India’s Economic Growth in 2025: Navigating Tariffs and Inflation

India is currently navigating a period of profound economic confidence, underscored by an upward revision in the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) forecast for the Financial Year 2025-26. The projected 6.8% GDP growth signals a robust domestic engine, supported by resilient consumption, accelerating capital expenditure, and firm performance across the export and manufacturing sectors. The accompanying outlook of a headline CPI inflation rate, lowered to 2.6%, with the repo rate maintained at 5.50%, has created an optimal environment for investment and growth.

However, the success story harbours a vulnerability at the foundational level of the economy in the Micro, Small, and Medium Enterprises (MSMEs) and corporates. As demand surges, a paradox has emerged where high growth is actively creating a systemic working capital crunch for the suppliers responsible for fueling that growth.

In a recent interview with The Banker Media Magazine, Founder & CEO of KredX, Manish Kumar, elaborates on this vision for the future of enterprise payments in India. “We often describe TReDS as a “B2B UPI.” Like UPI, it’s becoming commoditised, banks, buyers, and sellers are all there. The real differentiator now is technology: how easy, seamless, and efficient the platform is. That’s why we’re doubling down on tech innovation.”

Addressing this challenge requires a fundamental shift in financial infrastructure, a shift that positions the Trade Receivables Discounting System (TReDS) as the “B2B UPI” for India’s high-growth future.

The Dual Inflationary Challenge

The Indian economy’s momentum is evident in the recent performance indicators. Private consumption is strong, investment activity is healthy, and government capital expenditure has picked up pace, all signalling sustained domestic demand. With more than 6.3 crore MSME units contributing nearly 30% to India’s GDP and over 45% of its exports, this volatility translates into a logistical and financial strain.

1. Formal Credit Gap with Rising Demand

The surge in new orders and production requirements immediately heightens the need for raw materials, labor, and operational expenses. In a traditional supply chain model, MSMEs wait anywhere from 60 to 90 days or more to receive payment from large corporate and government buyers. This delay creates a massive working capital gap, where businesses are profitable on paper but starved of cash.

Recent data highlight the severity of this issue: the MSME sector still faces a substantial credit gap, estimated to be approximately ₹28 lakh crore (approximately $338 billion), despite policy interventions and overall credit expansion. This gap is particularly pronounced for micro and small enterprises that lack the collateral or credit history to secure timely, formal bank credit. The high-growth environment, by generating a greater volume of trade receivables, effectively widens this liquidity chasm.

2. The Internal and External Inflationary Threat

The liquidity constraint on MSMEs has an inflationary consequence that is often overlooked in macro-level reports. When MSMEs are forced to seek credit from informal or high-interest sources to bridge the payment delay, the resulting high cost of capital is baked into the price of goods and services they supply, creating an escalating B2B inflationary threat. Solving the delayed payment issue is, therefore, a direct and potent measure to ease these inflationary pressures within the supply chain.

Moreover, MSMEs are currently facing significant external shocks. Key export sectors, particularly Textiles and Apparel, are reeling from steep increases in US tariffs, with effective rates on some products rising to over 50%. This has severely undermined the competitiveness of Indian goods compared to peers like Vietnam and Bangladesh, leading to order cancellations and significant revenue risk. Immediate access to low-cost working capital is the critical lifeline that allows MSMEs to navigate this shock, manage inventory, and aggressively pursue market diversification into new trade corridors like the UK, Japan, and the UAE.

Industry-Wise Impact and Growth Dynamics

While the overall MSME sector faces a credit crunch, the pressure points and growth drivers vary significantly across different industrial segments. The table below explains the sector-wise impact on the GOI’s initiative to drive growth and the challenges arising from increasing demand.

Sources:  [Ministry of Finance, GoI; RBI Monetary Policy Statements Q1 FY26 (2025), Industry reports, Export sector analysis, Ministry of Commerce, HS Markit Manufacturing PMI Reports, Ministry of Commerce & Industry, RBI Quarterly Performance Report Q1 FY26; NASSCOM Data]

The growth is robust in sectors benefiting from domestic policy pushes (Capex, PLI), but it is precisely this demand acceleration that strains liquidity due to delayed corporate payments. Conversely, export-oriented sectors are fighting an immediate battle against external tariff hikes. In both scenarios, the underlying need is accelerated, formal, and affordable working capital.

TReDS: The ‘B2B UPI’ as National Growth Infrastructure

The solution to this systemic credit challenge must be as revolutionary and scalable as the challenge. TReDS, the platform for discounting trade receivables, is uniquely positioned to be that solution. By facilitating the easy, low-cost conversion of trade receivables into working capital, it acts as the necessary “B2B UPI” for India’s high-growth economy.

1. Leveraging the Low-Cost Capital Environment

The current monetary policy stance, with the repo rate at 5.50% and subdued inflation, has made capital cheaper. TReDS is designed to maximise this advantage.

• Competitive Auction Mechanism: The platform creates a competitive bidding ecosystem where a large pool of financial institutions (50+ banks and NBFCs) compete to finance the invoices. This open, transparent auction drives the interest rate down, ensuring MSMEs receive the “affordable capital in the market” against their genuine trade assets.
• Formalising Credit: By focusing on the strength of the corporate buyer’s balance sheet, TReDS provides collateral-free, formal credit access to MSMEs, effectively sidestepping the traditional hurdle of requiring physical collateral or an extensive credit history from the supplier.

2. The Proven Impact of Faster Liquidity

The performance of TReDS platforms confirms their transformative role. For instance, one major TReDS platform recently crossed the milestone in cumulative MSME invoice financing, a figure that is growing exponentially.

• Reducing Receivable Cycles: Empirical studies confirm that participation on TReDS can reduce the receivable cycle for MSME suppliers by up to 23 percentage points on average. This rapid payment realisation converts an asset (the invoice) into operational cash flow.
• Driving Business Growth: The resulting availability of capital allows MSMEs to scale. Firms participating in TReDS have reported an increase in sales and higher acquisition of fixed assets, demonstrating the platform’s direct impact on operational capacity and productivity.

How TReDS Works in the Current Economic Context

• Competitive Auctions: TReDS fosters a marketplace where over 50 banks and NBFCs bid to finance invoices. This competition drives down borrowing costs, ensuring MSMEs get the lowest-cost capital available in the market.
  
• Collateral-Free Credit: The creditworthiness of the corporate buyer not the MSME supplier forms the collateral base. This bypasses challenges for MSMEs who often lack physical assets or robust credit histories.
  
• Reduced Payment Cycles: Data shows TReDS reduces invoice payment periods by up to 23 percentage points, swiftly converting trade receivables from frozen assets into operational cash.
  
• Catalyst for Growth: Access to timely liquidity empowers MSMEs to increase sales by an estimated average of 8%, invest in new fixed assets, and scale operations more rapidly.

Collaboration: 

To fully unlock the potential of TReDS and achieve the “Viksit Bharat” vision, coordinated action across all stakeholders is essential.

1. Compliance and Corporate Responsibility

The Ministry of MSME’s mandate for all large companies with a turnover threshold above ₹500 crore to register on TReDS platforms is a crucial policy lever. This ensures the necessary volume of invoices flows into the system, maximising the platform’s efficiency and competitive intensity. Prompt registration and invoice acceptance by large enterprises is seen not merely as a compliance requirement but as a fundamental act of corporate responsibility towards the nation’s growth engine.

2. The Imperative of Digital Integration

Technology is the core enabler for making this national infrastructure scalable. Leveraging TReDS’s innovative tech platforms like DTX by KreDX and seamless integration with the ERP systems of large enterprises and the core banking systems of financial institutions minimises intervention, reduces transaction costs, and allows for the provision of funds within 24 hours. This technological efficiency is what truly transforms the slow process of traditional bill discounting into a “B2B UPI” experience.

By transforming the payment cycle for critical sectors into a fast, transparent, and low-cost liquidity engine, the TReDS mechanism empowers MSME suppliers to overcome the working capital gap. This action directly supports the government’s capex-led boom in industrial and infrastructure sectors and ensures that all parts of the supply chain can keep pace with India’s ambitious growth trajectory. 

Future Watch

As India charts its course toward becoming a $34 trillion economy and the world’s second-largest by 2038 (IMF projections), accelerating the adoption of this digital working capital infrastructure is critical. To realise India’s vision of a robust “Viksit Bharat” where financial inclusivity, technology, and efficient supply chains converge to drive inclusive growth, it requires financial infrastructure that moves as fast as the economy itself.

By empowering MSMEs engine of India’s supply chains, with rapid access to funding, TReDS translates macroeconomic stability and rising consumer demand into real, ground-level business growth and employment generation.