Budget 2025-26: MSMEs hope for protection from protectionist measures

Micro, small and medium enterprises (MSMEs) are hoping that the Union Budget 2025-26 will lend an ear to their concerns over the rising protectionist measures being taken in terms of higher tariffs and quality control orders that have begun to make a dent on the competitiveness.

Industry sources note that such measures have been leading to higher input costs and production costs for MSMEs that have already been struggling amidst the slowdown in exports.

The issue has also been raised by industry associations in their discussions with the Finance Ministry in the run up the Union Budget and they are hoping that it will be resolved in the Budget presented on February 1.

The Federation of Micro and Small and Medium Enterprises in their pre-Budget memorandum has said that the emergence of non-tariff barriers (such as QCOs) and escalating tariff barriers (higher import duties, anti-dumping duties, safeguard duties) on critical raw materials like steel, copper, aluminium, and polymers is creating an uncompetitive environment for Indian industries, particularly MSMEs.

“These measures, while seemingly aimed at protecting domestic producers, have unintended and detrimental consequences,” it noted.

It has highlighted the need to institutionalise policy formulation if deviation from prevailing policies is desirable. “Firstly, the impact of proposed measures must be analysed by institutions of repute like IIMs or IIFT before imposition of any new tariff and non-tariff barrier especially on raw material,” it said, adding that secondly, MSMEs and user industry must be consulted and their views factored in the final response. A Group of Ministers must then approve the plan, it said.

Industry sources point out that calls for a steep hike in the customs duty on specified steel imports could prove to be a boon for domestic industry but MSMEs could be negatively impacted as their production costs would increase, pointed out an industry insider.

As an example, cycle manufacturing is a high value added production but if imports become very expensive, it would impact the competitiveness of the domestic cycle manufacturing industry that has several MSMEs,” pointed out the source.
MSME exporters from the engineering sector have similarly raised concerns over plans to impose additional duty on steel imports.

The MSME sector is seen to be one of the priority sectors that for the Budget given the slowdown in the domestic economy. The sector provides nearly contributes nearly one-third of India’s annual gross value added and is one the largest employers in the country.