Union Budget 2025: Nirmala Sitharaman doubles credit guarantee for MSMEs
What's the story
In her Union Budget speech, Finance Minister Nirmala Sitharaman has announced a major hike in the credit guarantee cover for micro and small enterprises (MSMEs).
The limit will be doubled from ₹5 crore to ₹10 crore. This will unlock an additional ₹1.5 lakh crore in credit over the next five years.
"To enhance access to credit, the credit guarantee cover will be significantly improved," Sitharaman said during her budget presentation.
Growth strategy
Government prioritizes tech upgrades, capital access for MSMEs
The government's plan to boost MSME growth also involves a focus on technological upgrades and better access to capital.
Sitharaman also announced that the investment and turnover limits for MSMEs will be increased, allowing a 2.5x and 2x expansion in these thresholds, respectively.
This move is aimed at instilling confidence among MSMEs, allowing them to scale up and provide more jobs to the youth.
Credit access
Enhanced credit guarantees, new credit card for microenterprises
The Finance Minister also announced plans to improve credit guarantees for term loans up to ₹20 crore.
In a new initiative, a customized credit card will be introduced for microenterprises.
The government plans to issue 10 lakh such cards in the first year itself, as part of its strategy to improve credit access for MSMEs.
Previous measures
Budget 2024's initiatives for MSME sector
In the last fiscal year, Sitharaman had proposed a package of financing, regulatory changes, and technology support for MSMEs.
The Union Budget 2024 had allocated ₹22,137.95 crore for the MSME ministry, a sharp 41.6% increase from the previous fiscal year.
Public sector banks were also urged to build in-house capabilities to assess creditworthiness of MSMEs instead of depending on external evaluations.
Economic impact
MSME sector's contribution to India's GDP and exports
The MSME sector has been a major contributor to India's economy. In FY 2021-22, it contributed over 29% to the GDP.
By 2023-24, the share of MSME-specified product exports had increased to 45.56%, highlighting their importance in India's overall export performance.
Consultancy firm Deloitte had suggested promoting risk mitigation tools like credit guarantees and insurance schemes for sectors like automotive, electronics, industrial machinery in the budget.