹250 crore, bringing in 22 new Central Public Sector Enterprises (CPSEs) and over 7,000 companies, which will help MSMEs gain timely access to working capital.
MSMEs as a second engine
▪️Over 1 core registered MSMEs employing 7.5 crore people and generating 36% of our manufacturing have come together to position India as a global manufacturing hub.
▪️These MSMEs are responsible for 45% of our exports
▪️The investment and turnover… pic.twitter.com/dTmCru5zUV
— PIB India (@PIB_India) February 1, 2025
Infrastructure and Support Expansion
To support MSMEs beyond financial measures, the Small Industries Development Bank of India (SIDBI) will open 24 new branches this year. This initiative aims to provide localized financial support, particularly in industrial hubs and underdeveloped regions.
In a significant move to promote international trade, e-commerce export hubs will be established through public-private partnerships. These hubs will offer regulatory and logistical support, helping MSMEs tap into global markets. Additionally, to enhance product safety and quality, the government will establish 50 food irradiation units and 100 NABL-accredited testing laboratories for multi-product MSMEs.
Mixed Reactions from Industry Stakeholders
While many stakeholders have welcomed the initiatives, concerns over implementation and compliance persist. Regulatory hurdles, including complex approval processes and delays in accessing funds, remain significant challenges. Critics have also highlighted the 45-day payment rule, which mandates timely payments to MSMEs but has reportedly caused strain for suppliers facing extended capital cycles.
Sector-specific concerns have also emerged. In industries such as textiles and construction, large buyers often circumvent the 45-day payment rule through contractual loopholes, further complicating cash flow for small suppliers. Analysts have also pointed out that rural and smaller MSMEs may find digital credit assessments challenging due to a lack of access to reliable digital infrastructure.
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A Step Toward Self-Reliance
The government’s overarching goal with these measures is to strengthen the MSME sector’s role in India’s “Make in India” initiative, promoting sustainable growth and export competitiveness. MSMEs in key industries, including renewable energy, agribusiness, and technology, stand to benefit significantly from the budget’s focus on credit expansion and infrastructure development.
As stated in 2021 by Union Minister Shri Narayan Rane during the launch of the India Export Initiative, MSMEs were projected to potentially contribute up to 50% of India’s exports by 2027. With the new measures introduced in the 2025 budget, there is renewed hope that this target can be achieved through sustained growth and support. However, the success of these initiatives will ultimately depend on streamlined execution, reduction of bureaucratic red tape, and consistent support for both financial and non-financial needs.
Looking Ahead
The 2025 budget has laid a robust foundation for the MSME sector’s growth trajectory. By addressing financial access, infrastructure development, and regulatory challenges, the government aims to create a dynamic ecosystem where small businesses can thrive, scale operations, and bolster India’s economic resilience in the face of global uncertainties.
