MSME Clash Brews Over Budget Recast

A looming revision in the classification of MSMEs in the upcoming Union Budget has sparked a quiet but fierce debate within India’s business landscape. At the core lies a pivotal question: who genuinely qualifies as an MSME, and how should government support be fairly allocated?

Currently, MSME classification is based on investment and turnover thresholds. Micro enterprises are defined as those with investment up to ₹1 crore and turnover up to ₹5 crore; small enterprises with investment up to ₹10 crore and turnover up to ₹50 crore; and medium enterprises up to ₹50 crore in investment and ₹250 crore in turnover. However, with inflation, rising costs, and the post-COVID digital push, many businesses—especially mid-sized firms—argue that these limits are outdated and restrict their growth. They seek a reclassification that reflects economic realities and allows them to continue availing benefits such as lower taxes, priority lending, and government procurement support.

But this proposed reclassification has met resistance from micro and small enterprises. Their concern is clear: expanding the thresholds may dilute the benefits that were originally intended for truly small players. If larger, more resource-rich firms are allowed to compete under the same MSME umbrella, micro players fear being squeezed out of government schemes, funding, and tender opportunities.

Stakeholders across the MSME spectrum acknowledge the need for a more dynamic classification mechanism—one that evolves with inflation and industry growth. However, there is growing consensus that a one-size-fits-all approach may not serve the diversity of the sector. A tiered support structure, offering differentiated incentives based on size and maturity, is being suggested as a possible way forward. This could ensure targeted support to nascent enterprises while still enabling growing firms to transition smoothly without losing all benefits abruptly. For millions of micro enterprises—the lifeblood of India’s employment and rural economy—the stakes are high. These firms often operate with thin margins, limited access to credit, and minimal digital reach. Any dilution in their access to government support could threaten their survival, especially at a time when the economy demands greater formalisation and digitisation at the grassroots.

As the Budget approaches, policymakers face a delicate balancing act: enabling growth without compromising equity. While the voices of mid-sized firms merit attention, preserving the original spirit of MSME support—empowering the smallest players—remains crucial. A thoughtful, calibrated approach to classification reform may hold the key to inclusive industrial development in India.