The Union Budget 2025-26 introduces a series of measures aimed at strengthening the Micro, Small, and Medium Enterprises (MSME) sector, recognising its role as one of the key engines in India’s journey of development, alongside agriculture, investment, and exports. To help businesses expand and improve efficiency, the investment and turnover limits for MSME classification have been raised. Access to credit is set to improve with an increase in the credit guarantee cover for micro and small enterprises, startups, and export-focused MSMEs. A new scheme will provide financial support to first-time entrepreneurs from disadvantaged backgrounds, while sector-specific initiatives will enhance productivity in areas such as footwear, leather, and toy manufacturing.
- Revised MSME Classification: The government has doubled turnover thresholds and increased investment limits by 2.5 times, allowing more businesses to qualify as MSMEs. This will allow more companies to benefit from MSME schemes and enable smoother transitions for growing micro, small, and medium enterprises.
- Expanded Credit Guarantee for MSMEs: The Credit Guarantee cover has been enhanced to ₹10 crore, unlocking ₹1.5 lakh crore in additional funding for businesses over the next 5 years. Tailored credit cards for micro-enterprises with a ₹5 lakh limit will improve access to working capital for smaller businesses.
- Government-Backed Support for Startups: The ₹10,000 crore Fund of Funds will offer additional funding opportunities for startups and innovation-driven MSMEs, supporting their global competitiveness and scalability.
- Ease of Doing Business Initiatives: A dedicated high-level committee will simplify compliance processes, reduce regulatory burdens, and improve trust-based governance, creating a more business-friendly environment for MSMEs.
- Empowering Women Entrepreneurs: Special initiatives for 5 lakh first-time women entrepreneurs from Scheduled Castes and Scheduled Tribes include up to ₹2 crore in term loans, along with online training, promoting gender inclusivity in business.
New MSME Classification Criteria for MSMEs
Do you feel your business is too large to be considered a micro-enterprise but not big enough to compete with big companies? The Indian government has updated the criteria for Micro, Small, and Medium Enterprises (MSMEs) to help businesses grow more smoothly.
As per the new criteria for MSMEs, the investment limit for MSME classification will be increased 2.5 times, while the turnover threshold will be doubled.
The table below summarizes the change in criteria as per the new definition of MSME.
| Enterprise Type | Old Turnover Limit | New Turnover Limit | Old Investment Limit | New Investment Limit |
|---|---|---|---|---|
| Micro | ₹5 Crore | ₹10 Crore | ₹1 Crore | ₹2.5 Crore |
| Small | ₹50 Crore | ₹100 Crore | ₹10 Crore | ₹25 Crore |
| Medium | ₹250 Crore | ₹500 Crore | ₹50 Crore | ₹125 Crore |
These changes will create a more inclusive growth environment where businesses can transition smoothly without regulatory hurdles.
Why does this matter?
- More businesses will now qualify as MSMEs, unlocking easier access to credit, subsidies, and government contracts.
- The government’s Credit Guarantee Schemes for MSMEs will now apply to a wider range of firms, enabling easier access to both secured and unsecured business loans.
- Growing firms will not have to fear losing their MSME benefits if they scale up.
- Expect a ripple effect: higher job creation, greater market competition, and stronger economic contributions from the sector.
With the MSME threshold expansion, we can potentially add 5-7 million more jobs in the next five years. So, if your business is on the cusp of expansion, now is the perfect time to re-evaluate your growth strategy and tap into new benefits.
Cutting through the red tape: Ease of doing business
Navigating the maze of regulations, licenses and certifications could sometimes feel like running a marathon in quicksand. A recent World Bank report on Ease of Doing Business ranked India 63rd among 190 nations, with MSMEs citing regulatory hurdles as a top barrier to growth. The Union Budget 2025-26 aims to alter that by announcing a high-level committee dedicated to simplifying regulatory processes. The committee will aim to strengthen trust-based economic governance, ensuring a more business-friendly environment.
What’s in it for MSMEs?
- Fewer bureaucratic hurdles mean faster approvals and less paperwork.
- Reduced compliance costs free up capital for core business operations.
- More streamlined processes can encourage foreign and domestic investors to partner with Indian MSMEs.
Fueling growth: Bigger and better credit access
Lack of credit has long been the Achilles heel for MSMEs, holding back their growth potential. But the announcements made in the budget could really prove transformational.
The Key Announcements:
- Enhanced Credit Guarantee: The government has doubled the credit guarantee cover under the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) from currently Rs. 5 Crore to Rs. 10 crore, unlocking Rs. 1.5 lakh crore in additional funding over the next five years. This move will encourage Banks and NBFCs to provide more business loans to micro and small businesses, providing them with the much-needed capital for growth.
- Customized Credit Card for Micro-Enterprises: A Rs. 5 lakh limit-tailored credit card exclusively for micro-enterprises, with 10 lakh cards expected to be issued in the next five years. This will provide businesses with instant access to working capital, fostering growth and stability.
- ₹10,000 Crore Fund of Funds for Startups: A game-changer for innovation-driven MSMEs and Start-ups looking to scale and compete globally, which complements the government’s existing ₹10,000 crore contribution. These funds are routed through venture capital funds or Private Equity Funds or some special purpose funds (daughter funds). These daughter funds, invest these funds along with their own capital into MSMEs and Startups in the form of debt or equity or a combination of both.
Building on the success of the existing corpus of Rs. 10,000 Crore which attracted investment commitment of around Rs. 91,000 Crore from various funds, the government announced an additional infusion of Rs. 10,000 Crore in the fund of funds which is expected to boost the access to growth capital for Start-ups and MSMEs.
- ₹10,000 Crore Fund of Funds for Startups: A game-changer for innovation-driven MSMEs and Start-ups looking to scale and compete globally, which complements the government’s existing ₹10,000 crore contribution. These funds are routed through venture capital funds or Private Equity Funds or some special purpose funds (daughter funds). These daughter funds, invest these funds along with their own capital into MSMEs and Startups in the form of debt or equity or a combination of both.
- Empowering Women Entrepreneurs: Special support for 5 lakh first-time women entrepreneurs from Scheduled Castes and Scheduled Tribes, offering up to ₹2 crore in term loans along with online training. This is indeed a significant step towards gender inclusivity in business.
- Boosting MSME Exports: A new term loan scheme has been announced for offering up to ₹20 crore to MSME exporters. This will strengthen their global competitiveness and expand India’s footprint in international trade.
The RBI reports that only around 16% of MSMEs in India have access to formal credit in the form of business loans. With these measures, the government aims to increase credit penetration to at least 25% by 2028, unlocking an estimated Rs.5 lakh crore in economic activity.