Union Budget 2026 Expectations for MSMEs: Credit, Competitiveness and Growth

Union Budget 2026 Expectations for MSMEs: Credit, Competitiveness and Growth

Micro, Small and Medium Enterprises are not just another sector in India’s economy. They are its backbone. MSMEs contribute nearly 30 percent to India’s GDP, close to 45 percent of exports, and employ a large share of the non farm workforce across manufacturing and services.

As the Union Budget 2026 approaches, expectations from the MSME ecosystem are high but grounded. Industry bodies, lenders, policymakers, and investors are not looking for short term giveaways. Instead, the focus is firmly on structural reforms that can improve credit access, reduce compliance friction, and integrate MSMEs into India’s manufacturing and export growth story under the Viksit Bharat vision.

This blog explains what MSMEs are expecting from Budget 2026, why it matters for Indian markets, and what it means for investors tracking the broader economy.

Why MSMEs Matter More Than Ever in 2026

India’s growth strategy over the next decade relies heavily on domestic manufacturing, exports, and job creation. MSMEs sit at the center of this equation.

Despite their importance, only about 16 to 20 percent of MSMEs currently have access to formal credit. The estimated credit gap runs into tens of lakh crore rupees. High input costs, delayed payments, GST related cash flow issues, and global uncertainty have added to the stress over the past two years.

Budget 2026 is seen as an opportunity to strengthen the foundation rather than offer temporary relief.

Easier Credit Access Tops the MSME Wishlist

The single biggest expectation from Union Budget 2026 is better and cheaper access to credit.

Industry associations such as FISME, CII, and FICCI have consistently highlighted the need to expand the Credit Guarantee Fund Trust for Micro and Small Enterprises. Past budgets increased the guarantee cover, and there is strong hope that Budget 2026 will build further on this by raising the corpus, widening eligibility, and encouraging cash flow based lending instead of heavy collateral dependence.

There is also growing expectation of targeted credit support for micro enterprises, women led businesses, and first time borrowers. Many market participants believe a redesigned guarantee scheme or a focused revival of emergency credit support could significantly reduce borrowing costs for small units.

Higher limits and faster disbursal under MUDRA loans are also on the radar, especially since the smallest businesses often struggle with loan sizes that are too small to meaningfully support growth.

For Indian markets, smoother MSME credit flows mean healthier supply chains, better earnings visibility for lenders, and stronger domestic demand.

Customs Duty and Input Cost Relief for Manufacturing MSMEs

Another important Budget 2026 expectation is rationalisation of customs duties on key raw materials.

Many MSMEs operate under inverted duty structures where inputs are taxed higher than finished goods. This creates working capital pressure and reduces competitiveness, especially for export oriented units.

Budget support through calibrated duty rationalisation could help MSMEs in sectors such as electronics, renewable energy components, engineering goods, and auto ancillaries. Faster GST refunds and continued interest equalisation on export finance are also seen as critical.

If executed well, these measures can improve margins, support exports, and strengthen India’s position in global supply chains.

Technology Adoption and Digital Push for MSMEs

Technology adoption is no longer optional for small businesses. From digital payments to cloud based accounting and supply chain management, MSMEs are under pressure to modernise.

Budget 2026 is expected to encourage this shift through incentives for technology upgrades, including AI driven tools, software as a service platforms, cybersecurity, and Industry 4.0 solutions. Interest subvention or tax support for capital expenditure on technology could accelerate adoption, especially among manufacturing clusters.

Integration with digital public infrastructure such as GST systems, logistics platforms, and e invoicing is also expected to improve compliance efficiency and market access.

Compliance and Tax Simplification Remains Critical

MSMEs continue to seek predictability and simplicity rather than frequent rule changes.

Faster GST refunds, rationalised processes, and reduced litigation are key expectations. Simplifying compliance does not just reduce costs. It allows entrepreneurs to focus on scaling their businesses instead of navigating paperwork.

From a regulatory perspective, smoother compliance improves formalisation and strengthens tax collections over time, creating a win win outcome.

Broader Market and Economic Impact

If Budget 2026 delivers even incremental progress on MSME reforms, the impact could be meaningful.

Improved credit access can unlock private investment and job creation. Lower input costs and better export support can enhance competitiveness. Technology adoption can improve productivity and resilience.

For equity markets, a healthier MSME ecosystem supports long term growth across banking, manufacturing, logistics, and consumption themes. It also aligns with India’s capex led growth model at a time when global conditions remain uncertain.