Union Budget 2026 Unveils Comprehensive Support Package for India's MSME Sector
In a significant move aimed at bolstering the backbone of India's economy, Finance Minister Nirmala Sitharaman, in her ninth Union Budget, has announced a robust three-pronged strategy to empower the nation's 7.4 million micro, small, and medium enterprises (MSMEs). This sector is pivotal, contributing approximately 45% to the country's exports and accounting for nearly one-third of its total manufacturing output.
Financial Infusion and Strategic Reforms
The cornerstone of this initiative is the establishment of a dedicated ₹10,000 crore SME Growth Fund, designed to nurture future industry 'Champions' within the MSME landscape. Complementing this, the government has allocated an additional ₹2,000 crore as a top-up to the existing Self-Reliant India Fund. This infusion is specifically targeted at ensuring that micro enterprises retain uninterrupted access to vital risk capital, a critical component for their survival and expansion.
Parallelly, the budget introduces sweeping reforms to the TReDS (Trade Receivables electronic Discounting System) platform. TReDS is an RBI-regulated digital marketplace that enables MSMEs to secure financing against their invoices from large corporates, offering competitive terms without the need for collateral security.
Mandating TReDS and Enhancing Credit Guarantees
A landmark proposal mandates the use of TReDS as the exclusive transaction settlement platform for all purchases made from MSMEs by Central Public Sector Enterprises (CPSEs). This directive is expected to set a powerful precedent for the private corporate sector, ensuring timely and transparent payments.
To further de-risk the financing process, the budget proposes a credit guarantee support mechanism through the CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises). This scheme will provide partial credit guarantees to banks and Non-Banking Financial Companies (NBFCs) for invoice discounting on the TReDS platform, protecting lenders against buyer defaults.
Additionally, the government plans to integrate the Government e-Marketplace (GeM) portal with TReDS. This linkage will facilitate the seamless sharing of information regarding government procurement from MSMEs with financiers, thereby encouraging more affordable and expedited financing solutions.
Industry Acclaim and Operational Impact
Industry leaders have hailed these measures as a transformative step towards bridging the critical credit gap faced by MSMEs. Vinod Kumar, President of the India SME Forum, emphasized the practical implications: "Mandating TReDS means CPSEs must settle MSME invoices exclusively on the platform, eliminating off-platform delays. This establishes CPSEs as anchor buyers, and with the credit guarantee, lenders are protected, making financing more accessible."
Innovation: TReDS Receivables as Asset-Backed Securities
Perhaps the most innovative reform is the proposal to recognize TReDS receivables as asset-backed securities (ABS). This move aims to develop a vibrant secondary market, enhancing liquidity and transaction settlement efficiency. Asset-backed securities are financial instruments created by pooling loans or receivables, which are then sold to investors who receive payments from the underlying assets' cash flows.
Sanjay Doshi, Partner and Head of Transaction Services at KPMG India, elaborated on the potential: "This recognition can transform verified invoices into trusted investment assets, attracting institutional capital, lowering working capital costs for MSMEs, and fostering a more transparent credit ecosystem."
Vinod Kumar explained the mechanism: "Instead of banks holding invoices until maturity, they can bundle thousands of receivables and sell them as ABS to long-term investors like mutual funds and insurance companies, creating a scalable funding channel."
Addressing Challenges and Broader Benefits
While the reforms are ambitious, some experts caution about implementation hurdles, such as attracting investors to securities that may offer yields below 8-9%. However, the consensus remains positive. Veeramani C, Professor and Director at the Centre for Development Studies, noted that this represents a positive structural intervention, particularly benefiting MSMEs within the GST framework with legitimate invoices.
In another supportive measure, the budget has removed the ₹10 lakh cap on courier exports. This change allows exporters to ship consignments of any value via courier services, reducing reliance on traditional cargo. This reform is poised to significantly aid MSMEs, artisans, and e-commerce exporters by enabling faster, simpler access to global markets, thereby boosting overall export growth and ease of doing business.
Collectively, these budget proposals signify a holistic approach to strengthening India's MSME sector, addressing long-standing issues of credit access, liquidity, and market integration through digital and financial innovation.
