Budget Expectations for MSMEs in 2025 Representing nearly 30 per cent of India's GDP and employing over 110 million people, the MSME sector is a cornerstone of the Indian economy. As India aspires to become a $5 trillion economy, empowering its MSME sector will be critical in realizing this ambitious vision.
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As the Union Budget 2025 approaches, expectations from the MSME (micro, small, and medium enterprises) sector are high. Representing nearly 30 per cent of India's GDP and employing over 110 million people, the MSME sector is a cornerstone of the Indian economy. However, it faces challenges such as slow GDP growth in Q2 and Q3 of 2024 coupled with industrial uncertainties and high inflation. Despite this, India remains the fastest-growing major economy, setting the stage for transformative policy measures in this year's budget.
Dinesh Gulati, COO of IndiaMART InterMESH Limited, underscores the need for simplifying the tax structure and enhancing transparency. "There is a further need to simplify the tax structure, create more transparency that will help reduce compliance processes and cost involved for MSMEs," he states. He suggests a sector-specific subsidized tax structure for startups in technology, electric vehicles, and alternate energy. To drive digital transformation, Gulati advocates tax breaks for MSMEs investing in technology, enabling them to adopt digital tools faster and more effectively.
Digital adoption remains a critical enabler for growth, with technology fostering efficiency and innovation. Raja Debnath, managing director and chairman of Veefin Group, stresses the importance of addressing cash flow challenges faced by MSMEs. "Over 80 per cent of small businesses struggle with delayed receivables and limited credit access. Policies that encourage deep-tier financing and integration of alternative credit data into underwriting frameworks can significantly bridge the $530 billion MSME credit gap," he explains.
Enhanced credit access
Access to credit remains a perennial issue for MSMEs. While the government's proposed credit guarantee scheme for collateral-free loans of up to INR 100 crore is a positive step, Gulati highlights the need for further reforms. "The traditional Bank Loan Ratings system does not hold right for smaller businesses lacking robust financial records. Introducing transparency in lending practices and collateral-free loans can provide much-needed relief," he asserts.
The upcoming budget is expected to focus on liquidity measures, echoing the sentiments of Santanu Agarwal, deputy managing director of Paisalo Digital Limited. "Maintaining or increasing liquidity in banking and non-banking financial institutions will enhance MSMEs' competitiveness. This is essential for driving growth domestically and globally," he notes.
Fiscal support and skill development
India's ambition to become the factory of the world hinges on empowering its MSME sector. Padmanand V, partner at Grant Thornton Bharat, emphasizes the need for enhanced fiscal support. "The outlays for MSME programs, amounting to less than INR 10,000 crore, are disproportionately low compared to allocations for agriculture. There is a need to enhance outlays under the listed programmes such as micro & small enterprises cluster development programme (MSE-CDP) and raising and accelerating MSME performance (RAMP) programme," he points out.
Additionally, Padmanand emphasizes the need for strategic investment in infrastructure and policies that can elevate MSMEs from being the 'office of the world' to the 'factory of the world'. This shift could position India as a viable alternative to China in global manufacturing.
With India's young demographic profile, skill development and employment generation are pivotal for sustained growth. Gulati highlights the success of internship programs and employment-linked incentives from the previous budget, urging continued government initiatives in this area. Agarwal echoes this sentiment, stating, "Skill development and employment generation programs should be prioritized to sustain the current momentum and address the evolving needs of the workforce."
Healthcare accessibility and GST reforms
While the MSME sector anticipates reforms, healthcare-related MSMEs are looking for specific policy changes. Dr. Vikas Agarwal, CEO of Dentalkart, calls for a reduction in GST on healthcare products. "Dental and medical supplies taxed at 18 per cent should not be categorized as luxury items. A uniform GST rate of 5 per cent would make healthcare more affordable, ultimately fostering a healthier nation," he advocates.
Reducing GST on essential healthcare products is not just an economic reform but a step toward ensuring equitable healthcare access for all. Such measures can also bolster innovation and improve service delivery in the healthcare sector.
The government's push for structural reforms will play a vital role in the sector's growth trajectory. As highlighted by Debnath, incentivizing deep-tier financing and incorporating alternative credit data into underwriting frameworks can provide MSMEs with the liquidity needed to scale operations.
Enhancing fiscal support and focusing on long-term infrastructure solutions will enable MSMEs to thrive in an increasingly competitive global market. As India aspires to become a $5 trillion economy, empowering its MSME sector will be critical in realizing this ambitious vision.
