Presenting her eighth consecutive Union Budget, Sitharaman unveiled a slew of incentives to prioritise India’s MSME (micro, small and medium enterprises) sector. The FM didn’t ignore start-ups either; they have been offered funding of Rs 10,000 crore.

“India has one of the largest start-up ecosystems in the world and our endeavour is to become the best,” Sitharaman said, as tables were thumped by ruling party members sitting around her.

Announcing a new "fund of funds" worth Rs 10,000 crore, the FM revealed that alternate investment funds (AIFs) for start-ups had already received commitments of more than Rs 91,000 crore.

Also announced was a move to simplify and streamline the customs tariff structure, addressing duty inversion and promoting domestic manufacturing, value addition and exports. The rationalisation is part of a larger review of the customs rate structure announced in the July 2024 Budget.

Double Booster For MSME Turnover & Investment Limits

The Union Budget announced an increase in the investment limit for MSME classification by 2.5 times, while turnover limits for MSME classification were also doubled. “This will not only reinvigorate the manufacturing sector, scale up and innovate MSMEs, but also provide employment for youth across the country,” Sitharaman said.

The FM announced that the MSME Credit Guarantee Cover would be enhanced from Rs 5 core to Rs 10 crore, while exporter firms would receive term loans of up to Rs 20 crore. In addition, customised credit cards would be introduced for micro enterprises.

“We are together here today to position India as a manufacturing hub and help MSMEs achieve higher efficiencies, technological upgradation and better capital access. This will generate confidence and employment,” the FM said. The customised credit cards for micro enterprises that register on the ‘Udyam’ portal will have a limit of Rs 5 lakh. In the first year, 10 lakh such cards will be issued. 

On MSMEs being recognised as the ‘second engine’ of growth, CCLaw Managing Partner Sandeep Chilana, said: “Budget 2025 pays special attention to MSMEs by increasing the threshold for qualification, as well as by improving credit facilities. Specialised credit cards for MSMEs and setting up a new start-up investment fund are also welcome steps.”

Indian Start-up Ecosystem Third-Largest Globally

A fund of funds for start-ups (FFS) scheme was earlier unveiled in 2016 with a corpus of Rs 10,000 crore, to provide a much-needed boost to the start-up ecosystem, and to enable access to domestic capital.

The FFS scheme does not directly invest in start-ups; instead, all contributions are collated and reside with a SEBI-registered alternative investment fund (AIF), known as ‘Daughter Funds’. It is these funds that invest in Indian start-ups, using equity and equity-linked instruments.

The Indian start-up ecosystem is reported to be the third-largest in the world, with the FM announcing that “the Narendra Modi government’s objective is to become the best”. In course of her Budget speech, she added: “We are also exploring a deep tech fund of funds to catalyse next-generation start-ups.”

There is also a proposal to extend benefits provided under Section 80-IAC to start-ups for an additional period of five years, available to eligible entities incorporated before April 1, 2030.

It may be recalled that in the July 2024 Budget, ‘angel tax’ had been abolished for all classes of investors, in response to repeated requests from concerned stakeholders.

‘Angel tax’ refers to income tax levied on funding raised by unlisted companies (‘start-ups’), if their valuation exceeds ‘fair market value’. The latest benefit has been offered, as start-ups are seen as growth drivers in economic engines, playing an intrinsic part in creating jobs, ideas, products and services.

Creating A Manufacturing Juggernaut

In her speech, Sitharaman also provided working details of benefits accrued under the CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) scheme for MSMEs and start-ups, along with some new proposals.

A number that stood out is that CGTMSE, which provides guarantees to banks for collateral-free loans to micro and small enterprises, has achieved the 1-crore guarantees mark.

It was also announced that for MSEs (Micro and Small Enterprises), the cover has been enhanced from the current Rs 5 crore to Rs 10 crore — translating to an additional credit of Rs 1.5 lakh crore in the next five years.

The fund, launched in 2000, enables collateral-free loans up to a limit of Rs 5 crore to MSEs, with guarantee coverage up to 85 per cent for various loan categories.

The guarantee amount doubled in FY24 to Rs 200,000 crore, the highest-ever in a single financial year, vis-a-vis Rs 104,000 crore lakh crore in FY23 and Rs 56,172 crore in FY22.

In September, MSME Minister Jitan Ram Manjhi had announced an increase in CGTMSE guarantee coverage for women-owned MSEs to 90 per cent, targeting 27 lakh women beneficiaries.

The benefits for MSMEs and start-ups are over and above the sops offered by the PLI scheme that drives the ‘Make in India’ initiative. When added to the bouquet of sustainable, high-technology and value-driven industrial practices announced by the FM earlier in her speech, this Budget could provide a rocket-boost for India’s manufacturing prowess and performance.

Things to watch out for are ground-level rollouts, clockwork implementation and hawk-like monitoring. If that happens, Indian manufacturing could become a juggernaut that would be hard to stop from rolling on.

(The writer is a veteran journalist and communications specialist. Views are personal)