In News:

In the Union Budget 2025–26, the Finance Minister proposed a significant policy shift by increasing the investment and turnover limits for MSME classification by 2.5 and 2 times respectively. This move is expected to enhance the growth prospects and scalability of India’s micro, small, and medium enterprises (MSMEs).

Economic Significance:

The MSME sector forms the backbone of the Indian economy, contributing 30% to the GDP and nearly 45% to manufacturing output. With over 1 crore registered units employing 7.5 crore people, it is the largest source of non-agricultural employment in the country. It plays a pivotal role in inclusive development, offering livelihood opportunities to the rural, urban poor, and semi-skilled workforce.

The formalization drive has been significant, with over 4 crore MSMEs registered on the Udyam portal by March 2024. Key schemes like PM Vishwakarma Yojana (?13,000 crore) and Mudra Yojana (?5.41 lakh crore disbursed in FY24) have supported artisans and first-time entrepreneurs, particularly women and marginalized communities.

Boost to Trade and Innovation:

MSMEs account for 45.73% of India’s total exports in sectors like textiles, leather, and engineering goods. Their integration into Global Value Chains (GVCs) is being facilitated by reforms in trade logistics, the GeM portal, and PLI schemes. Digital transformation is advancing rapidly, with 72% MSME transactions now digital, supported by platforms like ONDC and the RBI’s Public Tech Platform.

Women and Rural Empowerment:

Women entrepreneurs constitute 20.5% of Udyam registrations, and 68% of Mudra loans benefit them. MSMEs are also catalyzing rural industrialization by promoting agro-processing and curbing rural-urban migration through schemes like the SRI Fund and Animal Husbandry Credit Guarantee Scheme.

Key Challenges:

Despite their potential, MSMEs face critical bottlenecks:

• Credit access remains limited; only 20% of units access formal finance. Payment delays amounting to ?10.7 lakh crore (2022) hinder working capital.
• Regulatory burdens, inadequate infrastructure, and poor digital skills further constrain productivity.
• Low awareness of schemes and limited integration into global ESG standards affect competitiveness.
• The sector remains largely informal, weakening labor rights and policy outreach.

Recent Reforms & Recommendations:

To unlock MSMEs’ potential, a multi-pronged reform strategy is underway:

• Credit Measures: Promotion of cash-flow based lending, expansion of CGTMSE, Vyapar Credit Cards, and enhanced TReDS-GeM integration.
• Ease of Doing Business: Single-window clearances, self-certification, and stronger MSME facilitation councils.
• Digital & Skill Upgradation: Launch of Digital MSME 2.0, apprenticeship hubs, and innovation incubators.
• Market Access: Expansion of cluster-based models, branding support, and ONDC-GeM integration.
• Green MSMEs: ESG-linked credit, circular economy incentives, and green certifications.
• Formalization Push: Linking benefits to Udyam registration, backed by SIDBI-led equity support.

Conclusion:
MSMEs are central to India’s vision of a $5 trillion economy and Viksit Bharat by 2047. With increased investment thresholds, focused policy interventions, and digital empowerment, India can build a resilient, inclusive, and globally competitive MSME ecosystem.