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Detailed Analysis of Union Budget 2025-26 for MSMEs

India’s Micro, Small, and Medium Enterprises (MSMEs) are the economic backbone, driving employment, innovation, and exports. With over 25 crore jobs generated and a 45.79% contribution to exports in 2024-25, their
role is pivotal. The Union Budget 2025-26, presented on February 1, 2025, by Finance Minister Nirmala Sitharaman, introduces transformative measures to empower MSMEs, addressing challenges like credit access, scalability, and
global integration. This survey note provides a comprehensive analysis, ensuring all details are covered for readers seeking to understand the impact on small businesses.

Background and Importance of MSMEs

MSMEs are defined by investment and turnover thresholds, recently revised in the budget. Previously, micro-enterprises had investments up to ₹1 crore and turnover up to ₹5 crore, small up to ₹10 crore and ₹50 crore, and medium up to ₹50 crore and ₹250 crore. The 2025 budget raises investment limits by 2.5 times and turnover
thresholds by 2 times, resulting in:

Micro: Investment up to ₹2.5 crore, turnover up to ₹10 crore.
Small: Investment up to ₹25 crore, turnover up to ₹100 crore.
Medium: Investment up to ₹125 crore, turnover up to ₹500 crore.

This revision, effective from the budget announcement, aims to include more businesses under government schemes,
enhancing their access to credit and technology. MSMEs contribut 30.1% to Gross Value Added (GVA) in 2022-23, up from previous years, and their export share grew from 43.59% in 2022-23 to 45.79% in 2024-25, underscoring their resilience.

Key Highlights of Budget 2025-26 for MSMEs

The budget introduces several strategic reforms, detailed below:

Revised MSME Classification: Enabling Scalability

The revised classification is a cornerstone, allowing more MSMEs to access benefits. For example, a micro-enterprise with an investment of ₹2 crore and turnover of ₹8 crore, previously ineligible, now qualifies. This change is expected to formalize more businesses, with the Udyam portal facilitating registration. The impact is significant, as it aligns with the government’s goal to integrate 25.18 crore informal workers into the formal economy via the Udyam Assist Platform.

Enhanced Credit Access: Fueling Expansion

Credit remains a major hurdle for MSMEs, and the budget addresses this through:

Credit Guarantee Expansion: The coverage for micro and small enterprises is doubled to ₹10 crore, unlocking ₹1.5 lakh crore in credit over five years. This reduces lender risk, making banks more willing to lend without collateral, a critical need for MSMEs lacking assets.
ME-Card Scheme: A new initiative offers credit cards with a ₹5 lakh limit to Udyam-registered micro-enterprises, targeting 10 lakh beneficiaries in the first year. This provides working capital or short-term credit, addressing cash flow issues.
Startups & Exporters: The guarantee cover for startups is doubled to ₹20 crore, with reduced fees (1%) in priority sectors like tech and green energy. Export-focused MSMEs can access term loans up to ₹20 crore, facilitating global market entry.

The application process for these schemes involves registering on udyamregistration.gov.in, submitting financials, and applying via participating banks like SBI or SIDBI, with approvals often within
7-10 days.

Empowering First-Time Entrepreneurs

The budget focuses on inclusivity, particularly for marginalized groups:

A five-year scheme provides term loans up to ₹2 crore for women, SC, and ST entrepreneurs, building on Stand-Up India’s success. This targets 5 lakh first-time entrepreneurs, addressing barriers like lack of
capital.
A ₹10,000 crore Fund of Funds supports startups, especially in technology and clean energy, fostering innovation. This aligns with the Atmanirbhar Bharat vision, promoting self-reliance.

Boosting Labor-Intensive Sectors

Labor-intensive sectors are prioritized for job creation:

Footwear & Leather: The Focus Product Scheme aims for ₹4 lakh crore turnover and 22 lakh jobs,
supporting design innovation and non-leather production. This is crucial for employment in rural areas, where these industries thrive.
Toy Manufacturing: Cluster development and skill-building initiatives position India as a
global hub, with funding for modern machinery and training.
Food Processing: A National Institute in Bihar will drive entrepreneurship in eastern India’s
agro-industries, leveraging agricultural potential for economic growth.

These sectors are vital for inclusive growth, providing jobs to lower-skilled workers and boosting rural economies.

Clean Tech and Manufacturing Push

The National Manufacturing Mission aligns with Make in India, providing sector-specific roadmaps. Incentives for domestic production of solar PV cells, EV batteries, and wind turbines promote sustainability and reduce import
dependence. For MSMEs, this opens opportunities in clean tech, with subsidies for technology upgrades and cluster development.

Also Read: Latest MSMEs Schemes 2025 in India

Ongoing Government Initiatives Strengthening MSMEs

Several existing schemes complement the budget’s reforms:

PM Vishwakarma Scheme

Launched in 2023, this scheme empowers traditional artisans with ₹13,000 crore allocated for skill development and credit linkages. Over 2.65 crore applications have been received, formalizing the artisan sector and enhancing
their market access.

Udyam
Registration Portal

With 5.93 crore MSMEs registered, the portal facilitates access to loans and subsidies. The Udyam Assist Platform integrates 25.18 crore informal workers, a significant step toward formalization. Registration is simple, requiring Aadhaar and PAN, and can be done at udyamregistration.gov.in.

PMEGP and SFURTI

PMEGP supported 89,118 enterprises in 2023-24, creating 7.12 lakh jobs, with subsidies up to 40% for special categories. Applications are processed via pmegp.kviconline.gov.in.
SFURTI has 376 functional clusters, benefiting 2.2 lakh artisans through infrastructure and marketing support, preserving traditional industries.

Public Procurement Policy

In 2023-24, 43.71% of government procurement was from MSMEs, exceeding the 25% mandate and benefiting 2.58 lakh enterprises. This ensures a stable market, with procurement details available at msme.gov.in.

Budgetary Commitment: Rising Investments

The Ministry of MSME’s allocation for 2025-26 is ₹23,168 crore, up from ₹17,306 crore in 2024-25, reflecting a 34% increase. This trend, consistent since 2019-20, underscores the government’s commitment to MSME growth, with funds directed toward credit guarantees, startup support, and sector-specific initiatives.

Challenges and Opportunities

Despite these reforms, MSMEs face challenges like technological obsolescence and market
access. The budget’s focus on clean tech and labor-intensive sectors addresses
these, but implementation will be key. MSMEs can leverage these schemes by
staying updated via msme.gov.in and engaging with District Industries Centres
for guidance.

Conclusion:
Paving the Way for a Self-Reliant MSME Sector

The Union Budget 2025-26 marks a paradigm shift, blending financial inclusivity with sector-specific growth plans. By easing credit bottlenecks, fostering innovation, and prioritizing labor-intensive industries, the
government aims to elevate MSMEs as global players. Coupled with ongoing initiatives, these reforms will accelerate formalization, job creation, and equitable growth. As MSMEs harness these opportunities, their role in achieving India’s economic visions becomes indispensable.

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