Budget 2025 navigates global uncertainties through a well-designed strategic framework
The world is at a crossroads, navigating unprecedented economic, technological, geopolitical, and environmental challenges. Donald Trump’s uncompromising “America First” policies and the use of coercion to achieve his objectives have heightened economic and geopolitical uncertainties, compelling nations to strike a balance between global integration and self-reliance. Against this backdrop, the finance minister presented a Budget that articulated the multipronged strategy adopted by the government to navigate these challenges and seize emerging opportunities. The Budget is anchored on a well-designed framework founded on four key pillars of the economy: agriculture, micro, small, and medium enterprises (MSMEs), manufacturing, and exports, incorporating a strategic mix of structural reforms, targeted investments, productivity growth, skill development, digital transformation, innovation, and green energy on the supply side. This is besides enhanced consumer spending power on the demand side to drive growth and competitiveness while addressing social welfare concerns.
The thrust has been on announcing new Initiatives
However, the thrust has been on announcing new programmes and policies across the four sectors, in addition to existing ones. This phenomenon, known in emerging literature as policy accumulation or policy layering, raises concerns about the effectiveness of implementation and governance.
Over the past few years, India has witnessed phenomenal policy dynamism, with policies/programmes piling up across sectors. However, this has not been reflected in macroeconomic indicators of structural change, growth, and competitiveness. Could it be that the ever-increasing policy stock, without commensurate strengthening of administrative and governance capacities, has resulted in an implementation deficit that negatively affects policy effectiveness? This issue is explored at the sector level, with a focus on MSMEs.
New strategic initiatives have been unveiled for empowering MSMEs
A major highlight of the Budget is enhanced support for MSMEs, through a revision of the classification criteria that enables businesses to scale efficiently without losing government benefits. The investment limits for MSMEs are set to increase 2.5 times with micro-enterprises’ limit rising from `1 crore to `2.5 crore, small enterprises from `10 crore to `25 crore, and medium ones from `50 crore to `125 crore. Turnover limits are also proposed to double, with micro-enterprises increasing from `5 crore to 110 crore, small enterprises from `50 crore to `100 crore, and medium enterprises from `250 crore to `500 crore. To further support MSMEs in achieving economies of scale, the Budget directly addresses their most pressing challenge — access to finance — through several new initiatives, including a `5 lakh credit card for micro-enterprises registered on the Udyam portal, a loan scheme targeting first-time entrepreneurs (particularly women and Scheduled Caste/Scheduled Tribe applicants), enhanced credit availability with a guarantee cover for MSMEs, start-ups, and exporters, an extension of tax benefits under Section 80-IAC to all eligible start-ups incorporated before April 1, 2030, a deep tech Fund of Funds to catalyse next-generation start-ups, and an Export Promotion Mission to facilitate export credit access, cross-border factoring support, and assistance in overcoming non-tariff barriers.
Rising policy stock without commensuration increase in administrative capacity may lead to implementation deficit
The fact is that numerous government schemes have already been launched or revamped over the past two decades to support MSMEs. These include Mudra loans for financial assistance, the Credit Guarantee Fund Scheme, the Zero Defect Zero Effect certification scheme to encourage quality manufacturing, the Prime Minister’s Employment Generation Programme for micro-enterprise establishment, the Credit Linked Capital Subsidy Scheme for technology upgrades, the Micro and Small Enterprises Cluster Development Programme for common facility centres and industrial estate upgrades, and the Reserve Bank of India (RBI)-initiated Restructuring of Advances scheme for loan restructuring under specific conditions. Yet, their effectiveness remains questionable. An analysis of the World Bank’s Enterprise Survey for India (2022) reveals that out of 9,003 MSMEs, only 663 (7.4%) reported receiving any government support in the previous fiscal year. Among them, 40% found the schemes ineffective in driving business growth, implying that only 4.4% MSMEs benefitted meaningfully. The most accessed schemes were the Cluster Development Programme (155 enterprises, 35.5% satisfaction), Restructuring of Existing Loans (141 enterprises, 75% satisfaction), Mudra loans (80 enterprises, 56% satisfaction), and the production-linked incentive scheme in textiles, food, and miscellaneous sectors (75 enterprises, 89% satisfaction). Other schemes had minimal impact. The overall low adoption and satisfaction rates suggest an implementation gap.
One of the primary challenges faced by MSMEs is delayed payments from larger companies, leading to cash flow shortages and inadequate working capital. The MSME Act, 2006, (Section 16) mandates that buyers must settle dues within 45 days of accepting goods or services, failing which they are liable to pay compound interest at thrice the RBI-notified bank rate. However, compliance remains weak. To address this, the RBI introduced the Trade Receivables Discounting System (TReDS) in 2014, enabling MSMEs to discount invoices via an auction mechanism. According to survey data, out of 814 MSMEs that uploaded invoices on a TReDS platform, 452 received funding, with 97% securing it within 45 days. However, adoption remains low, with only 962 enterprises (less than 11%) of the 9,003 surveyed registered on the platform. In 2017, the government also launched the MSME SAMADHAAN-Delayed Payment Monitoring System, yet 45% MSMEs selling on credit in the sample still reported payment delays, negatively impacting liquidity.
Prioritize policy effectiveness over multiplication
Evidently, extreme policy dynamism — introducing multiple programmes each year while maintaining existing ones — can overburden bureaucracy, strain resources, and compromise the implementation of initiatives. A shift in focus from continuous expansion to ensuring sustainability and effectiveness of programmes is imperative for achieving policy success.
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