Budget 2025: A game changer for MSMEs and startups

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Budget 2025: A game changer for MSMEs and startups

Tuesday, 04 February 2025 | Manish Singhal

Budget 2025: A game changer for MSMEs and startups

With focus on financial accessibility, technology and market linkages, the budget will strengthen India’s startup ecosystem and boost employment

Micro, Small and Medium Enterprises (MSMEs) are the backbone of India’s economic structure, contributing nearly 30 per cent to GDP, 45 per cent to our exports and generating employment for over 200 millions. The budget for 2025-26 holds much promise for the 5.7 crore MSMEs in India. As India chases its ‘Viksit Bharat’ dream, Agriculture, the MSME sector, Investment and Exports have been identified as the key engines for driving growth. MSMEs account for about 27 per cent of India’s Gross Domestic Product (GDP), positioning themselves as the backbone of economic activity and growth.

Ranging from small-scale artisans and local service providers to growing businesses across rural and urban India, MSMEs are diverse and significantly contribute to industrial output and innovation in India. In line with the government’s recognition of MSMEs as the ‘second engine’ of economic expansion, the 2025-26 Budget introduces key reforms to enhance financial accessibility, technological adoption, and market linkages.

A notable step was the enhancement of the credit guarantee cover for MSMEs from Rs 5 crores to Rs 10 crores, leading to additional credit of Rs 1.5 lakh crore over the next 5 years. By enhancing the investment and turnover limits, the 20.09 million registered MSMEs (19.4 million micro-enterprises, 5,54,000 small enterprises and 52,000 medium enterprises) now have greater and easier access to capital for technological upgradation and to build efficiencies.

Traditionally, MSMEs have battled limited access to affordable and timely credit, inadequate infrastructure, and complex regulations. The increased guarantee cover addresses one of the major pain points for MSMEs and start-ups while the budget’s continued emphasis on skilling promises an ongoing supply of skilled labour.

As of January 2025, India has over 159,000 recognised startups, securing its place as the world’s third-largest startup ecosystem. The special funding options for start-ups and first-time entrepreneurs in the budget are likely to encourage more individuals to start businesses, innovate and generate employment. In this regard, to additional Rs 10,000 crore Fund of Funds Scheme (FFS) and the proposed Deep Tech Fund will provide crucial capital for startups, particularly in AI, Climate Tech, and Agri Tech. Enhanced MSME support and policies will improve the ease of doing business and further accelerate growth for future entrepreneurs.

The new simplified taxation and regulatory framework will attract private capital, which in turn will further accelerate growth. Many MSMEs are labour-intensive. Key industries like leather, and textiles are major employment generators. The focus on improving productivity and quality of the leather industry goods through Government schemes that support design, machinery etc will positively impact the sector’s export potential and generate employment too.

With the Government’s aim to make India a global hub for toys, MSMEs can consider setting up units in identified clusters to create an ecosystem that manufactures world-class toys while promoting Indian toy makers, who can perhaps use the infrastructure in these clusters to explore overseas markets.  Food processing is another sector that has received attention in the budget and which can make the MSME sector in our country more robust. It gives our farmers an opportunity to sell their produce, gives businesses an opportunity to add value and also generates employment in the north-east region which needs more economic opportunities.

The direct tax benefits provided in the Budget will bolster consumption-led demand through enhanced disposable incomes in the hands of taxpayers. This will further give impetus to MSME production and enhance their overall growth and development.  Agriculture is the backbone of the Indian economy and has rightfully received attention in the budget.

Most of our farmers hold small and medium land areas and come under the MSME category. By focusing on 100 districts with low productivity, moderate crop intensity and below-average credit parameters, the farming output will get a boost.

Missions promoting pulse cultivation, and fruit and vegetable cultivation are bound to improve agricultural practices, infrastructure, employment opportunities, access to credit and promote the food processing industry. It will also help develop the backward areas of rural India and curtail urban migration significantly. The substantial increase in credit through Kisan credit cards is also commendable.

India’s traditional textiles have received a lift with the mission to improve cotton production using sustainable practices and technological support. Not just cotton farmers, but the Indian textile industry has a chance to reclaim its past glory, especially with the political upheaval in neighbouring Bangladesh pushing textile units there into a tailspin.

The proposal to transform India Post into a large supply chain across rural India will link up rural artisans to entrepreneurs and markets. While these measures could significantly enhance the growth trajectory of MSMEs and startups, solidifying their role as key drivers of the Indian economy, the need for simpler cross-border payments to enable seamless global trade and include service exports under interest equalisation schemes could further reduce operational hurdles and encourage more units to be set up. 

(The writer is Secretary General, ASSOCHAM, views are personal)

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