Union Budget 2026: A Defining Test for India’s MSME Growth Story

As India moves closer to Union Budget 2026, the Micro, Small and Medium Enterprise sector finds itself at a pivotal juncture. Over the past few years, MSMEs have endured successive shocks, from pandemic-induced shutdowns and supply chain disruptions to inflationary pressures and accelerated formalisation. These experiences have strengthened resilience, but they have also sharpened expectations. MSMEs today are no longer asking for short-term relief; they are seeking structural enablers for durable growth.

Accounting for nearly one-third of India’s GDP and close to half of total exports, MSMEs remain central to the country’s economic engine. Yet their contribution continues to be constrained by persistent bottlenecks. High borrowing costs, delayed receivables, regulatory complexity, and uneven access to infrastructure-linked opportunities continue to limit scale and competitiveness. Against this backdrop, Budget 2026 is being viewed as more than an annual fiscal announcement. It is seen as a directional signal that will determine how confidently MSMEs can participate in India’s next growth cycle.

Global Volatility and MSME Vulnerability

The external environment has become structurally uncertain. Ongoing geopolitical conflicts, disruptions along key shipping routes, energy price fluctuations, and evolving trade alliances are no longer abstract risks. For MSMEs, especially those engaged in exports or dependent on imported inputs, these developments have translated into higher logistics costs, volatile delivery schedules, and delayed overseas payments.

Unlike large corporations, MSMEs operate with limited financial buffers. Prolonged external shocks directly strain cash flows and working capital cycles. This has heightened the need for policy frameworks that insulate smaller enterprises from global volatility without distorting market discipline.

At the same time, India’s macroeconomic positioning remains strong. Reform momentum, public capital expenditure, and digital public infrastructure have helped India emerge as the fastest-growing major economy, even as global growth moderates amid trade fragmentation and geopolitical stress.

Domestic Confidence Meets Global Opportunity

Encouragingly, sentiment within Indian industry remains positive. The Confederation of Indian Industry’s latest Business Outlook Survey shows that the Business Confidence Index rose for the third consecutive quarter to 66.5 in Q3 FY26, marking its highest level in five quarters. Firms report improving demand conditions, healthier profitability outlooks and a more supportive investment climate. Domestic consumption continues to anchor this optimism, aided by GST rationalisation and festive season demand.

The recently concluded FTA between India and the EU adds a new dimension to this outlook. Covering a 27-nation bloc, the agreement opens significant export opportunities while simultaneously raising the bar on quality, compliance and delivery reliability. Budget 2026 will therefore be instrumental in determining whether Indian SMEs can convert market access into sustained export participation.

What MSMEs Are Looking For

Across sectors, expectations from Budget 2026 converge around a few critical themes. MSMEs are seeking policy-backed risk mitigation for exporters, faster and more affordable access to export finance, predictable energy pricing and continued investments in logistics, ports and multimodal connectivity to reduce hidden costs.

The message from the sector is unambiguous: global uncertainty should not cascade into domestic fragility.

From the NBFC ecosystem, which plays a vital role in last-mile credit delivery, expectations are clearly articulated. In an impromptu conversation, Pinank Shah, CEO, Capital India Finance Limited, shared the following views:

“As Budget 2026 approaches, we hope the Government takes measures to further strengthen the credit ecosystem for MSMEs and retail customers, where NBFCs play a critical role in delivering last-mile financing.

Some of the key expectations include:

First, extending SARFAESI rights to NBFCs across all loan values. This will help accelerate recovery processes, reinforce credit discipline and ultimately reduce borrowing costs for customers.

Second, launching a dedicated refinance/liquidity window for MSME-focused NBFCs to ensure steady and cost-effective access to funds for underserved segments.

Third, improving access to long-term funding for NBFCs financing long-tenor assets, which will help ease asset–liability mismatches and support sustainable balance-sheet growth.

Finally, putting in place policies to further strengthen digital public infrastructure for credit through consent-based data sharing and interoperable registries to enhance underwriting quality and enable faster, more informed lending decisions.”

Manufacturing and Chemicals: Capital and Capability

Sector-specific expectations continue to diverge. The chemical industry, in particular, views Budget 2026 as an opportunity to consolidate India’s growing credibility as a global manufacturing hub.

Mihir V Shah, Executive Director, Vipul Organics Limited, observes:

“The consistent policy support extended to manufacturing in recent years has created strong tailwinds for India’s chemical industry, including the dyes and pigments segment. As global customers increasingly seek diversified and dependable sourcing destinations, India is well placed to deepen its role in international supply chains.

The Union Budget can build on this positive momentum through continued investments in chemical park infrastructure, faster environmental approvals, and improved logistics for efficient movement of goods within the country and for exports.

Given the capital-intensive nature of this industry, access to long-term, competitively priced capital remains essential for ongoing investments in technology, safety, and advanced pollution control systems. Encouraging domestic production of key intermediates will further reduce import dependence and enhance value addition within India. Continued policy encouragement for R&D, process innovation and green chemistry will help manufacturers offer higher-value, customized solutions aligned with evolving global compliance and sustainability expectations.

Stable regulations, simplified compliance processes and timely GST refunds will meaningfully ease working capital cycles and strengthen investor confidence. With such supportive measures, the chemical sector can expand exports, create skilled employment and reinforce India’s position as a reliable and responsible global manufacturing partner. “

Editorial Perspective

From the SMECommunities standpoint, Budget 2026 represents a moment to recalibrate MSME policy from transactional support to strategic enablement. As supply chains realign toward reliability and resilience, India’s MSMEs must be equipped not just to participate, but to lead. This requires a coherent blend of financial access, infrastructure readiness, regulatory predictability and sector-sensitive policy design.

If Budget 2026 can align these elements with execution discipline, MSMEs can move decisively from being cost-competitive suppliers to trusted global partners. The opportunity is real, but so is the urgency.