Budget 2025: MSMEs Seek Simpler Cross-Border Payment Rules, Interest Equalisation for Service Exports

Micro, Small, and Medium Enterprises (MSMEs) in India contribute around 30% towards its gross domestic product (GDP). As per latest the government data, industry exports have increased from Rs 3.95 lakh crore in 2020-21 to RS 12.39 lakh crore in 2024-25. While these figures highlight the sector’s potential as a growth driver, it continues to recover from the challenges brought by the pandemic, along with pre-existing issues that have persisted over time.

The MSME Ministry set a target of increasing the sector's contribution to the GDP to 50% by 2025. However, achieving this goal may be uncertain as the lingering economic effects of the pandemic weigh heavily on the sector. Notably, its GDP contribution had already declined to 30.5% in FY20, down from 32.2% in FY15, even before the pandemic hit.

Persistent Gaps in Schemes

Various industry watchers have pointed out that while several MSME schemes have been introduced over the years, challenges persist. This underscores the need for more effective implementation to ensure these initiatives achieve their full potential and provide meaningful support to the sector.

"Only 16% of SMEs receive timely finance, and a Rs 20-22 trillion credit gap remains. Additionally, 86% of manufacturing MSMEs are unregistered, limiting access to financial support. Over 2.18 lakh delayed payment cases on the Samadhan portal highlight the need for stricter enforcement measures," highlights Sanjay Bhardwaj, associate partner at Forvis Mazars India.

Rohit Agarwal of Urban Space further highlights that despite being a significant initiative for the MSME sector, the implementation of the Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGTMSE) posed various challenges, especially for players in the home furnishing industry.

"Many MSMEs are unaware of the scheme or unclear about eligibility. Despite being collateral-free, lenders often impose additional conditions, making access difficult. Approval delays hinder timely funding, especially in a seasonal industry. The scheme doesn’t address unique needs like design innovation, technology upgrades, or global compliance," Agarwal explains.

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Hemant Jain, president of the PHD Chamber of Commerce and Industry (PHDCCI), feels that it is essential to train and bring a change in the approach of the functionaries of different public institutions at various levels including banks to make them more sensitive towards meeting the needs and aspirations of the MSME sector. He notes it will provide a boost to the government's efforts in providing promotional and developmental support to the schemes, particularly concerning credit flow, market access and technology advancement.

Ongoing Challenges

Persistent issues like inadequate credit and finance coupled with a high cost of credit, infrastructure bottlenecks, inadequate market linkages, lack of information about appropriate technologies, lack of skilled manpower and a large number of compliances have constrained the growth of MSMEs and creation of new entrepreneurial ventures in the country, experts identified. Despite all odds, the sector has been able to survive due to its flexibility and resilience. But these factors are limiting their ability to invest in technology, expand and stay competitive.

Union Budget 2025: Industry Expectations

Finance minister Nirmala Sitharaman will present the Union Budget 2025-26 on February 1 in the parliament. Meanwhile, anticipation is mounting among MSMEs as they await measures that could address their challenges to support their growth.

Rahul Ahluwalia, co-founder of the Foundation for Economic Development, believes that now the country requires extremely simple regulations related to cross-border payments for Indian businesses to sell their products in foreign markets without dealing with mountains of red tape.

Jain recommends that the Income Tax rates for proprietorship, Partnership firms and LLPs which comprise the majority of MSMEs should also be reduced to the level of 25% for old and 15% for new enterprises in line with similar tax rates announced by the Government for Corporate entities.

He also feels that since the country has set a much higher target for service exports for the coming years, the Government should include service exports also in the eligibility for interest equalisation as extended to other sectors.

Furthermore, experts also advocated enforcing timely credit, providing fiscal support for digital adoption, and introducing targeted skill programs along with simplified taxation.