Introduction
The Indian economy is dependent on the Micro, Small, and Medium Enterprises (MSMEs). They contribute highly to the Gross Domestic Product (GDP) of the country through the creation of a huge number of jobs, and also contribute to the increase in the export volumes produced by India. The focus by the Government of India on supporting the MSME sector was reflected in the Budget 2026-27 as the Government of India had programmes that included providing targeted support to increase the number of financial institutions offering funds to MSMEs; increasing access to credit by the MSMEs; improving the competitiveness of the MSMEs in the export market; and supporting the integration of the MSMEs digitally.
The Budget also points out that the MSME sector needs both short-term relief and ongoing financial support in order to grow its businesses and to compete on an international level.
Why MSMEs Matter in India?
MSMEs contribute nearly 45% of the total value of India's exports, employ over 280 million individuals, and are central to the supply chain in agriculture, manufacturing, services, retail, and export. With the support of the MSME sector, the economy in India is bound to expand tremendously,y particularly in the Tier II and Tier III cities with MSME clusters forming a vital portion of the local economy.
Though the MSME sector plays a crucial role in the Indian economy, there are still a few persistent issues facing the MSMEs, such as an unavailable capital, late customer payments, unavailable credit, tough regulatory environment and the infrastructure capacity. The 2026 Budget was intended to overcome some of these challenges to MSMEs through the implementation of funding and liquidity reforms, market integration, and the development of clusters of MSMEs.
Key Benefits & Schemes for MSMEs in Budget 2026
1. Setting Up an SME Growth Fund (?10,000 Crore)
A new fund has been created through Budget 2026 to help support small businesses that have high potential for growth. The SME Growth Fund will be established at budgeted costs of ?10,000 crore to provide equity or quasi-equity capital so that companies can expand capacities, implement new technologies and develop new markets. The fund would primarily support new entrepreneurs and medium-sized enterprisesthato need to raise financing to grow their operations.
MSMEs have been able to benefit from financing from banks using traditional models of providing money through loans and debt. The SME Growth Fund represents a shift away from financing that is primarily provided through debt to more inclusive, long-term capital financing. Long-term capital will help MSMEs create stronger balance sheets and provide better opportunities for attracting capital from private investors.
2. Expanding the Self-Reliant India Fund (SRI Fund) by ?2,000 Crore
In addition to the new SME Growth Fund, the Government of India announced an expansion of the existing SRI Fund to provide additional financing of ?2,000 crore. The SRI Fund was established to provide capitaltoo take risks when starting new micro and early-stage growth enterprises. The expansion of the SRI Fund will continue to show and develop the Government of India's commitment to encouraging the creation of new small businesses and the means of financing their growth.
3. Improvement in Access to Credit and Liquidity
Cash flow is one of the most significant operational problems that MSMEs face in the current economic environment due to the long period of time between receiving payment for deliveries of goods or services provided and making payment to the sellers for those goods/services.
The Government of India will now require all Central Public Sector Enterprises (CPSEs) to use the TReDS (Trade Receivables Discounting System). This will allow MSMEs who supply goods or services to large Government of India buyers to sell invoices early, receiving payments more quickly and improving their working capital position.
The CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) has increased its guarantee limits, providing banks with more reasons to lend by covering more risk associated with collateral-free loans. Banks will now be more likely to lend to businesses, creating large credit flows to underserved MSMEs.
Customised MSME credit cards of up to ?5 lakh through the Udyam portal provide easier and more formalised access to working capital for smaller enterprises, who often face large interest costs on their borrowing.
The two measures aim to reduce the reliance on high-cost informal credit and provide quicker access to funds.
4. Supporting Women and Historically Under-Served Entrepreneurs
The initiatives put into place in the Budget were to establish schemes targeted specifically at entrepreneurs who have historically been underserved. In particular, there were specific credit lines made available to women-led enterprises as well as SC and ST enterprises, allowing them to borrow up to ?2 crore each and helping 500,000 beneficiaries access formal financing and participate in formality within the broader economy.
5. Cluster Development and Technology Infrastructure Improvements
Recognising that many MSMEs are located in Industrial Clusters with antiquated operating infrastructure, the policy initiatives laid down in the Budget continued to support technology upgrades and improvements in Cluster-based Industries’ operating capacity. This is done through support for:
Revitalising Legacy Clusters
Digital interfacing with the Government E-Marketplace (GeM)
By investing in Logistics and Transportation Networks, as well as by reducing Transportation Costs through the development of Freight Corridors and Inland Waterways.
The Budget of 2026 places emphasis upon the development of the Self-Help Entrepreneur (SHE) Mart networks as a means to improve the access of women entrepreneurs to local markets and to provide greater sales opportunities for those businesses.
6. Supporting Exports and Expanding Global Opportunities
The Budget 2026 has lifted the ?10 lakh limit for courier-based exports for MSMEs selling via courier. This change will allow products of greater value to reach their destination via express courier service (see box 1 below for more information) and provide artisans in various sectors such as craft, home decor, fashion, auto parts and D2C brands with greater direct access to international buyers at less cost.
By combining these export reforms with duty exemptions and simplifying the integration of logistics, MSME exports will now be more competitively positioned in the international market.
7. Easier Access to Compliance, Capacity Building
MSMEs are often disadvantaged when it comes to compliance (legal, tax and regulatory), particularly in rural areas. As a way of reducing this burden, the Budget has established the “Corporate Mitras” initiative whereby trained individuals can provide small businesses with affordable assistance in filing statutory documents, financial reporting and compliance related to their taxes. This allows a small business to focus on growing its business rather than completing these types of documents.
In addition, when tax reforms are enacted and the timeframes for filing amended tax returns are extended, there is less anxiety surrounding compliance, which thus reduces the chances of MSMEs incurring costly penalties for non-compliance.
Structural Reforms Supporting MSMEs Indirectly
Although a variety of structural measures are being taken to support the overall ecosystem where MSMEs operate, these initiatives are not specifically targeting MSMEs. Examples of structural measures include:
Expanding public investment in infrastructure for a total of ?12.2 lakh crore (Rupee Crores) — Roads, waterways and freight systems improve logistics costs and market access.
A focus on next-generation manufacturing by the national government in both electronics, semiconductors and rare earth materials will create demand for many smaller suppliers across.
Investments in skills and Skills Development Centres will enable the development of a more productive labour force that MSMEs can access.
These broad-based reforms represent a fundamental shift away from viewing MSMEs simply as recipients of welfare-oriented support, and towards viewing MSMEs as foundational drivers of economic growth.
Challenges and Limitations
Experts have raised concerns that although Budget 2026 has provided support to MSMEs, some remaining areas need further assistance:
Immediate Direct Tax Relief - There were many MSME entrepreneurs who felt that Budget 2026 did not provide enough direct tax rate reductions or income tax deductions to MSMEs, which could have provided some immediate short-term relief to these entrepreneurs.
Implementation Gaps - While some of the initiatives received positive support from industry associations, they cautioned that successful implementation of initiatives such as invoice financing, TReDS integration, and cluster upgrades will be critical for the initiatives to have a meaningful impact on MSME businesses.
Amount of Funds Relative to Needs - The Government is announcing funds for MSMEs that will be significant according to the Government, but because there are millions of MSMEs, these announced funds may not be enough to fill the deep structural gaps in MSME businesses unless they are combined with new private sector investments and Governments provide additional assistance at the state level.
Liquidity and Working Capital - Late payments continue to be a persistent problem among MSME businesses,s and the introduction of the TReDS reforms will be positive for MSMEs.Awarenesss, technology and processes to resolve disputes will all be important for MSME businesses to utilise TReDS to grow their business.
Conclusion
With its multi-faceted approach to helping MSMEs (micro, small and medium enterprises), the Union Budget 2026-27 takes a long-term view of supporting MSMEs through growth funding, credit accessibility reform, liquidity provisions, export assistance, compliance assistance, and infrastructure connectivity. By implementing these measures, the government is demonstrating its commitment to recognising the important role that MSMEs play in generating jobs and exports.
Although a good amount of the currently proposed policy proposals are very encouraging, the actual impact of these policies on MSMEs will be greatly dependent upon how effectively the implementation of these proposals occurs, how well MSMEs learn about these proposals, and how well MSMEs connect with digital platforms such as GST, Udyam, and TReDS. If these proposals are well implemented, the Union Budget for MSMEs could represent a new level of transformation for Indian MSMEs by increasing their competitiveness, improving their financial and operational resilience and integrating them into the global economies within the next 10-year period.
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