Union Budget 2025-26: Big Boost To MSMEs As 2nd Engine Of Economic Growth

The government was aware of the need for improving the access of the MSME sector to credit supported by a government-backed guarantee cover.

Krishnanand

In her budget speech, finance minister Nirmala Sitharaman cited four engines that will drive economic growth in the third term of Prime Minister Narendra Modi’s government. These are agriculture, micro-small-medium (MSME) sector, investment and exports, as she outlined the government’s specific measures in this budget to support these sectors.

While dubbing the MSME sector as the second priority area for the government after agriculture, finance minister Sitharaman said these 5.7 crore (57 million) micro, small and medium enterprises are active in both manufacturing and services sector.

“Currently, over 1 crore registered MSMEs, employing 7.5 crore people, and generating 36 percent of our manufacturing, have come together to position India as a global manufacturing hub,” Sitharaman told the Lok Sabha members.

The finance minister said with their quality products, these MSMEs were responsible for 45 percent of India’s exports.

In the budget speech, as the first measure, the finance minister revised the classification criteria for the micro, small and medium enterprises to be revised upward.

“To help them achieve higher efficiencies of scale, technological upgradation and better access to capital, the investment and turnover limits for classification of all MSMEs will be enhanced to 2.5 and 2 times respectively,” she told the members of the Lok Sabha.

Adding that it will give these MSMEs confidence to grow and generate employment for our youth.

Revised criteria for the MSME Sector

The government uses two criteria for classifying these over 5.7 crore MSMEs in the country on the basis of investment and turnover. As per the existing criteria, micro enterprises are those entities that have an investment of upto Rs 1 crore and their turnover is Rs 5 crores in the year. The finance minister has announced that as per the revised criteria, entities having investment of upto Rs 2.5 crore and turnover of upto Rs 10 crore in a financial year will now be categorised as micro enterprises.

Similarly, the criteria for small enterprises has been revised from Rs 10 crore investment to investment of upto Rs 25 crores and the turnover ceiling has been similarly revised from Rs 50 crore in a year to Rs 100 crore in a financial year.

In case of medium enterprises, the largest ones in the MSME sector, entities having investment of upto Rs 50 crore were classified as medium enterprises. Now this ceiling has been revised to Rs 125 crore and turnover ceiling has been upwardly revised from Rs 250 crore in a financial year to Rs 500 crores in a year.

Booster shot to enhance credit availability

The government was aware that mere revising the classification criteria for MSME sector may not be enough without improving their access to credit which is supported by a government backed guarantee cover.

In the budget, the FM significantly enhanced the credit cover for these MSME companies.

Sitharaman announced that for micro and small enterprises, the credit limit has been enhanced from Rs 5 crore to 10 crore, stating that it will lead to an additional credit of Rs 1.5 lakh crore to these micro and small enterprises in the next 5 years.

Moreover, in order to encourage, the startups and entrepreneurship in the country, credit limit for startups has been enhanced from Rs 10 crore to 20 crore, with the guarantee fee being moderated to 1 per cent for loans in 27 focus sectors that are considered important for the government’s flagship a self-reliant India (Atmanirbhar Bharat) schemes.

As a third measure, the limit of term loans has been increased to Rs 20 crores for well-run MSMEs in the export sector.

Credit Cards for Micro Enterprises

In order to ensure hassle free credit facility for micro enterprises, the government would issue special credit cards.

“We will introduce customized Credit Cards with a Rs 5 lakh limit for micro enterprises registered on Udyam portal,” said the finance minister, adding that in the first year, 10 lakh such cards will be issued.

Fund of Funds for Startups

Finance Minister Sitharaman also informed the house that the Alternate Investment Funds (AIFs) for startups have received commitments of more than Rs 91,000 crore.

“These are supported by the Fund of Funds set up with a Government contribution of Rs 10,000 crore. Now, a new Fund of Funds, with expanded scope and a fresh contribution of another Rs 10,000 crore will be set up,” she said.

Hand-holding of first-time Entrepreneurs

Sitharaman also launched a new scheme aimed at benefiting 5 lakh women, scheduled castes and scheduled tribes first-time entrepreneurs.

“This will provide term loans up to Rs 2 crore during the next 5 years. The scheme will incorporate lessons from the successful Stand-Up India scheme. Online capacity building for entrepreneurship and managerial skills will also be organized,” the finance minister informed the house.