Budget announces wider definition for MSMEs, enhanced credit flow

New Delhi: Finance minister Nirmala Sitharaman on Saturday proposed a wider definition of micro, small and medium enterprises (MSMEs) and outlined a number of initiatives to increase credit flows amid a budget focus on helping smaller businesses.

“To help them achieve higher efficiencies of scale, technological upgradation and better access to capital, the investment and turnover limits for classification of all MSMEs will be enhanced to 2.5 and 2 times respectively.”

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The broader revenue criteria will help more businesses to come under the ambit of MSMEs and smaller businesses access government benefits for a longer period.

While the budget does not give the limit in terms of absolute numbers, it seeks to address a familiar problem: industry participants said input costs for small businesses have risen significantly in the past few years, leading to higher investments by MSMEs. But higher investments renders many of these businesses out of the MSME criteria.

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"The surge in prices of basic raw material due to disruptions in supply chains and conflicts has made it necessary for such an upward revision. It will be particularly helpful for MSMEs taking advantage of 25% reservation in public procurement. The move will also help MSMEs in building up scale through technological upgradation," said Anil Bhardwaj, secretary general, Federation of Indian Micro, Small and Micro Enterprises (FISME).

According to the last revision in criteria, introduced during the covid pandemic in July 2020, businesses with an investment of up to ₹1 crore on plant and machinery and an annual revenue of up to ₹5 crore are considered as micro enterprises.

The criteria is investment of up to ₹10 crore and revenue of up to ₹50 crore for small enterprises; and up to ₹50 crore and ₹250 crore respectively for medium enterprises.

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"The government's move to increase investment and revenue limits for MSMEs is a positive step, as it will boost their working capital, facilitating growth and expansion. This will empower MSMEs to scale up, innovate, and generate more employment opportunities, ultimately contributing to the country's economic growth and development," said, Aman Moudgil, director at Gilco Global.

Amid persistent liquidity concerns, the finance minister also raised the credit limits for loans with government guarantees for micro, small enterprises and startups.

For micro and small enterprises, the credit guarantee cover was raised from ₹5 crore to ₹10 crore and for startups it was doubled from ₹10 crore to ₹20 crore.

In another novel move, the minister announced: "We will introduce customized credit cards with a ₹5 lakh limit for micro enterprises registered on Udyam portal. In the first year, 10 lakh (1 million) such cards will be issued."

Additionally, the government will launch a new scheme to support first-time entrepreneurs, including 500,000 women and people from scheduled castes and scheduled tribes. Sitharaman said that the scheme would provide loans of up to ₹2 crore each over the next five years.

She also said that a new policy would be introduced to promote employment and entrepreneurship opportunities in labour-intensive sectors. 

There has been a major push for employment since the last budget, in which the government announced an apprenticeship scheme, after employment turned out to be a key issue in the Lok Sabha elections of 2024.

The budget also stressed on harnessing the export potential of MSMEs and other larger businesses. The government would set up an export promotion mission, with sectoral and ministerial targets, driven jointly by the ministries of commerce, MSME and finance.

"It will facilitate easy access to export credit, cross-border factoring support, and support to MSMEs to tackle non-tariff measures in overseas markets," the minister said.