As India charts its long journey towards developed-nation status by 2047, the Union Budget has ceased to be a routine fiscal exercise. It is now asked to reconcile near-term constraints with long-term structural change. At the centre of this task sits the micro, small and medium enterprise sector, no longer content to be described as the economy’s backbone and increasingly expected to function as its growth engine.
This will be the first budget after the formal articulation of the Viksit Bharat vision, and one of 22 budgets that must steadily align policy tools with that objective. MSMEs are not asking for more schemes. They are asking for predictability, competitiveness, and an ecosystem that allows them to scale and integrate into global value chains.
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Cost disadvantages and the competitiveness gap
Despite incremental progress over the past decade, MSMEs continue to operate with structural cost disadvantages. Input prices are a persistent drag. Entrepreneurs report raw materials, particularly non-ferrous metals and industrial inputs, priced 20–40 per cent above global benchmarks. Duties, quality control orders, and fragmented domestic markets raise costs while eroding export competitiveness and reinforcing import dependence, especially on East Asia.
Land and infrastructure constraints compound the problem. Industrial land prices in many clusters have risen sharply over the past decade, driven less by productive demand than by speculation. MSMEs often compete with investors rather than manufacturers, without access to plug-and-play industrial estates. Weak cluster infrastructure, limited shared facilities, and inefficient logistics push up transaction costs that larger firms can absorb but smaller ones cannot.
Access to finance without scale
Credit remains the most cited constraint, but the problem has shifted. Emergency credit lines and guarantees have widened access, yet growth capital remains scarce. Medium-sized firms ready to expand face collateral requirements, slow dispute resolution, and limited appetite for unsecured lending. At the micro end, only a small share of enterprises have sustained access to formal credit, leaving many dependent on informal finance.
Payment delays continue to choke cash flows. Digital portals and legal provisions exist, but enforcement is uneven, particularly when delays originate from larger firms or public entities. Downstream penalties do little when upstream accountability is weak.
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Compliance load and institutional friction
The compliance burden falls disproportionately on micro and nano enterprises. Under GST, tax liability on unrealised invoices, overlapping regulations, frequent rule changes, and digital compliance costs consume scarce managerial capacity. Registration has expanded rapidly; compliance capability has not.
Gender and inclusion add further friction. Women-led enterprises face biases in credit access and regulatory design, alongside unpaid care responsibilities. Protective regulations, often well-intentioned, raise compliance costs and restrict operational flexibility rather than enabling participation.
Taken together, these constraints create a competitiveness trap. MSMEs are expected to deliver global-class outcomes while operating with structurally higher costs and weaker institutional support.
What MSMEs expect from Budget 2026
Expectations from the Budget are pragmatic. The strongest demand is for a shift from scheme proliferation to ecosystem enablement. Fewer interventions, better designed, and enforced with consistency.
Access to affordable finance remains central. This includes deeper collateral-free lending for growth-stage firms, expansion of equity-based instruments, and targeted funds for technology upgradation. Alternative channels such as peer-to-peer lending need policy support, while platforms like TReDS require stricter enforcement discipline.
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On competitiveness, MSMEs seek rationalisation of duties that inflate input costs and predictable trade and quality regimes. A dedicated MSME technology mission, focused on automation, energy efficiency, cybersecurity, and digital tools, is repeatedly flagged. The emphasis is not on generic subsidies but on shared facilities, testing labs, and sector-specific clusters.
GST reform can offer immediate relief. Higher exemption thresholds, removal of tax liability on unpaid invoices, simplified returns, and reduced interpretational ambiguity would materially ease compliance for micro and small firms.
Industry–academia linkages also feature prominently. Mandatory internships, shared laboratory infrastructure, and incentives for collaborative R&D can help close India’s technology gap and reduce reliance on imported know-how.
Inclusion is increasingly viewed as an economic lever, not a social add-on. Targeted support for women-led, rural, and first-generation enterprises through focused credit lines, equity participation, and simplified regulation is seen as essential to sustaining higher growth.
Finally, MSMEs want institutional coherence. Policies framed with intent often lose force in fragmented execution across ministries and regulators. The Budget must signal accountability and coordination, not merely allocations.
The expectations of MSMEs reflect a sector that has matured in its policy thinking. The demand is no longer for protection but for fair competition, predictable rules, and scalable support systems. Viksit Bharat cannot be delivered through fiscal largesse alone. It requires alignment across finance, technology, skills, and governance.
If India is to move from 7–8 per cent growth to sustained double-digit expansion, MSMEs must shift from survival mode to scale mode. The Union Budget can catalyse that transition, not through new acronyms, but by fixing the frictions that entrepreneurs confront every day.
Mahesh MV is Professor, Operations Management, MYRA School of Business.
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Dr Charan Sigh is a Delhi-based economist. He is the chief executive of EGROW Foundation, a Noida-based think tank, and former Non Executive Chairman of Punjab & Sind Bank. He has served as RBI Chair professor at the Indian Institute of Management, Bangalore.