The Union Budget 2026 signals a renewed policy push for India’s micro, small and medium enterprises (MSMEs), with Finance Minister Nirmala Sitharaman announcing a Rs 10,000 crore SME Growth Fund and a broader reset of support mechanisms aimed at easing capital stress, reviving industrial clusters and scaling high-potential firms.
Presenting the Budget in Parliament, Sitharaman said the government proposes to set up a Rs 10,000 crore MSME Growth Fund to “create future champions”, marking one of the most significant targeted interventions for small businesses in recent years. The move comes as official assessments acknowledge that MSMEs remain constrained by high capital costs and input pressures despite strong macroeconomic performance.
The Growth Fund is designed to help promising small and medium enterprises scale operations and improve productivity. It will operate alongside incentive frameworks that reward firms meeting specific criteria such as higher productivity, greater formalisation and export readiness, according to the Budget announcements.
In a parallel effort to revive traditional manufacturing bases, the government will roll out a scheme to rejuvenate 200 legacy industry clusters across the country. These clusters, many of which have suffered from prolonged credit stress and outdated technology, are expected to be upgraded to rebuild employment and restore manufacturing activity in regions that have lost industrial momentum.
To support the smallest enterprises, the Budget also provides a Rs 2,000 crore top-up to the Self-Reliant India Fund. This is aimed at micro enterprises that continue to remain capital-starved despite existing credit guarantee schemes, offering them additional equity-like support to stabilise operations.
The Budget measures closely align with concerns flagged in the Economic Survey 2025-26, released by the Ministry of Finance, which highlighted that India’s MSMEs continue to face structural constraints even as the economy records its strongest macroeconomic performance in decades. The Survey noted that while growth momentum remains strong and potential growth has been revised upward to 7.0 per cent, these gains have not translated into easier scaling for MSMEs.
According to the Survey, India’s persistently high cost of capital is a structural outcome of reliance on foreign savings and current account deficits, a burden that falls disproportionately on smaller firms with limited access to affordable credit. It added that energy, freight and electricity tariffs remain inverted for many enterprises, eroding margins for MSMEs operating at the lower end of value chains.
The Survey also warned that recent tariff shocks have hit MSME exporters particularly hard due to thin margins and tight working capital cycles. “For competitive businesses, the cost of capital is not the only input cost to consider,” it said, underscoring the need for lower input costs, faster logistics and quality upgrading.
Commenting on the findings, Rumki Majumdar, Economist at Deloitte India, said resilience for MSMEs must come from de-risking balance sheets and linking clusters more deeply into global value chains. She noted that reducing finance and input costs could turn current headwinds into a competitiveness sprint for small manufacturers.
While the Survey said India is relatively better placed than many economies due to its large domestic market, strong foreign exchange reserves and lower financialisation, it cautioned that these buffers do not guarantee insulation from external shocks. Strengthening manufacturing competitiveness and MSME participation in export ecosystems, it said, remains critical to sustaining growth. |
