Sankhanath Bandyopadhyay
Senior Economist, Infomerics Analytics & Research
According to a Survey Report by SIDBI in May’25, with more than 7.34 crore estimated MSMEs employing around 26 crore individuals, the sector plays a crucial role in promoting entrepreneurship, innovation, and economic resilience. According to a PIB(Dec’24) release, the growth of MSMEs have been enhanced from ₹3.95 lakh crore in 2020-21 to ₹12.39 lakh crore in 2024-25. Another report by a reputed consulting firm estimated that the sector accounts for about 62% of aggregate employment in India, compared to 77% in other emerging economies. The sector contributes around 30% of India’s Gross Value Added (GVA), and contributing around one-third to India’s GDP.
The Union Cabinet has recently approved the Export Promotion Mission (EPM); a flagship initiative announced in the Union Budget 2025–26 to strengthen India’s export competitiveness, particularly for MSMEs, first-time exporters, and labour-intensive sectors. The Mission will provide a comprehensive, flexible, and digitally driven framework for export promotion, with a total outlay of ₹25,060 crore for FY 2025–26 to FY 2030–31.
The Union Budget 2025-26 introduces a series of measures aimed at strengthening the Micro, Small, and Medium Enterprises (MSME) sector, recognising its role as one of the key engines in India’s journey of development, alongside agriculture, investment, and exports. To help businesses expand and improve efficiency, the investment and turnover limits for MSME classification have been raised.
Huge Export Potential
MSMEs have been successfully exporting their goods and services across the world. The total number of exporting MSMEs in 2024-25 has increased noticeably from 52,849 in 2020-21 to 1,73,350 in2024-25. MSMEs demonstrated an exemplary growth trajectory,contributing 45.73% to exports in 2023-24, which increased to 45.79% by May 2024, highlighting their growing impact on India’s trade performance.
The Export Policy Mission (EPM) consolidates key export support schemes such as the Interest Equalisation Scheme (IES) and Market Access Initiative (MAI). Under EPM, priority support will be extended to sectors impacted by recent global tariff escalations, such as textiles, leather, gems & jewellery, engineering goods, and marine products. The Directorate General of Foreign Trade (DGFT) will act as the implementing agency.Besides the EPM, the Cabinet also cleared a Credit GuaranteeScheme for Exporters (CGSE), under which the NCGTC willprovide full credit guarantee coverage to banks for up to ₹ 20,000 crore in additional loans to eligible exporters, includingMSMEs.
There is still vast untapped potential in the Export Oriented Units (EOUs) that can be leveraged for MSME growth if challenges such as time-consuming processes, procedural delays, availability of information regarding regulatory requirements, inadequate storage and transportation facilities, and difficulty in accessing export finance are eased for MSMEs intending to export. Despite possible limitations, the new Export scheme is aimed to strengthen India’s export-competitiveness amid global trade uncertainties.
MSME Financing
Bank lending to the MSME sector is experiencing robust growth in 2024-2025, with substantial shift towards digitalization, formalization, and government-backed credit guarantee schemes. Outstanding MSME credit from Scheduled Commercial Banks (SCBs) grew by 14.8% year-on-year in FY25, reaching ₹31.3 lakh crore. The overall commercial credit portfolio for MSMEs (exposure < ₹50 crore) grew to ₹35.2 lakh crore by March 2025.
Non-banking financial companies (NBFCs) are playing a crucial role in MSME financing. Co-lending partnerships between banks and NBFCs have also expanded significantly to meet priority sector targets and reach underserved segments.Banks/NBFCs are also leveraging artificial intelligence (AI) and data analytics to assess creditworthiness based on digital footprints (e.g., GST data, bank statements).
Credit gap, timely financeremainsbig challenges
Despite improvement in credit access, gap still exists. The sector still has a credit gap of around ₹30 lakh crore or 24%.In the defence equipment sector, delay in payments and availability of raw materials are greater constraints than access to credit. Access to timely and adequate formal credit remains a persistent challenge due to a variety of factors like information asymmetry, inadequate formalisation, lack of comprehensive financial records, weak credit histories, and insufficient collateral etc. Despite the uptick in credit penetration from NBFCs/Fintechs, still the gap in credit demand persists.
The overall demand has been estimated at ~₹123 lakh crore with the overall debt demand at ~₹92 lakh crore assuming the split between debt and equity components in the ratio of 3:1. The addressable debt demand is assumed to be 70% of the overall debt demand at ~₹64 lakh crore.
A substantial amount of such credit gaps can be met through growing digital lending.Fintechs, banks and other lending institutions are actively promoting digital awareness and building infrastructure to bring digital lending. With further proliferation, MSMEs can expect improved access to credit. Most banks and financial institutions are already equipped to adopt digital lending, with many having the requisite online platforms and backend systems.
There are other modes of financing that have gained over the years. For instance, The Trade Receivables Discounting System (TReDS) is one such alternative lending framework where MSMEs can discount their invoices for generating working capital. The government’s decision to reduce the turnover threshold limit to ₹250 crore (from the earlier ₹500 crore) and include all central public sector enterprises (CPSEs) on the invoice discounting platform TReDS, as mandated by the RBI, is a positive step towards this.
However, despite its benefits, TReDS faces challenges including distorted participation, where smaller MSMEs are yet to find their presence in this platform. Major issues include buyer’s lack of enthusiasm due to concerns about transparency and data exposure, weak enforcement of compliance mandates for buyers, and a general gap between the system’s policy intent and its operational delivery. Therefore, more specialised institutions are needed to address the issue of timely financing especially for small and marginal MSMEs.
