As India approaches the Union Budget 2026, the scale of the MSME sector is no longer a matter of debate. As of September 2025, over 6.8 crore MSMEs are registered on the Udyam Registration Portal and the Udyam Assist Platform, together employing nearly 30 crore people. MSMEs today are not peripheral contributors to the economy. They sit at its operational core.
What has changed just as significantly is how these businesses function. Formalisation has accelerated, digital adoption has deepened, and financial connectivity has improved. Nearly three-quarters of MSME transactions are now digital. The growth of UPI has played a central role in this transition, with monthly transactions crossing 20 billion for the first time in August 2025. These are not abstract indicators. They reflect a fundamental shift in how small businesses manage cash flows, make payments, and interact with the financial system.
This progress has created a strong foundation for growth. It has also made the remaining constraints more visible. For many MSMEs, the challenge today is not access to markets or willingness to formalise. It is whether the systems around credit, compliance, and policy delivery are equipped to support scale.
From the MSME sector perspective, four priorities stand out for the Union Budget 2026.
Credit guarantees have been among the most effective tools for expanding collateral-free lending to MSMEs. By sharing risk with lenders, they have unlocked credit at a scale traditional asset-backed models could not achieve.
As MSMEs become more data-rich and digitally visible, these frameworks must evolve. Expanding coverage limits, simplifying claim settlement processes, and extending eligibility to a wider set of growth-stage enterprises can materially improve lender confidence and reduce borrowing costs.
The next phase of MSME credit growth will be driven by cashflow-based lending rather than static balance-sheet assessments. Credit guarantees should align with this shift. When guarantees support real business performance, they move from being a safety mechanism to becoming an active enabler of scale. A dedicated Budget allocation to expand the MSME credit guarantee corpus, focused on cashflow-based models, would be a powerful catalyst for the next growth cycle.
Formalisation has delivered clear benefits, but it has also increased the compliance burden on smaller businesses. For many micro and small enterprises, managing GST filings, audits, and reporting requirements still demands disproportionate time and effort, often falling directly on the entrepreneur.
Simplifying compliance thresholds, rationalising reporting requirements, and reducing duplication across processes would immediately improve productivity. Continued progress toward unified digital compliance can ease operational strain without compromising transparency.
Ease of compliance is as critical as ease of credit. Regulation that is proportionate to scale encourages businesses to remain formal and grow within the system. Predictable compliance frameworks strengthen the ecosystem rather than slowing it down.
The government has committed significant resources to supporting MSMEs through multiple schemes and direct benefit transfers. Yet, adoption on the ground remains uneven. Many entrepreneurs are unaware of available schemes or unsure how to navigate access. In other cases, limited understanding of financial products leads to hesitation or underutilisation.
Dedicated funding for regional outreach, borrower education, and digital onboarding can bridge this gap. When MSMEs understand how credit products work, how repayments are structured, and how digital tools simplify operations, confidence and responsible borrowing behaviour improve. Financial literacy is not a peripheral issue. It directly influences credit quality, borrower outcomes, and the long-term resilience of the MSME ecosystem.
Where execution has been consistent, outcomes have followed. Government procurement from MSMEs demonstrates what is possible when access frameworks function as intended.
The broader challenge lies in ensuring similar consistency across programmes. Delays, fragmented processes, and uneven implementation dilute impact. Strengthening last-mile execution through clearer processes, better coordination between institutions, and simplified borrower journeys can significantly improve trust and effectiveness.For MSMEs, predictability matters more than novelty. Reliable access to credit, manageable compliance, and consistent support systems allow entrepreneurs to plan, invest, and scale with confidence.
India’s MSME ecosystem has demonstrated that it can formalise, digitise, and grow at scale when the foundations are right. Budget 2026 has an opportunity to shift the narrative from inclusion to expansion by focusing on system-level strengthening rather than incremental additions.
By modernising credit guarantees, reducing compliance friction, investing in awareness, and improving last-mile execution, the Budget can help MSMEs move from resilience to scale. If India wants its small businesses to become global exporters and national champions, policy must now evolve from enabling participation to enabling growth at scale.
(Alok Mittal, Co-founder & Executive Chairman at Indifi Technologies.)
Views are personal, and do not represent the stand of this publication.
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