India, without doubt, is one of fastest growing economies in the world and a key factor that makes it so, is the way the overall economy is handled by the Government. The Union Budget guides and drives the growth of the economy and the country, which makes it critical for the Finance Minister to ensure that all aspects that impact the economy are carefully considered.

The Union Budget 2025 has been a progressive step forward from the 2024 budget focussing on a Viksit Bharat in the near future to be built on the growth engines of Agriculture, MSME, Investments and Exports. NBFC’s, by the very nature of their business, are closely involved with each of these sectors due their ability to support the unserved and underserved population. And this budget paves a path for the NBFC sector’s critical role in each of these sectors.

Fortifying MSME resilience

The MSME sector is one such sector, the second engine of growth. The sector today employs 7.5 crore people and contributing 36% to India’s manufacturing as well as responsible for 45% of the nation's exports. It is therefore critical that Government focusses on creating a robust and competitive MSME ecosystem, one that is resilient in the face of global challenges, adaptive to technological shifts, and capable of scaling effectively in domestic and international markets. And that is exactly what the Union Budget has done.

The government’s ongoing focus on building a strong and competitive MSME ecosystem is clear in the 2025 Union Budget. These measures aim to create a sector that can thrive amid global challenges, adapt to technological advancements, and scale successfully in both domestic and international markets. By easing operational challenges and providing the necessary tools, infrastructure, and support, the government is laying the foundation for long-term growth for MSMEs.

The revision of MSME classification criteria will help micro and small businesses in many ways. While the investment and turnover thresholds have increased, it doesn’t change the status of the MSMEs with a whole lot of benefits that they will continue to enjoy. This will increase MSME appetite for growth and expansion, taking new loans for working capital or capex, at the same time improving access to credit. This could also spark more entrepreneurial activity, as smaller businesses and startups find it easier to secure funding for growth. This is especially beneficial for NBFCs that focus on supporting small businesses and entrepreneurs.

Similarly, with a healthier income outlook, businesses may be more inclined to seek long-term financing, for a number of varied reasons including for expanding their operations. This increased demand for long-term loans is likely to benefit NBFCs that specialize in such products, providing them with more opportunities to grow their portfolios and support their customers' ambitions. As a result, NBFCs that offer business loans could see an increase in demand.

Key initiatives like the Export Promotion Mission, the new manufacturing mission under Make in India, the expanded Credit Guarantee Scheme, and the creation of a National Digital Platform for MSMEs will all likely drive increased demand for MSME loans. With simplified compliance and a single-window clearance system, these measures will not only reduce the risk for lenders but also improve business conditions for both MSMEs and NBFCs. As a result, NBFCs are well-positioned to scale up their MSME lending, helping them grow their portfolios while contributing to a more vibrant, resilient sector.

Boosting consumer spending and business investments

The big bonus for middle class in the form of tax slabs changes are going to help in improving consumption which would be a major booster for private capex and can change the nature of investments and participation in boosting economic activity.

With the tax rate cuts, consumers will have more disposable income and we expect consumer spending and investments, both to improve in the hands of the middle class. We believe the increase in appetite for consumption and discretionary spending will also drive the appetite for retail loan products including personal loans, home loans, vehicle loans etc. Another advantage of this will be better repayment capacities of existing loans, leading to fewer defaults and improving the overall health of NBFCs' portfolios. This means a smoother and more conducive environment for both borrowers and lenders alike.

In conclusion, the Union Budget 2025 brings promising news for MSMEs, with measures aimed at making it easier for them to access credit, streamline compliance, and embrace digital tools to fuel their growth. The expansion of credit guarantees and the push to promote exports will help them tap into new opportunities, while tax cuts will improve cash flow and encourage businesses to invest and expand. On the other hand, the revised income tax slabs will leave individuals and businesses with more disposable income, boosting demand for loans, whether for homes, vehicles, or business ventures. Together, these changes will create a more supportive environment for MSMEs, driving growth and increasing credit demand, which benefits both MSMEs and the NBFCs lending to them. 

Umesh Revankar is Executive Vice Chairman at Shriram Finance Limited. Views are personal.