Budget Blueprint: Making MSMEs a Growth Engine

The transformation of India's micro, small, and medium enterprises (MSMEs) represents perhaps the most significant opportunity for achieving inclusive growth in this decade.

- GOURAV VALLABH

With 63.4 million enterprises contributing 30 percent to the national GDP and employing over 100 million people, this Indian sector's economic footprint is larger than the entire economies of, say, Thailand or Sweden. Yet, its potential remains significantly underused, primarily due to structural constraints that the upcoming Budget 2025 must address.

Closing the financing gap: The UK Sinha Committee estimated this gap to be ₹20-25 lakh crore, about 7.3 percent of the GDP. Access to credit stands at 14 percent, significantly trailing China's 37 percent and the US's 50 percent.

Germany's KfW model offers a relevant framework—it operates as a government-owned development bank, providing credit guarantees and technical assistance, and acting as a second-tier lender through commercial banks. This model reduces lender risks, promotes private-sector involvement, and supports innovation while maintaining low default rates.

India could benefit from expanding the Credit Guarantee Fund Trust for Micro and Small Enterprises to include larger loans and differentiated guarantees like the KfW does. Incorporating financial aid with capacity-building initiatives, using digital infrastructure for secure data sharing, and collaborating with fintech firms to offer innovative lending solutions would help bridge the financing gap and promote sustainable growth.