What’s Next for India’s MSMEs? Pre-Budget 2025-26 Expectations

As the Union Budget 2025-26 approaches, the Micro, Small, and Medium Enterprises (MSMEs) sector—often referred to as the backbone of India’s economy—is eager for policies that address persistent challenges and pave the way for sustainable growth. Industry experts and trade bodies, including the Associated Chambers of Commerce and Industry of India (Assocham), have outlined several key recommendations to support MSMEs and enhance their contribution to the economy.

Empowering MSMEs with Tax Simplification

Simplifying tax compliance remains a top priority for MSMEs. Assocham has called for an expansion of the presumptive taxation framework, particularly to cover emerging sectors like data centers, cloud computing, and data hosting. Presumptive taxation allows businesses to determine their income on a fixed percentage basis, reducing the complexities of auditing and bookkeeping.

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“This measure will not only ease compliance burdens but also provide clarity on tax liabilities, enabling better financial planning and management,” said Sanjay Nayar, President of Assocham. Such reforms could also reduce disputes and foster a more transparent relationship between MSMEs and tax authorities.

The Case for Integrated Infrastructure Townships

A transformative idea proposed by Assocham is the development of integrated infrastructure townships tailored for MSMEs. These townships would provide a comprehensive ecosystem with facilities such as R&D centers, common testing labs, housing for workers, schools, hospitals, training centers, and export assistance hubs.

“These townships can significantly enhance the efficiency and global competitiveness of MSMEs by centralizing resources and reducing logistical challenges,” Nayar emphasized. Modeled on successful industrial estates, such infrastructure could address operational bottlenecks and foster innovation.

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Addressing Credit Accessibility

Despite the availability of collateral-free loan schemes, access to credit remains a significant hurdle for MSMEs. Financial institutions often impose stringent conditions, including higher interest rates and personal collateral requirements. To address this, Assocham has recommended mandatory disclosure of the number and amount of collateral-free loans disbursed by banks.

“Transparency in lending practices will encourage banks to extend more credit to MSMEs,” noted Nayar. Additionally, the industry body has suggested increasing budget allocations for credit guarantee schemes similar to the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), which provided critical support during the pandemic.

Boosting Skill Development and Entrepreneurship

The MSME sector also needs a well-trained workforce and entrepreneurial mindset to thrive in a competitive global market. Assocham has advocated for the establishment of universities and training centers focused on skill development and entrepreneurship. These institutions could bridge the skill gap, aligning education with industry demands and fostering innovation.

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Other Key Expectations

1. Export Promotion: Enhanced incentives and simplified processes for MSME exporters to increase their share in global trade.

2. Digital Transformation: Support for technology adoption to drive productivity and innovation.

3. Green Initiatives: Policies promoting sustainability and renewable energy adoption in MSME operations.

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Towards a Thriving MSME Ecosystem

The MSME sector’s expectations from the Union Budget 2025-26 highlight the need for a multi-faceted approach to address both immediate challenges and long-term goals. Integrated townships, tax reforms, enhanced credit accessibility, and skill development initiatives are pivotal to unlocking the sector’s potential.

With these recommendations, the government has an opportunity to empower MSMEs and ensure their continued contribution to employment generation, innovation, and economic growth. As stakeholders await the budget’s unveiling, the focus remains on creating an enabling environment for India’s MSMEs to thrive in a rapidly evolving global economy.