Enhancing MSME Competitiveness: Expectations From Budget 2025

India's $3.7 trillion economy depends heavily on its Micro, Small, and Medium-Sized Enterprises (MSMEs). About 24.14 crore individuals are employed by the approximately 5.70 crore MSMEs that are registered on the Udyam Registration Portal as of December 26, 2024. By 2025, the MSME sector might account for up to 45% of India's GDP, according to the Reserve Bank of India (RBI). For startups and MSMEs, the budget can build a strong environment that fosters innovation, digital transformation, and long-term success. Such sectors will be able to make a substantial contribution to India's $5 trillion economic ambition thanks to this all-encompassing strategy.

The upcoming budget 2025 presents a crucial chance to strengthen MSMEs and startups, which are essential to India's economic advancement. It is anticipated that by 2025, NBFCs will use data-driven physical lending models and cooperative agreements to expand MSMEs' access to financing, especially in rural and semi-urban areas. Although the newly implemented credit guarantee program is a positive move, a working capital loan guarantee is desperately needed to tackle liquidity issues, particularly for MSMEs running routine business activities.

"The upcoming budget offers a critical opportunity to empower MSMEs and startups, which are central to India's economic growth. While the recently introduced credit guarantee scheme is a welcome step, there is an urgent need for a Working Capital Support Guarantee to address liquidity challenges, especially for MSMEs managing day-to-day operations. Export-oriented MSMEs, contributing nearly 49% of India's exports, could particularly benefit from tailored credit access and interest subsidies. Simplified compliance structures and faster grievance redressal systems would further reduce operational burdens and improve efficiency," as per Mukul Goyal, Co-Founder of Stratefix Consulting.

To enable MSMEs to thrive in the digital economy, the government should launch a Digital Acceleration Fund, providing interest-free loans or grants for AI, IoT, and cloud adoption. Additionally, initiatives like the Skill 2.0 Initiative and Skill Credits could bridge the growing skill gap by encouraging MSMEs to invest in upskilling their workforce in emerging technologies. These measures would enhance employability and help MSMEs compete globally, as per Mukul Goyal.

"Fostering innovation is equally crucial. Offering R&D tax credits and establishing sector-specific innovation hubs, particularly in manufacturing and agri-tech, can promote entrepreneurship and sustainable growth. These hubs could provide resources, mentorship, and funding for startups, especially in Tier-2 and Tier-3 cities, boosting local economies. Addressing GST compliance challenges is also essential. Easing norms, raising the mandatory e-invoicing threshold, and harmonizing input tax credits would help MSMEs manage cash flows better. Revising GST slabs for essential raw materials would further reduce input costs and improve margins," he further added.

Simplified Tax, Easy Credit and Structured Vocational Skills

As per Dinesh Gulati, COO, IndiaMART InterMESH Limited, "In order to create the required growth momentum, a few key enablers for MSMEs are essential. There is a further need to simplify the tax structure, create more transparency that will help reduced compliance processes and cost involved for MSMEs. Last decade has been Start-up decade, in order to boost start-up eco system, offering a tax holiday or subsidized tax structure to newly formed MSMEs / Start-up will be quite helpful, this can be sector specific as well namely Technology, EV / Alternate energy etc. MSMEs that invest in technology, e-platforms or other tech tools should be given tax breaks in order to improve the digital transformation at a better speed."

"The traditional method of BLR (Bank Loan Ratings) does not hold right for smaller businesses as they don't have robust financial records to present, thus attracting high-interest rates and frequent rejections. Transparency in lending practices and collateral free loans can also help in providing much needed credit relief and financial support. The government's upcoming credit guarantee scheme, aimed at providing loans of up to Rs 100 crore without the need for collateral, is a positive initiative in this direction. The scheme will help in improving MSMEs' growth potential by making financial resources more accessible without requiring guarantees or third-party collateral. Pooling credit risks for MSMEs through a self-financing guarantee fund will positively impact the sector by enhancing access to finance, enabling larger loans without collateral, promoting financial stability, and encouraging growth," Dinesh Gulati further added.

The internship program and employment linked incentive announced in the last budget seem to have created the desired impact. India being a young country, to drive the demographic dividends, there is an acute need to enhance vocational skills. MSMEs need continued govt initiatives to drive skill development and employment generation programs, he commented.

Healthy recovery in credit growth, strong infrastructure spending, PLI scheme aiding manufacturing however slow GDP growth in Qtr 2 & 3, high inflations and lot of geo-political uncertainties has made this year a mixed bag. However, India remains the highest GDP growing country in the world.

By addressing these critical areas, the budget can create a robust ecosystem for MSMEs and startups, driving innovation, digital transformation, and sustainable growth. This comprehensive approach will enable these sectors to contribute significantly to India's $5 trillion economy vision.