As Narendra Modi completes a year of his third term amidst a fragile global economy, India’s MSME sector needed a bold, transformative push. What it got instead was a familiar cocktail of recycled schemes and repackaged promises. With geopolitical tensions, escalating tariff wars, and the growing risks of economic fragmentation, India faces unique headwinds that demand more than cosmetic tweaks. While the Indian economy has remained one of the fastest-growing major economies, structural concerns have been mounting since 2017, gradually weighing on its momentum. These pressures are now manifesting in a pronounced slowdown, raising serious questions about India’s ability to sustain long-term growth in an increasingly volatile global environment.

At the heart of India’s economic challenge lies the urgent need to revitalize domestic demand, which has been faltering amid sluggish income growth, uneven job creation, and declining consumer confidence. The manufacturing sector, once the linchpin of the Make in India initiative, has struggled to achieve its potential, hampered by low productivity, infrastructure bottlenecks, and a lack of competitiveness in global value chains. As an anecdote, India and China launched their “Make in India” and “Made in China 2025” initiatives within the span of a year in 2014-2015. A decade later, China commands approximately 31.6% of global manufacturing output, globally leading in 57 out of 64 key critical sectors, while India lags significantly with just 2.9% of the global manufacturing share. This stark contrast underscores the challenges India faces in scaling its manufacturing ecosystem, driven by structural inefficiencies and policy gaps. Symbolic of these deficiencies and compounding them at the same time is the fragile state of the MSME sector, which accounts for nearly 30% of GDP and over 110 million jobs, yet continues to face persistent barriers such as credit constraints, regulatory hurdles, and technological gaps. Without a concerted push to reignite manufacturing dynamism, strengthen MSMEs, and create quality employment opportunities, India risks falling into a cycle of subdued demand, underutilized capacity, and widening socio-economic disparities.

The Union Budget 2025-26, presented by Finance Minister Nirmala Sitharaman, introduces a raft of key measures intended to strengthen the MSME sector. A major highlight is the doubling of the credit guarantee cover from ₹5 crore to ₹10 crore, aiming to unlock an additional ₹1.5 lakh crore in credit over the next five years, enhancing access to formal financing for small businesses. To support micro-enterprises, the budget introduces a customized credit card with a ₹5 lakh limit, targeting 10 lakh MSMEs registered on the Udyam Portal. Additionally, it proposes raising the investment and turnover limits for MSMEs by 2.5 times and 2 times, respectively, enabling businesses to scale and access capital more effectively. Further, the budget allocates ₹91,000 crore for the Fund of Funds to support startups and entrepreneurs, with over ₹10,000 crore from the government, aiming to foster innovation and strengthen the MSME ecosystem.

However, beneath the veneer of new announcements lies an age-old familiar script. The budget’s measures for the MSME sector may appear ambitious on paper, but they are largely continuations of past initiatives rather than transformative policies capable of addressing the sector’s deep-rooted challenges. While these schemes promise to unlock credit, foster entrepreneurship, and boost productivity, they fall short of tackling the structural issues that have constrained MSME growth over the past decade. Here’s why these announcements are more of the same, recycling old ideas without meaningful course correction.

The Credit Guarantee Illusion

One of the most prominent features of the budget is the expansion of the Credit Guarantee Fund, aimed at enhancing collateral-free loans for MSMEs. However, this is far from a novel intervention. Similar credit guarantee schemes have been central to MSME support since 2016, with repeated capital infusions into the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). The Emergency Credit Line Guarantee Scheme (ECLGS) during the pandemic followed the same approach, providing over ₹3 lakh crore in guaranteed credit. These schemes offer little more than temporary band-aids, failing to heal the deep financial wounds MSMEs have endured for years. They do not address the core issue of credit absorption capacity. Many MSMEs lack the financial literacy, formal documentation, and business stability needed to manage debt effectively. This often leads to unsustainable borrowing, increasing the risk of non-performing assets (NPAs) without fostering genuine business growth.

Revising Classifications Without Structural Reforms

Another key announcement is the revision of MSME classification criteria, with increased investment and turnover thresholds. This mirrors the reclassification undertaken in 2020 as part of the Atmanirbhar Bharat package, intended to help firms grow without losing their MSME status. However, this reclassification is the policy equivalent of rearranging deck chairs on the Titanic—cosmetic tweaks that ignore the iceberg of structural inefficiencies looming ahead. Simply redefining what qualifies as an MSME does not address the underlying problems of low productivity, technological stagnation, or poor integration into global value chains. While firms may benefit from expanded eligibility for certain schemes, the absence of targeted support to enhance operational efficiency and competitiveness means that these changes are unlikely to yield substantial economic gains.

The Customized Credit Card: A Quick Fix for Deeper Issues

The introduction of a customized credit card for MSMEs with a ₹5 lakh limit is presented as an innovative move, but it closely resembles the MUDRA Yojana (2015), which aimed to provide micro-loans to small businesses. MUDRA loans have faced criticism for high default rates and their limited impact on business expansion. Offering credit cards may improve short-term liquidity but fails to address the more pressing need for long-term capital investments and working capital management. MSMEs often struggle with unpredictable cash flows and seasonal demand fluctuations, issues that cannot be resolved through credit cards designed for small, day-to-day expenses.

Fund of Funds: High Hopes, Low Impact

The budget’s allocation of ₹91,000 crore for the Fund of Funds to support startups and entrepreneurs also reflects a pattern seen in previous years. Initiatives like the Startup India Fund (2016) and the 2018 Fund of Funds for MSMEs promised significant support but faced implementation bottlenecks, including slow fund disbursement and bureaucratic hurdles. Moreover, the focus on startups often overlooks the traditional MSME base, which operates in informal markets and lacks the visibility to benefit from such high-profile schemes. Without addressing issues like information asymmetry, complex eligibility criteria, and limited access in rural areas, this Fund risks becoming yet another underutilized financial instrument.

The Timely Payments Problem: A Recurring Issue

The government’s renewed emphasis on ensuring timely payments to MSMEs is also not new. Previous efforts, such as the MSME Samadhaan Portal (2017) and amendments to the MSME Development Act, mandated that payments to MSMEs be cleared within 45 days. Yet, delayed payments remain a critical bottleneck, especially from large corporations and government agencies. The real issue lies in the lack of enforcement mechanisms. Without stringent penalties for defaulters or robust dispute resolution frameworks, these promises often remain ineffective, leaving MSMEs grappling with chronic liquidity shortages.

Skill Development and Technology Adoption: Old Solutions for New Challenges

Finally, the focus on skill development and technology adoption for MSMEs is reminiscent of earlier programs like Skill India (2015) and Digital MSME (2017). These initiatives, while well-intentioned, have struggled to make a significant impact due to their one-size-fits-all approach. MSMEs operate in diverse sectors, each with unique skill and technology requirements. Generic skilling programs often fail to equip workers with industry-specific competencies, and the cost of technology adoption remains prohibitive for small enterprises without targeted subsidies or technical support.

In conclusion, the MSME-related measures in the Union Budget 2025 are incremental rather than transformative. They recycle old frameworks—focused on credit facilitation, definitional tweaks, and ambitious funding promises—without addressing the systemic issues that continue to plague the sector. The sector is already reeling under the weight of similar policies introduced over the past decade, which have failed to deliver tangible improvements in productivity, competitiveness, or job creation. Despite successive budgets promising credit support and regulatory easing, MSMEs continue to face the same challenges: limited access to sustainable finance, delayed payments, and an inability to scale effectively in a globalized economy. According to data from the Reserve Bank of India, MSME loan defaults rose by over 30% in the past two years, with nearly 20% of MSMEs classified as stressed assets. Additionally, surveys by industry bodies reveal that over 60% of MSMEs face chronic delays in payments from large corporates and government entities, severely affecting their working capital cycles.

Without bold, structural reforms, these incremental measures risk becoming part of a recurring cycle of policy announcements that generate more headlines than real impact. What the sector needs is not another round of cosmetic interventions but a comprehensive overhaul focusing on infrastructure development, supply chain integration, technology adoption, and robust market linkages. India cannot afford to treat its MSME sector as an afterthought or rely on half-measures—it is the backbone of the economy, and without addressing its core issues, the dream of inclusive, sustained growth will remain elusive.