Budget 2025: Implementing Past Proposals Key For MSMEs

As the growth rate slows down, India’s economy is expected to grow at 6.4 per cent this financial year, significantly lower than last year’s 8.2 per cent. So, the MSME industry is expected to be one of the key focus areas for Finance Minister Nirmala Sitharaman in her forthcoming Union Budget. 

Among other things, the government is expected to come up with a Rs 100 crore scheme to aid the cash-strapped MSME sector. For many MSMEs, survival has become a challenge with the steady rise in costs of raw materials, tougher credit norms and geoeconomic risks.  

“To promote entrepreneurship in rural India, the government is very keen to lend more to rural areas through its various schemes,” news agency PTI quoted Financial Services Secretary M Nagaraju saying this on the sidelines of an event.  

"We are likely to come up with a scheme, which was announced by the Finance Minister in her last Budget that could provide loans up to Rs 100 crore without guarantee if they are already having the enterprise,” he said.

The proposal was floated in last year’s Budget. 

"For facilitating term loans to MSMEs for purchase of machinery and equipment without collateral or third-party guarantee, a credit guarantee scheme will be introduced. The scheme will operate on the pooling of credit risks of such MSMEs. A separately constituted self-financing guarantee fund will provide to each applicant a guarantee cover up to Rs 100 crore, while the loan amount may be larger," Sitharaman had announced in the Budget 2024-25.

However, the fund has not got any shape yet.

Last Budget's Proposals Are Yet To Be Implemented

While the Finance Minister is expected to carve out fresh measures to support the sector, what the MSMEs urgently need is the time-bound implementation of proposals that have already been announced.  

“There are enough policies, what these units, especially the micro and small ones which form the chunk of the cohort, require is proper execution of the proposals already on paper,” an analyst with a research agency told The Secretariat.

In her last budget, for example, Sitharaman had also proposed an in-house credit assessment for MSMEs by public sector banks to ease credit supply to MSMEs but most banks have no concrete mechanism in place for the same.

Besides, the Reserve Bank of India’s non-performing assets (NPA) guidelines, mandating banks to raise an early warning on any delayed payment of interest or principal amount is continuing to hurt the MSME sector. A red flag is raised in case of a delay of 30 days, after which an account is treated as a special mention account (SMA).

Though the RBI held consultations with MSME associations and proposed to come up with a fund to provide an additional 10 per cent loan for the revival of the units, it has failed to provide any relief to the units — a pre-Budget note that the Federation of Indian Micro and Small and Medium Enterprises (FISME) circulated and shared with the Finance Ministry mentioned. “The response is not even close to a halfway house,” the note pointed out.

That apart, SIDBI within three years was also mandated to open new branches to expand its reach to serve all major MSME clusters and provide direct credit to them.

“The MSME sector is continuing to struggle, liquidity crunch being one major issue. Though the last Budget touched upon several issues, most of them continue to remain on paper and there has been either no implementation or inadequate execution,” Anil Bhardwaj, secretary general of FISME told The Secretariat.

Bhardwaj added that several MSMEs have had to shut down due to liquidity issues.

Bank Credit To MSMEs

Even as banks meet the 15 per cent lending target for MSMEs, the credit is not distributed evenly.

Multiple sources said that often banks tend to meet the lending target by providing credit to a “few” with “good credit history.”

“Banks have their own issues as they need to keep an eye on their loans and it is also a fact that due to multiple reasons, many MSMEs fail to repay on time but that is not wilful default and must be treated differently,” said a promoter of a medium enterprise on condition of anonymity.

A senior government official said that this year’s Budget could look at announcing incentives, especially for MSMEs which are into exports, as uncertainty has risen. With US President-Elect Donald Trump gearing up to take charge later this month, there are apprehensions of a fresh tariff war, which could have a severe impact on several countries including India. 

MSMEs’ Share In Total Exports 

The share of MSMEs in total exports has been going down. In 2020, it was 49.75 per cent. But in 2023-24, the figure was lower at 45.73 per cent. Though the share of exports for MSMEs showed some recovery since 2023, it has not yet reached the pre-Covid level. 

“Now with fresh geo-political and geoeconomic challenges, the export sector will have to deal with new challenges and the worst impacted will be the MSMEs. The government is aware of the challenges and will do the needful to support these units,” an insider said.

Amid the cash crunch, MSMEs will also have to start adopting cleaner energy—this is expected to throw up its own challenges. The adoption of green energy will be an important factor in expanding future exports of the MSMEs. 

However, this would require sizeable investments and funding through Budget allocations.

The Centre could consider carving out an apex body to handhold the country’s MSME industry as they adopt clean and green energy. Importantly, the body will support MSMEs financially in transitioning towards green energy.

According to the Economic and Social Commission for Asia and the Pacific (ESCAP), “most MSMEs focus their efforts on survival – short-term profitability, ensuring their day-to-day operations, maintaining revenue and paying salaries.” It added that they rarely have dedicated staff working on environmental performance, including understanding sometimes complex environmental requirements.

Why MSME Support Is Key

The MSME sector, with more than 6.30 crore registered enterprises, accounts for about 30 per cent of the country's GDP. Moreover, the sector fosters entrepreneurship and provides employment opportunities next only to agriculture. 

As on 26.12.2024, as many as 5.70 crore MSMEs, with an employment of 24.14 crore are registered on Udyam Registration Portal and Udyam Assist Platform (UAP). The top states with most number of MSMEs are Maharashtra, Tamil Nadu and Uttar Pradesh contributing nearly 40 per cent of all registered MSMEs in India. 

China’s Economic Growth Engine

China’s economic growth has been primarily supported by the MSMEs. According to China’s National Bureau of Statistics, until 2018, the sector accounts for more than 95 per cent of all Chinese businesses contributing 60 per cent of the GDP.

Till 2021, about 80 per cent non-governmental employment was provided by SMEs in China.  

India, with an eye on pushing economic growth, therefore needs to reboot its MSME sector at the earliest. With an eye on Viksit Bharat and achievement of the developed nation’s status, growth in India’s MSME sector would be a key factor.