Budget 2025 Promised a Lifeline for MSMEs. So Why Are They Still Gasping?

The Union Budget 2025 was announced with great fanfare—and for once, it appeared that India’s small businesses were at the center of the government’s vision. From expanded credit guarantees to a brand-new ME-Card for micro enterprises, the Budget seemed to herald a new era of MSME empowerment.

And yet, months later, most small entrepreneurs would tell you: little has changed.

The Budget’s marquee measures were promising on paper. The doubling of the Credit Guarantee Fund Trust cover to ₹10 crore and the introduction of the ME-Card—offering ₹5 lakh of collateral-free credit, were designed to ease liquidity pressures for micro enterprises. One million such cards were slated to be rolled out in the first year. A new ₹10,000 crore Fund of Funds was also launched to back startups and small businesses. The government even claimed that CGTMSE coverage hit an all-time high of ₹3.06 lakh crore in FY25, up 51% from the previous year.

Yet here’s the paradox: even as more businesses sought loans, disbursements actually dropped. According to the SIDBI-CIBIL MSME Pulse (May 2025), loan demand rose 11% in the first quarter, but actual lending fell by the same percentage. What does this tell us? That the intent was sound, but the delivery is falling short.

The Policy-Execution Divide

Too many of these initiatives remain works in progress. The ME-Card scheme is still in rollout mode. The ₹10,000 crore Fund of Funds has not yet translated into meaningful disbursements. It’s a recurring pattern in Indian policymaking: headline-grabbing announcements, followed by sluggish follow-through.

Meanwhile, support for older, proven programs has quietly eroded. The Credit Linked Capital Subsidy Scheme (CLCSS), once a cornerstone for MSME technology upgrades, was suspended. Budget allocations raise further questions: the Emergency Credit Line Guarantee Scheme was cut by over 35%, and the Ministry of MSME’s overall allocation saw only a marginal uptick. These are not the moves of a government truly doubling down on MSMEs.

The result is predictably disheartening. As industry voices like Badish Jindal of the Federation of Punjab Small Industries have noted, Budget 2025 has felt like “old wine in a new bottle.”

Credit Remains a Choke Point

The hard truth is that India’s MSME credit ecosystem is broken, and Budget 2025 hasn’t fixed it.

A recent NITI Aayog report makes it clear: formal lenders serve only 19% of total MSME credit demand. The funding gap ranges from ₹20 to ₹25 lakh crore. Banks remain cautious. Private lenders charge high interest. NBFCs face their own liquidity crunch. Rejection rates are high, up to 45%, often due to lack of formal documentation, GST registration, or a thin credit file.

Even where loans are available, they’re too expensive to be useful. And the structural issues remain unaddressed. Banks still rely on automated flags, Special Mention Accounts (SMA), to blacklist even temporarily delayed borrowers. As FISME has rightly pointed out, this inflexible system can doom a small business over one bad month. There is little room for nuance or human discretion.

The Missing Ingredient: Awareness

Beyond access and cost, another silent killer is simply lack of awareness. A NITI Aayog survey found that over 50% of MSMEs have not availed any government scheme in the past three years, either because they didn’t know about them, or because the paperwork and eligibility hurdles were too daunting.

In a country of 6.3 crore MSMEs, where 99% are micro units with under ₹1 crore turnover, such schemes must be designed with their realities in mind. Announcements are not enough. Execution, outreach, and simplification are what matter.

Yes, there are bright spots. Udyam registrations have crossed 3.1 crore, helping more MSMEs formalize. Non-performing assets among MSME loans have fallen to 1.79%, a five-year low. Fintech lenders are chipping away at traditional bottlenecks. But these gains are incremental. They do not mask the wider frustration.

A Wake-Up Call, Not a Victory Lap

For a government that champions “ease of doing business,” the ultimate test is whether a small business owner in Patna or Surat can borrow, scale, and pay back with confidence. Budget 2025, for all its optimism, has yet to deliver that.

This is not a call to dismiss the reforms, but rather, to accelerate them. Announce less, implement more. Cut the red tape. Rebuild trust in the system. MSMEs don’t need big slogans, they need working capital, fair credit terms, and timely payments.

In the end, it’s simple: no economy can truly thrive while its smallest businesses are starved of support. Budget 2025 sowed the seeds. But unless those promises bloom into real, on-the-ground change, India’s MSMEs will remain stuck in the same old cycle—full of potential, yet forever waiting for their moment.