Union Budget 2026: MSMEs Want These 12 Game-Changing Reforms After A Big Win In 2025

The Union Budget 2025 was positive as it expanded the MSME definitions, raising investment and turnover limits, doubling credit guarantee cover from Rs 5 crore to Rs 10 crore, and providing higher term loans for startups and exporters. With this, micro enterprises can now invest up to Rs 2.5 crore with a turnover of up to Rs 10 crore and small enterprises up to Rs 25 crore with a turnover of Rs 100 crore.

Challenges of women entrepreneurs, particularly first-generation business owners from SC/ST, who have historically faced challenges in securing credit, found relief with the government's plan to provide term loans of up to Rs 2 Cr to 5 lakhs women entrepreneurs over the next five years.

"The enhanced credit access, targeted support for technology and manufacturing, the introduction of the CGMSE to provide collateral-free machinery loans, and continued push for digital infrastructure have been central to strengthening micro enterprises and first-gen entrepreneurs. Government's effort to bring informal micro enterprises into the formal economy through the Udhyam Scheme has also led to official registrations of over 7.30 Cr. Micro, small and medium enterprises in just 2025," said Lakshmi Venkataraman Venkatesan, Founding & Managing Trustee, Bharatiya Yuva Shakti Trust (BYST).

"Many micro-enterprises are still hesitant about formalization due to perceived compliance costs. Rising input costs have led small businesses to increase prices, and finding skilled talent has become a major challenge particularly with the existing lower demand for consumption. Nevertheless, looking ahead to Union Budget 2026, a large proportion of MSMEs anticipate further growth, driven by ongoing digital adoption, skilling capabilities, increased capacity, and incentives through lower GST and Income Tax exemption up to Rs 12 lakhs," added Lakshmi Venkataraman Venkatesan.

While the country has seen progress through CGTMSE expansion, a credit gap of nearly Rs 30 lakh crore remains. Only about 16-19% of MSMEs currently have access to formal credit, which must improve to at least 25% by 2028 as a significant step towards making Viksit Bharat@2047 a reality. Additionally, the current loan size under the MUDRA scheme, particularly in the Shishu category, averages Rs. 37,000, which is insufficient for microentrepreneurs to expand and sustain their businesses effectively. Increasing loan amounts, providing up to 4% interest subvention and nil or token processing fee charges. Margin money should not be insisted where advances capital subsidy is available otherwise maximum margin money should be 10 per cent under MUDRA scheme.

"The government must extend the Rs 20 crore credit guarantee threshold to micro and first‑generation women-led enterprises, not just startups, to help them scale their businesses to small enterprise category and support those who are lacking adequate assets," commented Lakshmi Venkataraman Venkatesan.

15-day automatic GST refund cycle must be implemented along with 12% statutory interest on delayed funds particularly supporting micro entrepreneurs in the handicrafts, retail and services businesses where margins are thin and which often run on weekly and monthly cash cycles. Delays of 30-90 days can force shutdown of such businesses with liquidity problem and default on loan repayments.

At the grassroots level, entrepreneurs are restricted in scaling their businesses due to compliance burden and not their ability to follow. The government must consider raising the GST exemption limit from Rs 40 Lakhs to Rs 1.5 Cr, enabling ~99% of small businesses by freeing them from rigid GST compliance.

"A single-window clearance system for licensing and compliance can further help streamline operations. Additionally, sole proprietorships and partnerships should receive the same three-year tax holiday for startups as Pvt. Ltd. companies and LLPs," stated Lakshmi Venkataraman Venkatesan.

"Moreover, the government has already scaled the Lakhpati Didi target from 2 Cr to 3Cr SHG women and as of 2025, 1.48 Cr+ SHG women have become Lakhpati Didis earning more than Rs 1 lakh annually. This is a clear indicator of the uptake capacity of these women-led entrepreneurs and system's readiness for rapid expansion. Thus, the government must look at expanding the Lakhpati Didi target from 3 Cr to 5 Cr women by 2027, in the upcoming budget 2026," Lakshmi Venkataraman Venkatesan added.

Aligned to Prime Minister Narendra Modi's emphasis on mission-mode reforms to drive long-term economic growth, Aatmanirbharta and structural transformation, the MSME sector expects targeted reinforcement of GST reforms to enhance ease of doing business and ensure operational continuity. Echoing the Prime Minister's recent NITI Aayog pre-Budget consultation for the 2026-27 Union Budget, where economists highlighted infrastructure-led growth, technology adoption, and productivity gains; MSME sector seeks measures that simplify tax administration while strengthening foundational reforms to support scale, competitiveness, and deeper integration into global value chains.

Green channel bank approvals for collateral-free loans become essential at the implementation bank branch level, alongside NBFC-fintech partnership channeling liquidity and TReDS-GST integration through the account aggregator ecosystem, enabling cash flow lending. Labour-intensive sectors like textile, leather, footwear and handicraft require targeted infrastructure support to create jobs at scale, for the success of the Swadeshi Movement to bring down imports for better balance of funds and to strengthen Indian Rupee against US Dollar.

"The expectation is also to bring a strong policy framework where Skill Council certifications are linked to incentives for micro and small enterprises to significantly address the skill gaps in the sector. Shortages upto 35% in unskilled roles and 10-15% in technical roles have pushed operational costs up by 5-8% in recent months. This skill deficit isn't confined to remote or rural areas but extending to urban corridors too and both micro and medium enterprises feel the pinch. The government should consider introducing subsidies for digital adoption, e-commerce integration, and cybersecurity training. Removing transaction fees for digital payments up to Rs. 20,000 and allocating funds for platforms like ONDC to onboard microenterprises will boost digital growth," stated Lakshmi Venkataraman Venkatesan.

This year's budget must take measures to address the implementation lags on the ground level despite strong policy ambition and intent; to gradually shift dependence on Viksit Bharat-Guarantee for Rozgar and Ajeevika Mission (Gramin) scheme for a stronger economy.