Budget 2026: Three-Pronged Push on Equity, Liquidity, Professional Support to Meet MSMEs' Rising Demand

Successive Union Budgets have focused on buttressing micro, small and medium enterprises (MSME) – a sector which today boasts of as many as 7.61 crore registered enterprises. Accordingly, not merely amplified availability of credit, but ensuring its accessibility and affordability have been prioritised. One size does not fit all, especially for a highly variegated sector like MSME in India. Therefore, the union budget has taken up a step-wise, yet comprehensive strengthening of the sector by emphasising on vital temporal aspects of MSME development, requiring immediate policy attention. 

Comprehensive Approach

Union Budget 2026 has appropriately catered to the growing demand of the sector, adopting a three-pronged approach of equity, liquidity and professional support.

Firstly, equity support is envisaged in two parts, keeping the varying requirements of small and medium enterprises (SMEs) vis-à-vis micro enterprises. The first one encompasses a Rs 10,000 crore Growth Fund for SMEs. The mention of ‘incentivizing enterprises based on select criteria’ indicates that some parameters will be devised to assess the growth potential of the prospective beneficiaries. The second part proposes to top up the extant Self Reliant India (SRI) Fund by Rs 2,000 crore for micro enterprises.

The SRI Fund was announced in 2020 to infuse equity funding in MSMEs, with the Government of India’s contribution upto Rs. 10,000 crore and that of private equity upto Rs 40,000 crore. Since inception, Rs. 15,442 crore of equity has already been invested in 682 MSMEs. After equity infusion, around 10% of these enterprises have been classified as a higher category of MSMEs. A focused SRI Fund specifically for Micro Enterprises can cater to the requirements of that segment, without leading to any competitive ‘crowding out’ effect. 

Secondly, liquidity support to MSMEs proposes four interventions, viz. one, making TReDS mandatory to settle payments by Central Public Sector Enterprises (CPSEs) to MSMEs, two, providing credit guarantee through Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) on the Trade Receivables Discounting System (TReDS) platform, three, linking GeM and TReDS to assuage information asymmetry, and four, introducing TReDS receivables as asset-backed securities.

Earlier, Budget 2024 had made it mandatory for buyers of MSME goods and services, specifically the CPSEs and companies, to onboard on TReDS. The purpose was to address liquidity concerns of MSMEs. The proposed interventions of Budget 2026 intend to make the functioning of TReDS more robust, with the underlying objective of ensuring MSME financing is more affordable and timely.

The proposal to provide credit guarantee support can go a long way in aiding MSMEs to meet their working capital requirements. Three recent encouraging examples can be quoted in this context. Firstly, the enhancement of the guarantee ceiling on loans covered by CGTMSE from Rs 5 crore to Rs 10 crore in 2025 facilitated enterprises to opt for relatively larger loans. Vis-à-vis the expectation of an additional credit availability of Rs 1.5 lakh crore for micro and small enterprises (MSEs) in the next 5 years, guarantees worth Rs 12,500 crore have already been approved.

Secondly, the infusion of Rs 9,000 crore in the corpus of CGTMSE in 2023 was expected to address issues of availability and affordability of collateral-free loans to MSEs. While the guaranteed credit of Rs. 2 lakh crore was expected to be possible over the next four years, the target was actually achieved in less than three years.

Thirdly, the path-breaking announcement for an end-to-end support for artisans involved in traditional crafts, envisaged in the form of the PM Vishwakarma Scheme, launched on September 17, 2023, is enabling lakhs of artisans and craftspeople to access concessional loans of up to Rs 3 lakh, backed by CGTMSE guarantees.

Thirdly, the Budget proposal of professional support to MSMEs, through Corporate Mitras for meeting compliance requirements at concessional rates, underscores the necessity of assuring ease of doing business. Since meeting statutory, regulatory and tax requirements can be burdensome for MSMEs, the Budget announcement can extend the much required relief to MSMEs.

Enabling Policies: Empowering MSMEs

The strategy adopted by Union Budgets to address concerns of MSMEs has been compendious. For instance, in 2025 the ambit of the ‘Second Engine of Growth’, i.e. the MSME sector, was enlarged. To define the MSME sector, Budget 2025 had announced the doubling of the ceiling on turnover and increasing the one on investment in plant and machinery by 2.5 times.

Subsequently, with effect from 1st April, 2025, the MSME sector was redefined to include those enterprises which have an investment of upto Rs 125 crore, along with a turnover of Rs 500 crore. By enhancing the scope of the sector, entitlements of enterprises, which had freshly graduated out or were apprehensive of graduating out, were adequately restored. 

MSMEs as an engine of growth require policy interventions to tap their full potential. Union Budgets are evidently ameliorating the challenges with focused goals emphasising on providing financing and technology support for MSMEs.

The aim is to equip them to be globally competitive. The contribution of the MSME sector in terms of non-farm employment generation, export potential and economic output, besides its resilience demonstrated hitherto, can only get better with targeted strategies.

The author is an officer of the Indian Economic Service. Views are personal.