Union Budget 2026: Key announcements for MSMEs and small businesses

Finance Minister Nirmala Sitharaman on Sunday announced a series of measures to strengthen micro, small and medium enterprises (MSMEs), proposing mandatory use of the Trade Receivables Discounting System (TReDS) by central public sector enterprises for procurement from MSMEs and a fresh capital infusion into the Self Reliance India Fund.

Presenting the Union Budget 2026-27 in Parliament, Sitharaman said TReDS will be made “a transaction platform for all purchases from MSMEs by central public sector enterprises”.

She also proposed to “top up the Self Reliance India Fund with ₹4,000 crore in FY27” to provide equity support to MSMEs, and announced the creation of a ₹10,000-crore fund to develop “champion SMEs” as part of efforts to scale up manufacturing and competitiveness.

Self Reliance India Fund was announced in 2023 to infuse ₹50,000 crore in equity funding into MSMEs with the potential and viability to grow into large units.

The finance minister also proposed setting up mega textile parks with a focus on “value addition to technical textiles”.

In her Budget speech, Sitharaman proposed Natural Fibre Scheme, Textile Expansion and Employment Scheme, and National Handloom and Handicraft programme.

The minister added that the government will continue to develop infrastructure in Tier 2, and Tier 3 cities.

The Economic Survey, tabled ahead of the Budget 2026 on January 29, highlighted that MSMEs formed the backbone of India’s industrial economy. According to the Survey, the MSME sector accounts for nearly 35.4% manufacturing and around 48.58% of exports and 31.1% of GDP.

With over 7.47 crore enterprises employing more than 32.82 crore people, the sector is the second-largest employer after agriculture.

As India’s manufacturing sector becomes increasingly integrated with global markets, the Survey highlights that MSMEs are crucial for supply-chain participation, local value addition and inclusive regional growth.

The Survey also stated that MSME credit has continued to grow, backed by government measures to improve access to finance. During H1FY26, MSME credit was the main contributor to industrial credit growth, with year-on-year expansion outpacing that of large industries.

In the Union Budget 2025, the government introduced several measures to strengthen the MSME sector, recognising its importance alongside agriculture, investment and exports in India’s development. The investment and turnover limits for MSME classification were raised to help businesses expand and improve efficiency. Access to credit was enhanced through a higher credit guarantee cover for micro and small enterprises, startups and export-focused MSMEs.

The credit guarantee cover for micro and small enterprises was increased from ₹5 crore to ₹10 crore, allowing for an additional ₹1.5 lakh crore in credit over five years. For startups, the guarantee cover was doubled from ₹10 crore to ₹20 crore, with a reduced fee of 1% for loans in 27 priority sectors. Exporter MSMEs were also supported, with term loans of up to ₹20 crore available under an increased guarantee cover.

A new scheme provided financial support to first-time entrepreneurs from disadvantaged backgrounds, while sector-specific initiatives aimed to boost productivity in areas such as footwear, leather and toy manufacturing.