New Delhi: The Union Budget for 2025-26 is likely to step up financial support for startups and small businesses that account for nearly a third of the nation’s economic output.
The central government is looking to ensure they get adequate working capital, trade finance and funds needed for growth at attractive terms, according to two persons informed about the discussions. Likely measures include enhanced financial support under the schemes run by the Department of Promotion of Industry and Internal Trade (DPIIT) and the ministry of Micro, Small and Medium Enterprises (MSME), they said on the condition of anonymity.
Easier access to credit has been a key demand of MSMEs as central bank’s Monetary Policy Committee has increased rates by 250 basis points since May 2022, increasing the cost of capital. Small businesses, contributing over 29% of India’s gross domestic product, employ more than 247 million people, making the sector the largest employer when India is struggling to create adequate employment for millions of people joining the workforce every year.
Queries emailed to the ministries of finance, commerce and MSME remained unanswered till press time.
The MSME ministry, which offers credit and financial assistance for infrastructure development, marketing and technology upgradation of small enterprises, has a budget allocation of ₹22,138 crore in FY25. Its flagship schemes include covid-era Guaranteed Emergency Credit Line, which fully guarantees loans given to eligible small businesses; and the Prime Minister Employment Generation Programme that backs starting micro-enterprises in the non-farm sector.
Access to timely and affordable capital is crucial for MSMEs and early-stage businesses to scale, said Nilay Patel, founder and managing director of EasyPay, a fintech company. “If new credit guarantee schemes are designed with flexibility, they could significantly reduce the barriers for startups to grow, ultimately fuelling job creation and boosting economic resilience.”
“By providing a safety net for lenders, the credit guarantee scheme for startups will unlock valuable funding opportunities that would otherwise have been inaccessible. This support has been crucial in helping companies navigate challenging economic times and achieve their business goals,” Patel said.
DPIIT has set a target to establish startups in every district by the end of 2025, with 48% of new ventures currently originating from tier II and tier III cities, which are less populous and economically less advanced than metropolises like Delhi, Mumbai or Bengaluru, according to the second person quoted earlier. The upcoming budget may offer a higher fiscal support to further nurture the startup ecosystem, the person said.
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DPIIT’s fund of funds scheme does not directly invest in startups but offers capital to Sebi-registered alternative investment funds (AIFs) that, in turn, invest in growing Indian startups through equity and equity-linked instruments. So far, 1,120 startups have received ₹19,992 crore of support under the scheme, according to data available from Sidbi, which manages the corpus. The ₹10,000-crore scheme was rolled out in 2016 and the allocation in the current fiscal is ₹1,200 crore.
The government is also exploring to allow startups to use their intangible assets such as patents, trademarks, copyrights and trade secrets as collateral to obtain financing from banks and other financial institutions, said the second person.
DPIIT also runs a separate seed fund scheme that backs startups’ prototype development, product trials and market entry, in addition to schemes promoting industrial development in backward and remote areas.
The government is keen to back the startup ecosystem given its employment potential. Prime Minister Narendra Modi had in March last year described the trend of establishing startups as a social culture that no one can stop.
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