A Step Forward, Yet Missing Crucial International Standards
In the recently unveiled Budget 2025-26 by Finance Minister Nirmala Sitharaman, the Micro, Small, and Medium Enterprises (MSME) sector has been highlighted as one of the four engines propelling India’s economic growth. The budget includes several commendable initiatives aimed at supporting MSMEs, such as enhanced credit availability, revised classification criteria, and dedicated schemes for first-time entrepreneurs. However, when juxtaposed against international standards and practices, certain shortcomings become evident, potentially limiting the sector’s global competitiveness and sustainability.
Valuable Reforms:
Credit Enhancement: The budget proposes a significant increase in credit guarantee cover for micro and small enterprises from ₹5 crore to ₹10 crore, which should inject an additional ₹1.5 lakh crore into the sector over the next five years. This move could alleviate one of the primary constraints – access to finance – for MSMEs. Revised MSME Classification: By increasing investment and turnover limits, the government aims to empower MSMEs to scale up operations without losing their status and benefits, a move that could encourage more significant investments and technology adoption. Support for Start-ups and Entrepreneurs: The announcement of a new Fund of Funds with an additional ₹10,000 crore and a scheme for first-time entrepreneurs from marginalized communities are steps towards fostering innovation and inclusivity.
Shortcomings Against International Standards:
Environmental Sustainability: While the budget mentions clean tech manufacturing, there’s a glaring absence of comprehensive environmental incentives or mandates for MSMEs to adopt green practices. Internationally, countries like Germany have ‘green loans’ or subsidies for SMEs to invest in sustainable technologies. The lack of similar robust mechanisms in India could hinder MSMEs from aligning with global environmental standards, which are increasingly becoming prerequisites for international trade and partnerships. Digitalization and Cybersecurity: The push for digital transformation is somewhat underwhelming when compared to the digital infrastructure support seen in places like Singapore or Estonia. MSMEs need more than just incentives; they require a structured digital roadmap with cybersecurity support to protect against increasing digital threats. The budget could have done more to bolster digital literacy, provide cybersecurity frameworks, or offer tax incentives for digital infrastructure development. Trade Facilitation and Global Integration: While the ‘Export Promotion Mission’ and ‘BharatTradeNet’ are positive steps, they fall short in terms of providing MSMEs with the tools to navigate complex international trade regulations, non-tariff barriers, and compliance costs. Countries like South Korea offer extensive support through export insurance, market access programs, and international networking platforms. The Indian budget could enhance these aspects by integrating more educational and support programs. Skill Development: The budget does mention investment in people but lacks specific, ambitious programs tailored for MSMEs. Internationally, skill development is often linked with industry needs, providing practical, market-relevant training. The absence of a dedicated, sector-specific skilling initiative for MSMEs could mean a continued skills gap, affecting productivity and innovation. Regulatory Simplification: Although there’s a nod towards regulatory reforms, the budget does not explicitly address the simplification of compliance processes for MSMEs, which are often bogged down by bureaucratic red tape. Countries like New Zealand have a one-stop-shop approach for business regulations, which significantly reduces the compliance burden. India needs similar reforms to ease doing business for MSMEs. Access to International Markets: While domestic measures are crucial, the budget could have been more aggressive in negotiating trade agreements or providing fiscal benefits for MSMEs engaging in international trade, akin to what Canada does through its Export Development Canada (EDC) programs.
Bottom line:
The 2025-26 Budget demonstrates an understanding of the MSME sector’s role in India’s economic framework. However, for MSMEs to thrive on the international stage, the budget needs to address these shortcomings by aligning more closely with global best practices. This includes not only financial support but also comprehensive policies for sustainability, digital security, skill enhancement, regulatory ease, and global market integration. Without these, India’s MSMEs might find themselves at a competitive disadvantage in the increasingly interconnected global market. The government must consider these aspects in future budgets to truly empower MSMEs according to international standards.
