The Union Budget for 2025-26 provides significant support to India's Micro, Small, and Medium Enterprises (MSMEs).  The Union Budget  2025-26 introduces key reforms to boost growth, enhance competitiveness, and promoting inclusivity. With the MSME sector contributing nearly 30% to India's GDP and employing over 110 million people, these reforms are essential for reducing finance costs, encouraging innovation, and enhancing global competitiveness.  

This blog reflects on the most prominent Union Budget 2025 reforms, how they can be considered revolutionary for MSMEs, and the impact of virtual CFO services on managing the same so that its efficacy can be analyzed.

How the Union Budget 2025-26 Will Change India's MSME Sector?

1. Redefined MSME Classification Criteria - Eligibility and Benefits Expanded

A key change in the Union Budget 2025-26 is the revision of MSME categorization criteria. This change broadens access to support, helping more businesses sustain and grow.   

• Micro-enterprises: The investment cap was increased to ₹2.5 crore from ₹1 crore, and the turnover cap was also increased to ₹10 crore from ₹5 crore. This will enable more companies to access benefits such as protection against delayed payments and subsidies. 

• Small and medium enterprises: The investment threshold has been raised to ₹25 crore from ₹10 crore, and the turnover threshold to ₹100 crore from ₹50 crore.. As a result, companies can continue to benefit from schemes like the Credit Guarantee Scheme for Micro and Small Enterprises (CGTMSE), which offers collateral-free loans and easier access to credit. 

• Medium-sized enterprises: The investment threshold has been increased to ₹125 crore from ₹50 crore, and the turnover threshold to ₹500 crore from ₹250 crore so that they can still avail access to export benefits and tax relief on R&D activity.

These changes are expected to cover another 10 million enterprises in the MSME category, increasing the cover of government schemes. Virtual CFO services help MSMEs understand their new classification and eligibility for various schemes. This simplifies financial reporting and compliance, ensuring businesses qualify for government benefits and subsidies.  

2. Greater Ease of Access to Credit and Finance - Releasing Growth Potential

The availability of funds continues to be among the most significant issues for MSMEs. In this regard, the Union Budget 2025-26 makes a series of proposals towards improving liquidity and facilitating financing.

• Increased Credit Guarantee Scheme: The guarantee cover for small and micro enterprises has been increased from ₹5 crore to ₹10 crore. This enhancement is expected to unlock an additional ₹1.5 lakh crore in credit over the next five years, greatly boosting access to working capital.  

• MSME Credit Cards: The introduction of customized credit cards with a ₹5 lakh credit limit for Udyam-registered micro-enterprises will provide easy access to working capital. The 10 lakh card scheme for 2025-26 will reduce dependence on non-institutional sources of finance and enhance financial inclusion. 

• Fund of Funds: ₹10,000 crore corpus has been provided to invest in startups and potential MSMEs with a focus on sectors of high growth like clean energy, biotechnology, and advanced manufacturing.

This will enhance the scalability of MSMEs and make them competitive with international standards. To support this growth, virtual CFOs assess funding options, optimize cash flow management, and help secure the right financing solutions, ensuring that credit is used efficiently for expansion without over-utilizing.

3. Tax Reforms and Compliance Relief - Increasing Competitiveness

Tax proposals announced in Union Budget 2025-26 aim to give relief by way of tax burden to MSMEs and make them internationally and nationally competitive.

• Concessional Corporate Tax: The government could provide a concessional corporate tax rate ranging from 15% to 18% for companies establishing new manufacturing entities. This would apply to both Greenfield and brownfield projects, offering greater flexibility for investors.

• Export Incentives: MSME exporters are eligible for enhanced term loan backed by guarantee, up to  ₹20 crore. This will give easy access to raw materials and business growth, and MSMEs will become global players.

4. Export Promotion and Global Integration - Expanding Market Reach

For far too long, India's MSMEs have remained a sleeping giant in the international economy. To overcome this, the Union Budget 2025-26 focuses on initiatives to expand their export base.

• Export Promotion Mission: The mission has been allocated ₹2,250 crore in the budget to support export credit, cross-border factoring, and overcome non-tariff barriers. It aims to achieve annual growth in MSME exports over the next three years. 

• Focus Product Scheme: The scheme will assist in the encouragement of labour-intensive sectors such as the footwear and leather industries. This scheme aims to create 22 lakh jobs, generate ₹4 lakh crore in turnover, and achieve ₹1.1 lakh crore in exports by 2030. MSMEs with environmentally friendly manufacturing processes and international quality standards are poised to compete globally.

Here, vCFO services play a crucial role by helping MSMEs manage the financial complexities of international expansion. They help manage currency risks, maximize cross-border cash flow, and position businesses to fully take advantage of export opportunities.

5. Inclusive Growth Programs - Enabling Marginalized Communities

The Union Budget 2025-26 understands the necessity to enable marginalized groups in the MSME sector with inclusive and fair growth.

• Support for Marginalized Sections: Loans of upto ₹2 crore are being offered to 5 lakh first-time entrepreneurs, especially women and those from SC/ST communities in rural and underserved areas. This initiative builds on the success of the Stand-Up India program, which has already supported over 2.6 lakh startups. 

• India Post Integration: Given the extensive coverage of India Post, it is expected that this initiative will provide credit facilities to micro-enterprises in rural sectors. Financial literacy programs will fill the gap in financial inclusion by allowing such business units to use organized credit channels.

Virtual CFO services assist MSMEs in organizing their finances to qualify for such loans, manage cash flow effectively, and implement financial literacy programs. In this way, they enable the businesses to grow and leverage existing resources for sustainable growth.

6. Technological and Infrastructure Enhancements - Increasing Industry Potential

Technology and infrastructure upgrades are essential to the long-term success of MSMEs. The Union Budget 2025-26 provides for measures to facilitate policy interventions to promote innovation and business efficiency.

• Digital Transformation: Programs like 'Digital MSME India' aim to boost the adoption of AI, blockchain, and automation among MSMEs. The government also aims to improve digital literacy so businesses can use digital platforms and become more efficient.   

• Infrastructure Development: Investment in additional industrial parks, co-working spaces, and incubators will increase the budget, helping to reduce business costs.  The establishment of 100 new industrial clusters over three years will focus on green infrastructure and technology. vCFO services help MSMEs manage these investments efficiently, align their financial strategies with infrastructure development, and ensure effective utilization of funds to drive long-term growth. 

7. Budgetary Allocations and Sectoral Funding - Prioritization through Strategic Approach

Union Budget 2025-26 is a strategic road map for MSME growth through sectoral funding to boost development and growth.

• MSME Ministry Budget: The MSME Ministry budget has been increased by 4.6% to ₹23,168 crore. The higher fund will utilise digitalization, infrastructure, and capacity building. Virtual CFO services can help MSMEs effectively manage these funds, ensuring they are allocated towards the right initiatives, such as technology adoption and infrastructure development, while optimizing financial resources for maximum impact.

• National Manufacturing Mission: The purpose is to connect MSMEs with big industries in the Make in India mission. This is necessary to increase the manufacturing industry's contribution to India's GDP from 17% to 25% by 2030.

Conclusion

The Union Budget 2025-26 is a turning point for India's MSME sector, addressing key challenges and creating opportunities for long-term growth. MSMEs will become India's economic growth engine through the revision of categorization, widened access to financing, tax relief, and encouragement of exports. These changes will unlock new potential, enabling companies to innovate, grow, and compete with the world.

When MSMEs mature, vCFO services shall be one of the main enablers that will take them through their maturity, giving them affordability and scalability. Union Budget 2025-26 is a pivotal milestone towards developing an inclusive and competitive MSME ecosystem.