Union Budget 2026: What MSMEs Expect on Credit, Growth and Tax Relief

A large segment of India's total economy is comprised of Micro, Small and Medium Enterprises (MSMEs). They are responsible for nearly 30% of the GDP, 45% of the total exports, and also employ a significant proportion of the non-farm service and manufacturing workforce. MSME expectations from the budget are for structural reforms, and in this regard, the industry is looking for changes in support and relief from MSME taxes, reducing input costs, and the acceptance of technologies. 

With the budget approaching, the industry stakeholders are expecting a realignment in handovers for growth, support for credit for MSMEs, the simplification of regulations, and the adoption of technology that will drive the long-term competitiveness of MSMEs. 

Considering India's path towards developing a Viksit Bharat, budget expectations on MSMEs will certainly align towards increasing manufacturing, job creation, and exports. This discussion will aim to address the most important and prioritised expectations that pertain to the Indian Union Budget 2026, more specifically access to credit, tax relief, and growth for the MSMEs.

 

Why MSMEs Need Stronger Support in Union Budget 2026

The MSME sector has a significant impact on India’s economic plans given the efforts directed towards self-reliance in manufacturing and integration into global supply chains. Despite the scale, between 16 and 20 percent of MSMEs are able to secure formal credit, while the remaining face a credit gap of millions of rupees. Increasing global uncertainty has heightened the financial pressures and crises faced by small businesses themselves due to high input costs, delayed payments, and GST-related cash flows.

The Union Budget 2026 is expected to be the turning point to overcome the aforementioned structural and operational challenges concerning MSMEs. Instead of relying on short-term subsidisation, MSMEs request structural shifts to be made available in the liberalisation of credit, lower compliance costs, and increased small business support through subsidised policies. 

Such transformational structural measures will enhance supply chain confidence, strengthen domestic demand across sectors, support the credit growth of lenders, and promote the overall growth of small businesses in the economy.

Credit Support for MSMEs - The Biggest Expectation from Union Budget 2026

For MSMEs, ease and affordability in accessing credit is the top expectation from the Union Budget 2026. Industry bodies like FISME, CII, and FICCI have called for the expansion of the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) for the 2026 Union Budget. MSMEs hope that the CGTMSE will see an increase in the guarantee corpus, relaxation of targets, an increase in cash flow-based lending to reduce reliance on collaterals, and an increase in exports for the Budget.

Focus on micro enterprises, women-led firms, and new micro finance borrowers is expected in revising guarantee products or reactivating loss intervention emergency credit support. In the budget, the MUDRA scheme is expected to have higher loan caps and instant disbursal for SMEs because the current disbursal limits and amounts do not support SMEs in their growth.

The increase in support for MSME credit will bolster economic growth in the country through valuable pipelines to improve supply chains, credit to banks, and demand from the NBFCs. A growing economy signifies a significant demand for capital expenditure. In such a scenario, the support for MSMEs in the country will help meet India's growth target for manufacturing.

 

Input Cost Adjustments and Relief of MSME Taxes

The needed adjustments of MSME taxes, particularly at the intersection of the customs duties and the GST, remain at the forefront of the demands. The inverted duty structures, where the MSME’s raw materials are more highly taxed than the finished products, create a considerable strain on the working capital and lower the ability to compete in the international markets.

There are expectations that the customs duties, in the Union Budget 2026, will be adjusted in the customs that will be more positively related in the electronics, renewable energy components, engineering goods, and auto ancillary sectors. Such adjustments will lead to reduced input costs, improved margins, and a better global positioning of India in value chains. There are also hopes that the interest rates will be capped on export financing and there will be a quick return of GST to support the cash flow of the export-oriented businesses.

These are not only short-term adjustments. The MSME tax relief will promote the growth of small businesses, and the other structures will enhance the overall competitiveness of the countries involved. The more stable tax structures will reduce the levels of litigation, promote formality, and the business environment will improve, thereby increasing tax revenues.

 

The Growth of MSMEs and Increased Use of Technology

The use of technology, in most circumstances, has become more of a necessity than just a matter of choice. This is especially true for smaller businesses. The ability to use digital payment systems, access cloud-based accounting, incorporate artificial intelligence, and various other Industry 4.0 solutions, will become a necessity rather than an option.

Updated technology budget grants and tax incentives for revisions to digital infrastructure are anticipated for the Union Budget 2026. Digital public platforms interconnection, such as e-invoicing, GST, and logistics, would simplify compliance and allow the opening of new markets.

Manufacturing clusters, in particular, could see targeted support to adopt advanced tools, boosting productivity and resilience. These growth-oriented measures would help MSMEs move up the value chain, participate more effectively in exports, and contribute to India's long-term manufacturing goals.

 

Simplifying Compliance for Sustainable Small Business Growth

MSME compliance continues to be one of the biggest challenges. Rule changes, complex processes, and slow refunds consume resources and surface as problems that divert the focus of the business.

The Indian budget MSME framework is expected to provide streamlined processes, less litigation, and quicker returns for GST. Having a straightforward, reliable compliance system would help MSMEs lower their operating costs and give more freedom to entrepreneurs to come up with new ideas and expand.

From the government’s perspective, regulatory leniency aids in the formalisation of businesses, which results in more taxes collected, better data for the economy, and more robust growth. When combined with MSME credit support and MSME tax relief, these measures set the stage for enduring small business growth.

 

Broader Economic Impact of MSME-Focused Reforms

If the Union Budget 2026 is implemented in the right way, the reforms will have wide-ranging benefits for the economy. More accessible credit will result in unlocked investments and job opportunities. Additionally, lowered input costs and export incentives will improve competitiveness. Furthermore, technological improvements will provide greater productivity and more resilient supply chains.

From a more macro level, a flourishing MSME ecosystem will provide benefits for the equity markets and improve banking, manufacturing, logistics, and consumption. It will strengthen India’s capex-led growth model during uncertain global economic periods, which provides a value add for investors focused on the domestic economy.

 

Conclusion: A Foundational Budget for MSMEs

While the Union Budget 2026 may not provide alarming and headline-dominating subsidies, it still has the promise of building a budgetary framework for the MSMEs. Budgetary reforms in MSME credit support, MSME tax relief, technology, and compliance will improve the growth trajectory of India.

With the budget focusing on value-adding structural reforms, it will enable the MSMEs to provide more for the economy in terms of employment, exports, and manufacturing. For small businesses, this will mean more certainty and will provide the opportunity for small business growth. For the economy, this will be a move towards inclusive and sustainable growth.

As stakeholders listen for budget announcements, the focus remains clear: foster the ecosystem for enduring success over ephemeral quick fixes. A properly calibrated Union Budget 2026 could be a watershed moment for MSMEs and India’s economic aspirations.

 

DISCLAIMER: This blog is NOT any buy or sell recommendation. No investment or trading advice is given. The content is purely for educational and information purposes only. Always consult your eligible financial advisor for investment-related decisions.