(GIST OF KURUKSHETRA) Navigating the Future MSME Finances

(MAY-2025)

Navigating the Future MSME Finances

Context:

MSMEs promote inclusive growth by stimulating multifaceted industrialization in backward and rural areas and contributing to reducing regional imbalances. The variegated nature of MSMEs can be gauged from their presence in diverse sectors such as food processing, textiles, auto components, hospitality, manufacturing of parts for Chandrayaan. MSMEs are one of the categories under priority sector lending (PSL) of banks. PSL needs to be 40% of Adjusted Net Bank Credit (ANBC) of domestic commercial banks, as per the Reserve Bank of India (RBI). Banks need to ensure that 7.5% of their ANBC, within the 40% target, is for Micro Enterprises.

Definition of MSME

From 1st April, 2025, the ambit of the MSME sector has been widened further. This is in compliance with paragraph 28 of Union Budget 2025 announcement. As per the announcement, the limit on turnover has been doubled and that on investment in Plant and Machinery or Equipment has been made 2.5 times (Table-2).

The MSME Development Act, 2006 had laid down the classification criterion of enterprises in terms of their investment in plant in machinery. In 2015, a new online system of registration, based on Aadhaar, called Udyam-Aadhaar Memorandum was introduced.

Strengthening MSMEs

Enterprise development necessitates skill development and training, bolstered by access to affordable finance, technology and marketing, along with a supporting infrastructure. The recent initiatives of the Government of India have made significant interventions in each of these pre-requisites. Consequently, MSMEs have demonstrated buoyancy, recorded unprecedented growth and cemented their immense contribution to GDP, exports and employment. In such a scenario, it is natural for growth-oriented MSMEs to be apprehensive because losing their MSME status may translate into loss of entitlements. To address this fear. Budget 2025 announced a hike in the criteria for classification. Enterprises can continue on their growth trajectory unhindered.

Credit Guarantee for Micro and Small Enterprises

Guarantee of a loan by a third party can protect lenders against defaulting borrowers. Another Budget 2025 announcement is the upward revision of the ceiling from Rs. 5 crore to Rs. 10 crore for guarantees given in the Credit Guarantee Scheme (CGS) for MSEs.

The recent initiatives of CGTMSE have aimed at three-fold objectives:

(i) makingcredit more affordable for MSEs by reducing the annual guarantee fees;

(ii) making credit more available for MSEs by increasing the ceiling on loan amounts which can be guaranteed.

(iii) making credit more accessible to MSEs by increasing the number of MLIs from 136 in 2021-22 to 276 in 2024-25

Emergency Credit Line Guarantee Scheme

Another Scheme which was launched as a part of the Atmanirbhar Bharat Abhiyan was the Emergency Credit Line Guarantee Scheme. The objective of the Scheme was to help businesses, including MSMEs, to meet their operational liabilities and resume businesses in view of the distress caused by the pandemic.

Conclusion:

Union Budget 2025 has introduced measures to bolster the MSME sector by revising the classification criteria, enhancing credit availability and ensuring pathways for technological advancements and digital transformation. The future of MSMEs in India is definitely promising, driven by a series of supportive government policies, technological advancements and a resilient economic environment. The sector as a whole is poised to further consolidate its contribution in making the Indian economy atmanirbhar during the Amrit Kaal and leading to a Viksit Bharat by 2047.