MSME back in focus in a capex-oriented budget

There is a definite shift in policy and strategy from last year’s populist and consumption spend led economy growth budget. This is towards the necessary Capex, infrastructure and investment led economic growth-oriented budget. Notably, the support towards the MSME sector has been enhanced substantially, both directly under the Ministry of MSMEs outlays, as well as allocation under other related and sectoral ministries.

Enhanced assistance is to be accorded for individual technology upgrading, cluster based joint technology upgrading, establishment of technical and physical infrastructure. Furthermore, policy instruments such as customs tariff rationalisation is also visualised. Notably, specific value-chains are also targeted for development. The major distinction from the previous budget is in terms of focus on specific value-chains as well as on PPP-led infrastructure creation, as against substantially credit related support earlier.

Old and new economy sectors to be supported with infrastructure, technology and credit

In the present budget, substantial support is offered for the MSME sector, both for old economy as well as new economy sectors. Old economy sectors targeted include textiles, engineering, handloom and handicraft, khadi and sports goods. New economy sectors encompass both bio-pharma and semi-conductors, and rare earth sectors. Cluster development and interventions through challenge mode PPP options is a thrust in interventions. Notably, an SME growth fund of INR 10,000 crore is also envisaged. In the new economy sector, semi-conductor R&D and electronics manufacturing capability is to be developed through a huge allocation of INR 40,000 crore. In the old economy sectors textiles, particularly, technical textile developing mega textile parks are also to be developed on challenge mode.

Custom duty rationalisation or basic CD exemption is offered on imports of inputs for marine, leather and textile product manufacturers as to make them more competitive globally. Similar incentives for lithium-ion storage batteries, aircraft manufacturing and biogas blended CNG is also to be offered.

The numbers

The total outlay to MSME sector stands at INR24566 Crore. Which is a 103 per cent increase over the revised estimates of FY25-26. Support towards Khadi, village Industries and coir sectors have been accorded additional support to the tune of 27 per cent standing at INR1398 crore In FY26-27. Notably, the much in demand Cluster based scheme for Regeneration of Traditional Industries (SFURTI) has been accorded with additional support of 41 per cent standing at INR197 crore this year. A major Initiative has been additional support towards Prime Minister Employment Generation Programme (PMEGP) and the Fund of Funds programme. These two outlays presently stand at INR4500 crore and INR1900 crore respectively, implying 77 per cent and 111 per cent, respectively.

Infrastructure development support has also been a thrust with increase in outlay towards Micro and Small Enterprise Cluster Development (MSE-CDP) and the technology centres Systems programme (TCSP) and partly the Raising and Accelerating MSME Performance (RAMP) to the tune of 28 per cent (presently at INR410 crore), 83 per cent (presently at INR417 crore), 2 per cent (presently at INR1500 crore).

Some initiatives which have taken a hit, included the Vishwakarma scheme which also involved distribution of tools to artisans. Development of village and small Industries is supported with an outlay of INR20,296 Crore. in the budget FY 2026-27 showing a notable increase of 101 per cent from previous budget FY 2025-26 of INR10,073 crore.

Sectoral initiatives

Some of the related sectoral initiatives which will also benefit the MMSE sector include the Biopharma SHAKTI initiative to boost biotech and pharma manufacturing, India Semiconductor Mission (ISM) 2.0 for chip design and fabrication, Hi Tech Tool Rooms in CPSEs to support advanced manufacturing, Rare Earth Permanent Magnets scheme: research, mining, processing, and manufacturing, Scheme for Container Manufacturing to reduce import dependence, three dedicated Chemical Parks to enhance domestic petrochemical and fertiliser production, Integrated Programme for Textiles to modernise textile clusters (particularly technical textiles), affordable Sports Goods initiative for upscaling domestic manufacturing, Revival of 200 legacy industrial clusters, electronics Components Manufacturing Scheme, Construction & Infrastructure Equipment manufacturing push for high value, advanced machinery.

Other initiatives

Some of the other initiatives include a INR10,000 crore SME Growth Fund and a INR2,000 crore top up to the Self Reliant India Fund, professional: “Corporate Mitras” in Tier II/III towns to help MSMEs with compliance, mandating TReDS for Central Public Service Enterprises (CPSE) purchases from MSMEs, Credit guarantee support for invoice discounting on the Trade Receivables Discounting System (TreDS), Linking GeM with TreDS for cheaper financing etc. These initiatives are expected to support the MSME sector with equity and liquidity facilitating instruments.

Kunal Sood is partner and inclusion ecosystem leader, Grant Thornton Bharat and Professor V Padmanand is  partner MSME advisory, Grant Thornton Bharat ; views are personal