Micro Small and Medium Enterprises (MSMEs) are the unsung heroes of India’s economic scenery. These include nearly 30 percentof the GDP, 45 percent of the manufacturing output, and 40 percent of the exports. Growth in employment, industrialization, and innovation depends on this sector. With over 6.3 crore enterprises and employing over 24 crore people, MSMEs are not only an economic contributor, but also an enabler of inclusive growth.

Considering their transformative potential, the Indian government has put in place a series of policies and reforms designed to enhance their competitiveness, increase access to finance, and get them integrated into global value chains. These include the Economic Survey 2024-25, the Union Budget 2025-26, and the Ministry of MSME’s Year-End Review overall achievements, challenges, and roadmap for the sector’s future.

India’s Second Engine for Growth

MSMEs rightly have been touted as the second big engine of growth in India after agriculture, as reflected by the Union Budget 2025-26. It is an important constituent in the areas of industrialization, innovation, and employment generation, and it will play a critical role in ensuring the economic resilience of India. These factors of encouraging entrepreneurship, promoting exports, and driving regional development are very effective instruments for shaping the growth trajectory of India. This is a comprehensive budget for the sector, focusing on financial support, technological advancement, and market expansion. These will be initiatives towards creating an enabling ecosystem that allows MSMEs to lead in India’s industrial transformation and become a global contender.

Key Indicators

<Source: https://www.indiabudget.gov.in/doc/Budget_Speech.pdf>

Key Announcements for MSMEs in the Union Budget 2025-26

• Transformational measures that empower MSMEs have been introduced in the Union Budget 2025-26. The relaxed re-classification criteria for MSMEs do not result in the loss of benefits by an enterprise in case it scales up. This helps MSMEs grow and realize higher efficiencies of scale, technological upgradation, and better access to capital.

Credit Guarantee Cover Enhancements

<Source: https://www.indiabudget.gov.in/doc/Budget_Speech.pdf>

Revised MSME Classification Criteria

Changes in Investment Limit

<Source: https://www.indiabudget.gov.in/doc/Budget_Speech.pdf>

Changes in Turnover Limit

<Source: https://www.indiabudget.gov.in/doc/Budget_Speech.pdf>

• Strengthened Credit Support: The ceiling under the Credit Guarantee Scheme has been enhanced from INR 5 crore to INR 10 crore, with a wider range of financial inclusion. This measure is likely to provide an additional credit of INR 1.5 lakh crore over the next five years, which is more beneficial to micro and small enterprises.
• Customized Credit Cards: New credit cards have been announced. The amount that micro-enterprises registered on Udyam may avail of will have anINR 5 lacs credit. This in the initial year, to be given 10 lacs cards will help finance several small units financially.
• Expansion of the Fund of Funds for Startups: Another INR 10,000 crore will be set aside to encourage fast-growing startups through AIFs. This plan is to be very instrumental in propelling innovation and entrepreneurship, particularly in those sectors vital in achieving India’s self-reliance objectives.
• Sector-Specific Incentives: Specific policy measures have been provided to labour-intensive sectors like footwear, toys and food processing. These programs are intended to enhance competitiveness, boost exports and provide jobs. For example, the Focus Product Scheme for the footwear and leather sector will create employment opportunities for 22 lakh people and generate a turnover of INR 4 lakh crore.

Improvement of technology and market access
To tackle the competitiveness issue, the Government of India has taken an aggressive push for digitalization and innovation. Some of the relevant initiatives are the following:

1. MSME-TEAM: Rolled out during 2024 with an outlay of INR 277.35 crore, MSME-TEAM targets to bring five lakh MSMEs into e-commerce.
2. MSME Hackathon 4.0: Helping 500 entrepreneurs with a grant of INR 15 lakh each to build innovation.
3. Centre for Rural Enterprise Acceleration through Technology or CREATE: Focuses on skill building for value-added industries like pashmina in Leh.

Skilling and Employment Generation

Economic Survey 2024-25 puts upskilling of India’s workforce as critical to boost the productivity of MSMEs. Some of the initiatives are:

• PM Vishwakarma Yojana: Trained 15.05 lakh artisans in enhancing their skills and making them more marketable.
• Yashasvini Campaign: Improving digital literacy among women entrepreneurs.
• Labour-Intensive Sectors: Projected to add more than 25 lakh jobs, thus accelerating employment in selected sectors.

Global Integration and Bilateral Cooperation

The MoU inked between the Ministry of MSME, the Government of India, and the US Small Business Administration (US-SBA) in New Delhi on 13^th August 2024, envisages bilateral trade, technology transfer, and building capacity while strengthening India’s position in world markets. The MoUalso provides for the joint conduct of programs for women entrepreneurs to empower them and facilitate trade partnerships between women-owned small businesses of the two countries. Such an MoU would abet the ‘Make in India’ and ‘Atmanirbhar Bharat’ programs in reducing import dependence and strengthening Indian supply chains in the domestic domain.

Preferential trade agreements and incentives for export-oriented units are also integrating MSMEs into global value chains. Going forward, with 45% of India’s exports coming from MSMEs, further policy support will make them more competitive globally.

This notwithstanding, MSMEs are still beset with a few issues, which include limited access to credit, fractured supply chains, and regulatory burden. For future policy directions on how growth should be sustained, the following must be achieved:

• Simplify Regulatory Framework: Decrease compliance costs and bureaucratic impediments.
• Alternate Finance Access: Increase more venture capital and private equity inflows into MSMEs.
• Transition to Digital and Green: Equip MSMEs to become sustainable and digital businesses.
• Strengthening rural and women entrepreneurs: expand targeted credit as well as skill development programs for micro-enterprises, especially for women-led enterprises.

Conclusion
MSMEs, the driving force of India’s economic growth, innovation, and employment generation will form an ever-important sector through further policy support, financial inclusion, and the integration of technologies in this domain. MSMEs can form the true power engine of Indian economic resurgence that can ensure both inclusive and sustainable growth for this nation by solving existing problems and capturing new ones.

(The Author is a Senior Consultant (MSME) at Ernst & Young Global LLP, with prior experience in research and consulting for the Government of India. Reach him at [email protected])

Box: MSMEs, the driving force of India’s economic growth, innovation, and employment generation will form an ever-important sector through further policy support, financial inclusion, and the integration of technologies in this domain