‘Major contributor to GDP, high GST collection’—experts call for focus on R&D, infra and tech in Union Budget 2025 for MSMEs in South

As Union Finance Minister Nirmala Sitharaman prepares to present her eighth consecutive Union Budget on February 1, key southern states are hopeful for a larger allocation in the Budget 2025-26.

South states contribute significantly to the country’s GDP (gross domestic product) growth, and that should be factored in the Budget this time, said Jacob Crasta, Chairman of CM Envirosystems, a manufacturer of environmental test chambers. “At least 75-80% of the GST (goods and services tax) collection is derived from the Southern states. If revenue is collected more from certain states, benefits should be allocated accordingly," he added.

Karnataka, Andhra Pradesh, Telangana, Kerala and Tamil Nadu, collectively accounted for around 30% of India's GDP in 2023-24, according to a paper titled 'Relative Economic Performance of Indian States: 1960-61 to 2023-24'

released by the Economic Advisory Council to the Prime Minister (EAC-PM) last year.

The report detailed how Southern states had surpassed others in terms of their contribution to India’s GDP and relative per capita income. It also highlighted how these states, especially Karnataka and Telangana, have boosted their GDP growth since the 1991 economic liberalization, emerging as major economic powerhouses.

Experts attributed the contribution of micro, small, and medium enterprises (MSMEs) as one of the key factors driving these states’ growth. Crasta said, “MSMEs hold the highest potential for employment. However, they do not receive adequate employment-linked incentives. It is only given for certain products; similar is the case for the Production Linked Incentive (PLI) Scheme.”

He urged that MSMEs all over India must get the benefits linked to such schemes, irrespective of the products involved. Additionally, he proposes implementing a similar measure like the Real Estate (Regulation and Development) Act (RERA) for the MSME industries to decrease reliance on the government. “Why not bring this kind of thinking and approach to smaller units too? Every inspector and tax collector harasses the small and micro units; if it is on the lines of RERA, all their issues will dissipate instead of the red carpetism that is prevalent. These are our two main concerns that require attention in the Budget this year,” he said.

The RERA Act, which came into effect in 2017, was brought in to bring more transparency to the real estate sector. Its primary objective has been to protect the interests of the homebuyers while regulating builders and brokers in the industry. various states have implemented it, with each enforcing its own set of rules.

The Bangalore Chamber of Industry and Commerce, which represents various industries, including MSMEs, has presented its pre-Budget recommendations that advocate incentive plans linked to research to promote research initiatives in India. “This will further strengthen the country's economic conditions and lead to higher capex investment and generation of employment activities. Also, a strong R&D database can further increase the exports of the country, thus bringing in further foreign exchange,” it said.

In addition to R&D, players discuss the significance of technology and its role in creating a platform business connecting various nodes across the global supply chain. Utham Gowda, Founder & CEO of Bengaluru-based B2B seafood start-up Captain Fresh, said that he expects the Budget to emphasise technology integration, infrastructure development, and policy reforms to enable sustainable growth. “Strengthening bilateral trade agreements to reduce tariff barriers and prioritising R&D to advance domestic productivity will be crucial for meeting growing global demand,” he stated.

Gowda added that the Union Budget 2025-26 is expected to play a pivotal role as India charts its path to achieve the Rs 1-lakh-crore mark in seafood exports annually. “By modernising infrastructure and promoting sustainable practices, the government can boost exports and position India as a global leader in the Blue Economy, creating significant economic opportunities for coastal communities. Aligning fiscal priorities with sectoral needs will also enhance resilience, generate employment and drive GDP growth while solidifying India’s standing in the $450-billion seafood industry,” he said.

A concerted focus in the Budget on technology, innovation, and fixing the infrastructural bottlenecks, according to experts, can go a long way in uplifting the MSMEs in Southern states. It will also see an uptick in women-led businesses in this region, which has seen significant growth in recent times. Such efforts will collectively contribute to the growth of India’s economy and its goals as a developed nation in the times to come.