India's MSME sector: credit access, the Udyam formalisation drive, and the revised classification

India’s micro, small and medium enterprises occupy an outsized place in the country’s economy and a persistently constrained place in its credit markets. The Ministry of MSME counts the sector at 30.1 percent of GDP, 35.4 percent of manufacturing output and 45.73 percent of exports, according to figures the Union MSME Ministry cited in July 2025 (PIB, PRID 2142170). This brief tracks the three threads that dominate current MSME policy — the revised classification, the Udyam formalisation drive, and credit access — as of 6 July 2026.

The sector by the numbers

As of mid-2025 the current MSME Minister put the number of enterprises registered on the Udyam portal and the Udyam Assist Platform at 6.52 crore, and described the sector as India’s largest employer after agriculture with roughly 28 crore jobs (PIB, PRID 2142170). The Ministry’s own year-end review had earlier recorded 5.70 crore MSMEs with an associated 24.14 crore in employment on the combined platforms as of 26 December 2024 (Ministry of MSME year-end review, 2024). These counts reflect registered enterprises; the Ministry has treated the gap between registrations and the far larger universe of informal units as the target of its formalisation effort rather than as a settled census.

The revised classification (effective April 2025)

For most of the MSMED Act’s history, classification turned on investment alone and distinguished manufacturing from services. In 2020, notification S.O. 2119(E) (dated 26 June 2020) replaced that with a composite criterion — investment in plant, machinery or equipment and annual turnover — applied uniformly, effective 1 July 2020, setting the micro ceiling at Rs 1 crore investment / Rs 5 crore turnover, small at Rs 10 crore / Rs 50 crore, and medium at Rs 50 crore / Rs 250 crore (IBC Laws, S.O. 2119(E)).

The Union Budget 2025-26, presented on 1 February 2025, announced that these limits would be raised — investment ceilings by 2.5 times and turnover ceilings by 2 times (PIB, PRID 2098389). Notification S.O. 1364(E), dated 21 March 2025, made the revised thresholds operative from 1 April 2025: micro up to Rs 2.5 crore investment and Rs 10 crore turnover; small up to Rs 25 crore and Rs 100 crore; medium up to Rs 125 crore and Rs 500 crore (Taxmann). The composite rule persists: an enterprise crossing either ceiling for its category moves up to the next. The government’s stated rationale, as recorded in the PIB release, was to let MSMEs “achieve higher efficiencies of scale,” encourage technological upgradation and improve access to capital (PIB, PRID 2098389). Because the higher ceilings also enlarge the set of firms that qualify as MSMEs, a larger population of enterprises falls within the categories that carry MSME-linked benefits such as priority-sector lending and procurement set-asides.

Udyam and the formalisation drive

Udyam is both a registration system and the operative definition of an MSME: since 1 July 2020 it has been the single online route through which an enterprise is classified, replacing the earlier Udyog Aadhaar and EM-II systems. To reach informal micro units that lack GST registration or formal accounts, the Ministry opened the Udyam Assist Platform in early 2023, onboarding them through designated intermediaries and counting them toward the sector’s formalisation (Ministry of MSME year-end review, 2024). Registration is consequential because it is the gateway to priority-sector lending classification, credit-guarantee cover, government procurement set-asides and the delayed-payment protections of the MSMED Act.

The formalisation push is reinforced by the World Bank-supported RAMP programme (Raising and Accelerating MSME Performance), launched on 30 June 2022 with an outlay of Rs 6,062.45 crore (USD 808 million), of which Rs 3,750 crore is a World Bank loan and Rs 2,312.45 crore is funded by the Government of India, implemented over five years from 2022-23 to 2026-27 (RAMP / Ministry of MSME).

Credit access: guarantees, the gap, and delayed payments

The structural problem the sector’s credit policy addresses is a financing gap that the RBI-constituted Expert Committee on MSMEs (chaired by U.K. Sinha, which reported in 2019) estimated at Rs 20-25 lakh crore, a figure recalled by an RBI Deputy Governor in a November 2024 address (BIS / RBI). The government’s principal instrument against it is the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), which substitutes a state guarantee for the collateral small firms cannot offer. The Union MSME Ministry stated in 2025 that the guarantee scheme had facilitated Rs 9.80 lakh crore in guarantees since inception, including about Rs 3 lakh crore approved in FY 2024-25 (PIB, PRID 2142170).

The 2025-26 Budget expanded this apparatus. It doubled the credit-guarantee cover for micro and small enterprises from Rs 5 crore to Rs 10 crore — which the Budget said would unlock an estimated Rs 1.5 lakh crore of additional credit over five years — raised the cover for startups from Rs 10 crore to Rs 20 crore, and introduced a customised credit card (the “ME-Card”) for micro enterprises registered on Udyam with a Rs 5 lakh limit, with 10 lakh cards planned in the first year (Business Standard, 2 February 2025).

A parallel constraint is delayed payment. Sections 15 and 16 of the MSMED Act require buyers to pay MSME suppliers within 45 days of acceptance and, failing that, to pay compound interest at three times the RBI bank rate; complaints run through the MSME Samadhaan portal (MSME Samadhaan). Two other mechanisms sit alongside it: the RBI-regulated Trade Receivables Discounting System (TReDS), which lets suppliers discount unpaid invoices into working capital, and Section 43B(h) of the Income Tax Act, which disallows a buyer’s expense deduction on sums owed to micro and small suppliers beyond the statutory timeline — a tax lever the Ministry of Finance rather than the MSME Ministry administers.

Who owns this topic (and why we’re here)

Responsibility for the MSME sector is shared across offices. The Ministry of MSME owns the definition (Udyam), the classification notifications, the guarantee trust CGTMSE, the khadi, coir and artisan schemes, and the delayed-payment redress channel. The Ministry of Finance controls the Budget decisions that set guarantee limits and tax rules such as Section 43B(h), and the Reserve Bank of India sets priority-sector lending norms, regulates TReDS, and produced the credit-gap estimate that frames the whole debate. IndiaStand maintains this brief because MSME policy is a case where a ministry’s real power is definitional and fiscal rather than expenditure-driven — small changes to a classification ceiling or a guarantee cap reshape who the state counts as a small business and who can borrow against that status. We track how the classification, formalisation and credit threads move, and attribute each figure to the office that reported it.

Maintained topic brief. Analysis by IndiaStand — it characterises the state of play and the range of positions actually held, attributes each claim, and makes no forecast and no recommendation.