The Union Budget 2025, presented by Finance Minister Nirmala Sitharaman, has introduced a series of measures aimed at invigorating India’s start up ecosystem and micro, small, and medium enterprises (MSMEs). A standout initiative is the substantial enhancement of the Credit Guarantee Scheme for Start-ups (CGSS), which now offers a guarantee cover of up to ₹20 crore, double the previous limit of ₹10 crore. This move is expected to significantly ease access to formal credit for start-ups, fostering innovation and contributing to economic growth.
Understanding the Credit Guarantee Scheme for Start-ups
The CGSS was launched in 2022 to provide collateral-free loans to start-ups, thereby addressing one of the major challenges faced by new businesses—access to finance. Under the scheme, the government offers a guarantee to banks and financial institutions, covering a significant portion of the loan amount, thereby reducing the risk for lenders and encouraging them to extend credit to start-ups.
With the enhancement in Budget 2025, the guarantee cover has been increased to ₹20 crore per start-up, making it one of the most generous schemes of its kind globally. Additionally, the guarantee fee has been reduced to 1% for loans in 27 focus sectors critical to the Atmanirbhar Bharat initiative, further lowering the cost of borrowing for start-ups.
Eligibility Criteria and Focus Sectors
To avail of the enhanced credit guarantee, start-ups must be registered with the Department for Promotion of Industry and Internal Trade (DPIIT). Furthermore, they are required to demonstrate a steady revenue stream in the preceding financial year. This ensures that the support reaches start-ups with a proven track record and the potential for sustainable growth.
The 27 focus sectors identified under the scheme are aligned with the government’s vision of promoting self-reliance and include areas such as renewable energy, electric vehicles, biotechnology, and advanced manufacturing. By targeting these sectors, the government aims to stimulate innovation and development in industries that are pivotal to India’s future economic landscape.
Implications for Start-ups and the Broader Economy
The doubling of the credit guarantee cover to ₹20 crore is expected to have far-reaching implications for start-ups across the country.
- Enhanced Access to Capital – With reduced risk for lenders, start-ups are more likely to secure funding, enabling them to scale operations, invest in research and development, and expand their market reach.
- Encouragement for Innovation – The focus on specific sectors encourages start-ups to innovate in areas that are crucial for national development, such as clean energy and technology.
- Economic Growth and Employment – By supporting the growth of start-ups, the scheme contributes to job creation and economic diversification, aligning with the government’s goal of a $5 trillion economy.
Industry leaders have lauded the move, with Snapdeal co-founder Kunal Bahl describing it as “a great step” towards fostering a conducive environment for start-ups to thrive.
Complementary Measures for MSMEs
In addition to the enhancements for start-ups, the Budget 2025 also introduces significant measures for MSMEs, which are the backbone of India’s economy.
- Increased Credit Guarantee Cover – The credit guarantee cover for micro and small enterprises has been doubled from ₹5 crore to ₹10 crore, unlocking an additional ₹1.5 lakh crore in credit over the next five years.
- Customized Credit Cards – A new initiative introduces customized credit cards with a ₹5 lakh limit for micro enterprises registered on the Udyam portal, facilitating easier access to working capital.
- Revised MSME Classification – The investment and turnover limits for MSMEs have been increased to 2.5 times and 2 times their current thresholds, respectively, allowing more enterprises to benefit from MSME schemes.
Challenges and Considerations
While the enhanced credit guarantee scheme is a welcome development, there are certain challenges and considerations that need to be addressed –
- Eligibility Criteria – The requirement for start-ups to demonstrate a steady revenue stream may exclude early-stage start-ups that are still in the product development phase and have yet to generate significant revenue.
- Implementation at the Ground Level – The effectiveness of the scheme depends on its implementation by banks and financial institutions. Ensuring that the benefits reach the intended recipients without bureaucratic delays is crucial.
- Awareness and Outreach – Many start-ups, especially in Tier II and III cities, may not be fully aware of the scheme’s benefits. A concerted effort is needed to raise awareness and provide guidance on how to avail of the credit guarantee.
Conclusion
The doubling of the credit guarantee cover for start-ups to ₹20 crore in Budget 2025 marks a significant step towards fostering a vibrant and innovative start-up ecosystem in India. By providing enhanced access to capital and targeting key sectors for development, the government is laying the groundwork for sustained economic growth and job creation. However, for the scheme to realize its full potential, it is essential to address the challenges related to eligibility, implementation, and awareness. With the right support and infrastructure, this initiative has the potential to transform India’s start-up landscape and contribute to the vision of an Atmanirbhar Bharat.
