India’s MSME Policy Crossroads: What Budget 2026‑27 Must Deliver

India’s micro, small, and medium enterprises stand at a critical juncture, with credit access, compliance, and delayed payments still constraining growth despite successive reforms. Recent budgets have strengthened credit guarantees, export‑oriented support, and digital compliance systems, creating a platform for more ambitious interventions in 2026‑27. At the same time, global estimates of a multi‑trillion‑dollar MSME finance gap underscore the need for targeted, well‑designed instruments that can close structural funding deficits rather than fragmented, scheme‑based relief.​

Current Foundations: Credit, Guarantees, and Payments

Recent policy has expanded and revamped the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), increasing the maximum guarantee cover to ₹10 crore for eligible borrowers and lowering guarantee fees to encourage banks and NBFCs to lend more to smaller units. Dedicated credit guarantee schemes have also been cleared to support MSME exporters with additional working capital lines, signaling a strategic push to align the MSME ecosystem with India’s export ambitions.​

On the payments side, the statutory framework has been tightened through the interplay of the MSMED Act and Section 43B(h) of the Income‑tax Act, which effectively disallows deductions on payments to micro and small enterprises if they are not made within the legally prescribed timelines. While the law mandates interest at three times the RBI bank rate for delayed payments, the practical enforcement of this obligation, especially across sprawling supply chains, remains uneven and continues to lock up significant working capital for small units.​

Compliance and GST: Case for a Micro‑First Regime

Small enterprises continue to experience compliance as a disproportionate burden relative to their scale, particularly in GST and allied tax processes. Although composition schemes, quarterly filing options, and faceless digital interfaces have helped, micro units with limited back‑office capacity still struggle with classification errors, input tax credit mismatches, and procedural lapses that attract penalties rather than hand‑holding.​

Stakeholder proposals for a micro‑focused GST simplification track, therefore, center on ideas such as reduced filing frequency, more tolerant treatment of minor errors, and better integration of GST, direct tax, and Udyam‑related data through unified digital interfaces. These suggestions aim to shift the system from a punitive approach to a “trust‑but‑verify” model for genuinely small, compliant taxpayers, without diluting the integrity of the tax base.

Restructuring, Risk‑Sharing, and New Capital Channels

Stress in MSME balance sheets has often been addressed through time-bound restructuring windows and regulatory forbearance; however, such responses are episodic rather than structural. Industry voices are calling for more predictable frameworks that combine early‑warning support, standardised restructuring templates, and partial credit guarantees so that viable but stressed enterprises can be revived before they slip irretrievably into non‑performing asset status.​

Parallel to bank-based finance, existing SME exchanges on the main bourses have demonstrated that equity-like capital can be mobilised for growth-oriented MSMEs, although listing costs, disclosure expectations, and investor awareness remain barriers for smaller firms. Well-regulated alternative channels, such as carefully framed crowdfunding mechanisms and state-level capital platforms, are being discussed as ways to democratise access to risk capital while maintaining safeguards for investors.​

Market Access, Technology, and Cluster Ecosystems

Improved logistics, faster customs processing, and export‑support infrastructure are central to unlocking MSME participation in both traditional and e‑commerce‑led export markets. Policy initiatives around technology centres, extension centres, and digital customs platforms illustrate the direction of travel, but coverage remains thin relative to the size and diversity of the MSME base.​

On the technology side, schemes such as the Credit Linked Capital Subsidy and Technology Upgradation Scheme (CLCS‑TUS) provide capital subsidies for modernisation and quality enhancement, especially for plants and machinery. Coupled with emerging initiatives on new technology centres and testing facilities, these programs are intended to help clusters move up the value chain, embed quality and sustainability, and comply with increasingly stringent global standards.​

Towards Budget 2026‑27: Priorities for Accessible, Affordable, Resilient Finance

For the upcoming Union Budget, the central policy question is no longer whether MSMEs deserve focused support, but how to design that support for maximum impact and accountability. Strengthening and simplifying existing instruments, credit guarantees, delayed payment enforcement, restructuring frameworks, and technology‑upgradation schemes offer a faster route than continuously adding new, overlapping programs.

If future measures can combine stronger enforcement of the 45‑day rule, deeper and more agile risk‑sharing mechanisms, targeted compliance relief for micro units, and scaled‑up infrastructure for exports and cluster‑based technology services, India’s MSMEs will be better positioned to expand their contribution to exports, employment, and inclusive growth over the medium term. Such an approach would align domestic reforms with global efforts to narrow the MSME finance gap while preserving fiscal prudence and institutional credibility.