The Union Budget 2025-26 acknowledged that MSMEs are the 2nd Engine of Development (1st engine being agriculture, investment and exports being 3 rd and 4th engines respectively) and made the following key announcements.
- Revision in classification criteria for MSMEs
- Credit Cards for Micro Enterprises
- Fund of Funds for Startups
- Scheme for First-time Entrepreneurs
- Focus Product Scheme for Footwear & Leather Sectors
- Measures for the Toy Sector
- Support for Food Processing
- Manufacturing Mission – Furthering “Make in India”
Budgetary Outlay of Ministry of MSME (INR in Crs)
| Financial Year | Budget Estimates | Revised Estimates |
| 2019-20 | 7,011.29 | 7,011.29 |
| 2020-21 | 7,572.20 | 5,664.22 |
| 2021-22 | 15,699.65 | 15,699.65 |
| 2022-23 | 21,422.00 | 23,628.73 |
| 2023-24 | 22,137.95 | 22,138.01 |
| 2024-25 | 22,137.95 | 17,306.70 |
| 2025-26 | 23,168.15 | – |
Key Measures for MSMEs in Union Budget 2025-26:
Revised Classification Criteria
The investment and turnover limits for MSME classification have been increased by 2.5 times and 2 times, respectively. This is expected to improve efficiency, technological adoption, and employment generation in the MSME sector.
Enhanced Credit Availability
- The credit guarantee cover for micro and small enterprises has been increased from ₹5 crore to ₹10 crore, enabling additional credit of ₹1.5 lakh crore over five years.
- Startups will get guarantee cover which is doubled from ₹10 crore to ₹20 crore, with a reduced fee of 1% for loans in 27 priority sectors.
- Exporter MSMEs will benefit from term loans up to ₹20 crore with enhanced guarantee cover.
Credit Cards for Micro Enterprises
- A new customised Credit Card scheme will provide ₹5 lakh in credit to micro enterprises registered on the Udyam portal, with a target of 10 lakh cards to be issued in the first year.
Support for Startups and First-Time Entrepreneurs
- A new Fund of Funds with ₹10,000 crore will be established to expand support for startups.
- A scheme for 5 lakh first-time women, Scheduled Caste, and Scheduled Tribe entrepreneurs will provide term loans up to ₹2 crore over five years, incorporating lessons from the Stand-Up India scheme.
Focus on Labour-Intensive Sectors
- A Focus Product Scheme for the footwear and leather sector will support design, component manufacturing, and non-leather footwear production, expected to create 22 lakh jobs and generate a turnover of ₹4 lakh crore.
- A new scheme for the toy sector will promote cluster development and skill-building, aiming to position India as a global toy manufacturing hub.
- A National Institute of Food Technology, Entrepreneurship and Management will be established in Bihar to boost food processing industries in the eastern region.
Manufacturing and Clean Tech Initiatives
- A National Manufacturing Mission will provide policy support and roadmaps for small, medium, and large industries under the Make in India initiative.
- Special emphasis will be given to clean tech manufacturing, fostering domestic production of solar PV cells, EV batteries, wind turbines, and high-voltage transmission equipment.
Current scenario of MSMEs in India
As a vital contributor to India’s industrial landscape, the MSME sector plays a crucial role in manufacturing, exports, and employment. With 5.93 crore registered MSMEs employing more than 25 crore people, these enterprises generate a significant share of the country’s GDP. In 2023-24, MSME-related products accounted for 45.73% of India’s total exports, reinforcing their role in positioning the country as a potential for global manufacturing hub.
In recent years, MSME sector has displayed remarkable resilience, with its share in the country’s Gross Value Added (GVA) increasing from 27.3% in 2020-21 to 29.6% in 2021-22 and 30.1% in 2022-23, highlighting its growing role in national economic output.
Exports from MSMEs have seen substantial growth, rising from ₹3.95 lakh crore in 2020-21 to ₹12.39 lakh crore in 2024-25. The number of exporting MSMEs has also surged, increasing from 52,849 in 2020-21 to 1,73,350 in 2024-25. Their contribution to India’s total exports has steadily grown, reaching 43.59% in 2022-23, 45.73% in 2023-24, and 45.79% in 2024-25 (up to May 2024). These trends underscore the sector’s increasing integration into global trade and its potential to drive India’s position as a manufacturing and export hub.
As of February 4, 2025, the Udyam Portal boasts an impressive total of 5,93,38,604 registered MSMEs, with the vast majority classified as micro-enterprises. Beyond their economic contributions, these MSMEs have generated substantial employment opportunities, providing jobs to over 25.18 crore individuals. This extensive employment generation underscores the sector’s crucial role in driving economic development and enhancing social stability by offering livelihoods to millions across the country.
MSMEs are historically found to be lacking in adherence to pollution control and effluent treatment measures and to cite and example – Kanpur leather industry is one such case. Therefore, the governments should take due care to ensure that the current budget initiatives like- promoting the footwear and leather industry, food processing etc., for MSMEs do not land up with similar fate. Highlighting the importance of ESG norms and guiding the MSMEs to adhere to environment friendly and sustainable business practices is very essential. Similarly, continuous improvement in the quality of the products and innovation are very important for the MSMEs to become leading players in global markets.
Public Procurement Policy for Micro and Small Enterprises
The Ministry of MSME, Government of India, notified the Public Procurement Policy for Micro and Small Enterprises (MSEs) in 2012. This policy mandates that 25% of annual procurement by Central Ministries, Departments, and Central Public Sector Enterprises (CPSEs) must be sourced from MSEs. Within this 25%, 4% is reserved for MSEs owned by Scheduled Castes/Scheduled Tribes (SC/ST), and 3% is reserved for MSEs owned by women entrepreneurs. Additionally, 358 items are exclusively reserved for procurement from MSEs.
- In 2023-24, Central Ministries, Departments, and CPSEs procured a total of ₹74,717 crore worth of goods and services from MSEs, which constituted 43.71% of their total procurement.
- This policy benefitted 2,58,413 MSEs, ensuring they had access to significant business opportunities and support through government procurement.
The government’s ongoing initiatives like Udyam Registration, PM Vishwakarma, PMEGP, SFURTI, and the Public Procurement Policy continue to demonstrate a committed effort towards integrating and empowering MSMEs.
Delayed payments
According to estimates a whopping Rs 10.7 lakh crores – is locked up in delayed payments from buyers to suppliers in the Indian economy – an estimated 7.8 per cent of the GDP, with 80 per cent of this estimated amount owed to micro and small enterprises, totalling Rs 8.55 lakh crore. In the recent past the government and RBI have initiated several measures to address this problem. The following are some of the key measures.
Business enterprises are required to pay the dues of Micro & Small enterprises (MSE) within 45 days (i.e., In case there is a written agreement, payment shall be made as per the agreed-upon timeline, not exceeding 45 days) as per section 15 of the MSMED Act, 2006. In case there is no written agreement, payment should be made within 15 days. In the case of late payment to an MSE, Compound interest at the 3 times the bank rate notified by the Reserve Bank of India (RBI) is charged and payable by the buyer. Such interest is payable from the date as per the agreement or the day following immediately after the expiry of the period of fifteen days from the day of acceptance or the day of deemed acceptance of any goods or any services by a buyer from a supplier (appointed day), as the case may be.
The deduction of this interest so charged as above is not allowed as an expense, as per the Income-tax Act (ITA), 1961. Companies who procure the goods and services from MSEs but have not settled their payment dues to MSEs within 45 days from the date of acceptance, have to submit a half yearly return to MCA stating the amount of payments due to MSEs and the reasons for the delay.
However, this has become counterproductive with unintended consequences as the micro and small enterprises are getting their sale orders cancelled by the buyers where majority of them happen to be large corporates.
The union government has also set up a delayed payment monitoring portal MSME Samadhaan, for the payments due to MSMEs by the government for its procurement from MSMEs. But the fact remains that many MSMEs do not file delayed payments applications for obvious reasons. The fact also remains that the delayed payments to the MSMEs are very large from the government sector.
The RBI launched the Trade Receivables Discounting System in 2018. In line with this, The Trade Receivables Discounting System popularly known as TReDS, an online platform is created that allows MSME suppliers to discount their bills and invoices raised against major corporations, which helps them manage their working capital demands.
The Trade Receivables Discounting System popularly known as TReDS, an online platform is created that allows MSME suppliers to discount their bills and invoices raised against major corporations, which helps them manage their working capital demands.
Transactions processed under TReDS will be “without recourse” to the MSMEs meaning that MSME vendors need not be responsible for non-payment of the trade receivables amount (from buyers). In 2018, the Government made it mandatory for all companies with a turnover greater than Rs.500 crores to register with TReDS in addition to all central Public Sector Undertakings (CPSUs). MSME Ministry is considering to reduce the minimum threshold limit of the turnover of the companies from Rs. 500 Crs to Rs.250 Crs who buy their goods and services from MSMEs to register with TReDS.
The author suggests the following measures to further strengthen the above mechanism:
While discounting the trade receivables under TReDS the interest expense up to the period of 45 days from the date of the invoice may be borne by either the MSE supplier or the corporate buyer but the interest expense for the period beyond 45 days from the date of invoice to be borne only by the corporate buyer and the same should be disallowed for the computation of the corporate tax.
Corporates with the turnover of Rs. 250 Crs and above whose annual procurement of the goods from MSEs is more than 10 percent of their overall annual procurement may be given suitable rax rebates, provided the payment for such procurement is made within 45 days. This will certainly encourage the large corporates to buy from MSEs for their procurement needs. This measure will also address the twin issues of (i) the compulsion of MSEs to cancel their registrations and (ii) mounting delayed payments by the buyers of the goods and services from MSE suppliers.
Conclusion
Agriculture and MSMEs are the back bone of the Bharat’s economy. The author is glad that the government has acknowledged their role in the economy and initiated quite a few measures to strengthen these two key sectors in the budget 2025-26. Addressing the issue of delayed payments for MSMEs will certainly remove one major road block. Let us hope that the government will look into this issue and formulate appropriate policy guidelines as suggested above, at an early date.
