Budget 2025: Better access to credit is top priority for MSMEs

The micro, small and medium enterprises (MSMEs) are the lifeline of India’s economy. However, their growth is often numbed by uneven credit flow. This segment is hopeful that the upcoming Budget will remove any obstacles hindering access to capital and address the challenges of the taxation system.

The MSME segment, which contributes 30% of the gross value added to the country’s GDP and 46% of exports, often deals with insufficient availability of credit, which becomes an obstacle to their day-to-day functioning.

“Today, over 80% of small businesses face cash flow challenges due to delayed receivables and limited access to formal credit," Raja Debnath, Chairman and Co-founder, Veefin Group, tells SMBStory.

"While initiatives like TReDS and GST reforms have improved transparency, we need sharper incentives for digital adoption among lenders and corporates.”

He further adds, “Policies that encourage deep-tier financing and integration of alternative credit data into underwriting frameworks can significantly bridge the $530 billion MSME credit gap.”

A quick read on a similar topic...

---

Budget wish-list: Healthcare sector seeks boost in the form of GST reforms and increased spending

The MSME sector in India has consistently demonstrated remarkable resilience and adaptability. Beyond value addition to the GDP, there has also been remarkable growth on the export front also as the contribution of MSMEs increased from Rs 3.95 lakh crore in 2020-21 to Rs 12.39 lakh crore in 2024-25.

“The Union Budget 2025-26 should further ease policies to promote the growth of the MSME sector, which is considered the foundation of the Indian economy. These organisations should have easy access to credit from financial institutions, and benefit from a reduction in high interest on loans and related requirements to produce personal collateral with the complexities in the process also getting eliminated, making it much simpler,” says Rajarshi Bhattacharyya, Chairman and Managing Director, ProcessIT Global.

According to a pre-Budget expectation survey by Grant Thornton, small and medium enterprises (SMEs) want a reduction in corporate tax rates. Many small vendors also find it difficult to navigate GST notices when doing business in UPI payments, highlighting the need for compliance reforms.

The survey called for leveraging fintech intermediaries to track transactions that can streamline reporting and reduce burdens on small businesses. Simplified tax reconciliation through fintech could encourage digital adoption and prevent unexpected tax issues for vendors, the survey noted.

“Budget 2025 should prioritise the formalisation of MSMEs by simplifying tax and compliance processes, encouraging more businesses to integrate into the formal economy. Streamlining complex filing requirements is essential to reducing operational costs and enabling MSMEs to scale effectively," says Nishith Maheshwari Head, Digital Business Loans, InCred Finance.

At the same time, the government has also come out with numerous initiatives to promote the MSME segment in the country. The key initiatives include the Udyam Registration Portal to register themselves with the government; PM Vishwakarma scheme for financial support, skill training, and market access; Prime Minister's Employment Generation Programme, which provides financial assistance to start a microbusiness; Scheme of Fund for Regeneration of Traditional Industries to enhance the competitiveness of artisans, and the Public Procurement Policy for MSEs. These schemes are aimed at fostering entrepreneurship, enhancing employment, and integrating informal sectors into the formal economy.

According to global consultancy firm PwC, the Union Budget 2024 brought in numerous initiatives for the MSMEs. One of the initiatives was the Credit Guarantee Scheme where MSMEs in manufacturing can access collateral free loans with up to Rs 100 crore as guarantee.

Another initiative was meant to prevent the conversion of special mention account into non-performing assets thus maintaining the financial stability and operation continuity of those MSMEs which are under distress. The government also doubled the Mudra loan cap from Rs 10 lakh to Rs 20 lakh for borrowers who have successfully repaid their earlier set of loan.

The MSME sector also expects that the upcoming Budget would announce policy initiatives that would help them leverage technology to enable easier credit flow. This would mean bringing closer linkages between the new-age fintechs and MSMEs.

Also, the sector hopes for further impetus to skilling initiatives focused on digital and financial literacy.

“With MSMEs contributing over 40% of India’s exports, we would expect policies that focus on increasing export credit growth, especially for this vital sector, are critical. Strengthening integration into global supply chains, addressing fragmentation, and promoting innovation within institutions like ECGC (Export Credit Guarantee Corporation of India) will not only improve credit accessibility but also boost India’s competitiveness in the global market,” says M1NXT CEO Munindra Verma.