MSMEs at the Heart of India’s Growth Story: PHDCCI’s Big Budget Wishlist for 2026–27

As India eyes a faster growth trajectory and a stronger position in global supply chains, one sector continues to quietly carry the weight of the economy on its shoulders — Micro, Small and Medium Enterprises (MSMEs).

From factory floors in Tier II towns to export-led startups plugging into global markets, MSMEs are no longer peripheral players. They are central to India’s ambition of becoming a manufacturing and export powerhouse. And as the Union Budget 2026–27 approaches, industry voices are growing clearer on what this backbone of the economy truly needs.

In a detailed set of recommendations, the PHD Chamber of Commerce and Industry (PHDCCI) has outlined a comprehensive roadmap to strengthen MSMEs — focusing on easier access to finance, lower compliance burdens, and sharper global competitiveness.

Speaking on behalf of the industry, Dr. Ranjeet Mehta, CEO & Secretary General, PHDCCI, makes a compelling case: if India wants to move towards a sustained 10% growth path, MSMEs must be empowered, not encumbered.

Why MSMEs Matter More Than Ever

The numbers tell a powerful story.

MSMEs now contribute 30% of India’s manufacturing output and have emerged as the second-largest employer, after agriculture. Their role in exports has also steadily grown, with India’s total exports rising from 43.59% in 2022–23 to 45.79% in 2024–25 (up to June 2025). This reflects how deeply Indian MSMEs are integrating into global trade and value chains.

Formalisation has added further momentum. Between July 2020 and December 2025, over 7.30 crore enterprises registered on the Udyam Registration Portal and Udyam Assist Platform, bringing millions of small businesses into the organised economy. This shift is critical — not just for visibility, but for targeted policy support.

Yet, challenges remain. Rising costs, expensive credit, regulatory overload, and global volatility are putting pressure on small businesses just as they are being asked to scale up.

That’s where PHDCCI’s Union Budget 2026–27 proposals come in.

Making Credit Cheaper and More Accessible

1. Bringing Back Interest Subvention for MSMEs

One of the most pressing concerns for MSMEs is the high cost of credit. PHDCCI has proposed reintroducing an interest subvention scheme, offering a 2% interest subsidy on new and incremental loans from banks and NBFCs.

Lower borrowing costs could improve cash flows, strengthen repayment discipline, and help MSMEs stay competitive amid ongoing geopolitical and economic uncertainties.

2. Updating MUDRA Loan Limits for Today’s Reality

When the Pradhan Mantri MUDRA Yojana was launched in 2015, project costs were far lower than they are today. PHDCCI believes the loan ceilings must be revised to reflect current realities:

• Shishu: from ₹50,000 to ₹1 lakh

• Kishore: from ₹5 lakh to ₹10 lakh

• Tarun & Tarun Plus: up to ₹20 lakh

The idea is simple — ensure that credit availability actually matches what today’s enterprises need to grow.

Supporting MSMEs in Global Markets

3. Interest Equalization for Export Credit

With global tariff pressures rising, MSME exporters are facing tighter margins. PHDCCI has recommended reintroducing the Interest Equalization Scheme for both pre- and post-shipment export credit.

Importantly, the proposal also calls for extending this benefit to service exporters, not just manufacturing units. This broader coverage could significantly boost India’s export competitiveness across sectors.

Fueling Growth Through Equity, Not Just Loans

4. Equity Infusion via Fund of Funds

Debt alone cannot power fast growth. For startups and high-potential MSMEs, equity financing is often more sustainable.

PHDCCI has suggested deploying the Fund of Funds to infuse equity, especially for startups, helping them meet seed capital requirements and scale without the immediate pressure of repayments.

Strengthening Institutional Protection

5. Expanding MSME Facilitation Councils

Currently, under the MSME Development Act, 2006, only small enterprises can approach Facilitation Councils for relief in cases of delayed payments.

PHDCCI recommends extending this protection to medium enterprises as well — a move that could significantly improve payment discipline across value chains.

Modernising MSMEs for the Future

6. Higher Subsidy for Technology Upgradation

Adopting modern, green, and eco-friendly technologies is no longer optional. However, current support limits often fall short.

The proposal calls for enhancing the Credit Linked Capital Subsidy Scheme, raising the investment ceiling from ₹1 crore to ₹2 crore, better aligned with today’s technology costs and sustainability goals.

Cutting Compliance, Saving Costs

7. Removing the Tax Audit Burden for Micro Enterprises

Compliance costs hit micro enterprises the hardest. PHDCCI has proposed amending Section 44AB of the Income Tax Act to exempt all micro enterprises with turnover up to ₹10 crore from mandatory tax audits — regardless of profit margins.

This single change could save businesses ₹75,000 to ₹1.5 lakh annually, freeing up resources for growth and job creation.

A Coherent Blueprint for MSME Growth

Taken together, PHDCCI’s Union Budget 2026–27 proposals form a clear, practical, and growth-oriented policy package. The focus is not on headline-grabbing announcements, but on fixing everyday pain points — expensive credit, delayed payments, heavy compliance, and outdated limits.

For a sector that already powers India’s manufacturing, exports, and employment, the message is clear: with the right support, MSMEs can do much more.

As the Budget approaches, all eyes will be on how many of these recommendations make it to the final speech — and how decisively India chooses to back its most resilient growth engine.