Introduction

Micro, Small and Medium Enterprises (MSMEs) are being increasingly recognized as the key driving force behind India's dream of becoming a $5 trillion economy by 2025-26. They are perceived to have the potential not only to enhance production but also to generate employment opportunities and uplift the backward sector, thereby contributing to the equitable development of the country (Sobir 2020). Given the growing significance of MSMEs, the union government has emphasized their importance in various policy discussions. Notably, the finance minister frequently referred to MSMEs in her recent (2023-24) budget speech, emphasizing that this sector will continue to be the growth engine of the Indian economy (Budget 2023-24). Recent studies have also observed that this sector represents a significant chunk of the economy and deserves special consideration in budgets and planning, as it offers opportunities for affordable employment and contributes to the equitable growth of the nation (Sitaram& Vidisha, 2020).

As per the MSME Annual Report for 2021-22, 633.88 lakh MSMEs provide 1109.89 lakh employment opportunities in India and the sector itself contributes to around 30 percent of the country's gross value added. It is worth noting that, 67 percent of the MSME in the country is owned by vulnerable groups, such as SC/ST and other backward communities. Despite this formal picture, there is a significant amount of informality in the Indian MSME sector, with 99.7% of the total microenterprises being unregistered (Mehrotra & Giri, 2019). According to the NSS report of 2016, the number of informal MSMEs in the country was 43.8 million. As a result, policymakers are grappling with the challenge of designing plans for MSMEs while taking into account the informal sector's contributions.

Against this backdrop, the Union Budget is meticulously prepared each year, with a focus on the MSME sector, by allocating funds to optimize the sector's potential and boost its growth. Despite receiving a significant portion of allocation, the MSME sector is hypically features in only a few announcement in Union budgets. Therefore, it is important to examine whether these programs can achieve their objectives and to analyse the flow of budgeted funds to the MSME sector, particularly whether these funds are effectively utilized to propel the sector forward.

The objective of this paper is to examine the potential impact of the significant announcements made for the MSME sector in the recent union budget and to determine whether the budget allocation is sufficient to maximize its potential. To achieve this, we have analysed data from Union Budgets and MSME Annual Reports spanning FY 2015-16 to FY 2022-23.

The structure of this paper is divided into three sections. The first section focuses on the recent contributions of the MSME sector to the economy and the allocation of the budget to the sector. The second section discusses the significant announcements made for MSMEs in the budget and their potential implications. The third section analyses that whether the announced schemes propel the MSME sector to utilize their potential. Finally, the paper concludes with a summarizing remark.

MSME sector contribution to the Indian economy and sectoral allocation in the Union Budget

From 2015-16 to 2019-20, the MSME sector accounts for more than 30% of the total GVA of the country, and in 2020-21, the pandemic year, the contribution decreased to 26.83%.

Source: MSME Annual Reports, Ministry of MSME

However, the MSME sector was spotlighted by the union finance minister in the budget speech, but when it comes to the actual allocation to the sector, the proportion registered only nominal i.e.less than 0.5% of the total budget expenditure was allocated to the sector. Prior to the COVID pandemic, the sector had already been hit by two sequential policy shocks, such as the demonetization (2016) and GST (2017). Demonetization impacted the liquidity status of the sector, while GST removed various tax benefits. The introduction of new policies through the budget was expected to address and resolve these issues. However budget allocations to the MSME sector merely range from  0.17% in 2015-16 to 0.63% in 2023-24 (See Figure 2). Notably an increasing trend, has been observed in the years 2017-18 and

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