MSMEs look for finance and compliance relief in Budget 2026

Mumbai: India’s micro, small and medium enterprises (MSMEs) approach the Union Budget 2026 with a clear set of expectations shaped by both longstanding challenges and new opportunities. Deloitte’s pre-budget report emphasises the sector’s central role in the economy – contributing nearly 30 per cent to gross domestic product (GDP), over 35 per cent to manufacturing output and 45 per cent to exports, while employing more than 100 million people. Despite this scale, MSMEs continue to face barriers in finance, compliance and competitiveness, leaving them vulnerable to global volatility and domestic constraints.

The report identifies three priority areas for intervention. The first is strengthening capacity at the last mile. Many enterprises struggle with digital bookkeeping, accounting methods and compliance with domestic quality standards such as those of the Bureau of Indian Standards and the Food Safety and Standards Authority of India. Deloitte recommends structured training in these areas, alongside support for participation in government competitiveness programmes such as Raising and Accelerating MSME Performance, Zero Defect Zero Effect and LEAN. Wider adoption of platforms like the Trade Receivables Discounting System, Government e-Marketplace and the Open Network for Digital Commerce is also seen as critical. The measurable outcome would be faster order-to-cash cycles, improved product quality and greater formalisation across the sector.

The second priority is expanding access to finance. Despite repeated reforms, credit remains constrained by stringent know-your-customer norms and reliance on collateral-based lending. Deloitte proposes a ‘green channel’ for compliant MSMEs, offering faster turnaround times and reduced documentation. It also calls for a dedicated liquidity and growth fund, channelled through non-banking financial companies and fintechs, with district-level monitoring. Cash flow-based lending, using GST and e-invoice data, is another recommendation, aimed at improving working capital velocity and reducing dependence on informal credit. The expected impact would be more first-time formal borrowers, improved profitability and lower financing costs.

The third priority is enabling scale. More than 90 per cent of MSMEs remain microenterprises, limiting productivity and visibility. Deloitte suggests district-level transformation cells to monitor growth from micro to small to medium, supported by mentor–mentee networks linking large public sector undertakings and anchor firms with their suppliers. Incentives for membership in industry associations and preferential scoring in public procurement for certified vendors could accelerate this process. The goal is higher integration into domestic and global value chains, measured by increased business-to-business sales, export participation and repeat orders.

Beyond these immediate asks, Deloitte outlines policy recommendations to operationalise cash flow lending and resolution mechanisms. These include simplified restructuring for viable MSMEs under stress, receivables discounting with legal enforceability and alignment with insolvency thresholds. District-level competitiveness missions, outcome-based grants and public scorecards are proposed to ensure accountability. Preferential procurement incentives for certified vendors and independent evaluations every 12 months would reinforce delivery fidelity. The rationale is straightforward: MSMEs remain central to India’s economic ambitions, but their growth is constrained by structural gaps. Addressing these through targeted training, easier finance and pathways to scale would not only strengthen enterprises but also safeguard jobs, boost rural incomes and support India’s aspiration to become a global manufacturing hub.

The backdrop to these expectations is last year’s budget, which delivered a substantial enhancement of credit support. The credit guarantee cover for micro and small enterprises was doubled from ₹5 crore to ₹10 crore, with the potential to add ₹1.5 trillion in credit over five years. Support for start-ups was also expanded, with maximum loan amounts raised from ₹10 crore to ₹20 crore. A new Fund of Funds worth ₹10,000 crore was announced, alongside a targeted loan programme for 500,000 first-time entrepreneurs from under-represented groups. Export-oriented MSMEs were offered guaranteed term loans up to ₹20 crore, while the Focus Product Scheme for footwear and leather was projected to create 2.2 million jobs. These measures were significant, but the sector continues to face uneven access to capital, complex compliance requirements and difficulties in scaling sustainably.

Global trade volatility adds another layer of uncertainty. With tariffs and supply chain disruptions becoming more frequent, Deloitte proposes a Trade Resilience Fund for MSMEs vulnerable to export shocks. Industries such as readymade garments, gems and jewellery, and leather are particularly exposed. Short-term financial or credit support could help these businesses weather sudden changes in global markets, protecting jobs and sustaining export earnings. The report also notes that MSMEs contribute nearly half of India’s exports, making resilience in this sector critical to the country’s broader trade ambitions.

As the government prepares to present the Union Budget 2026, MSMEs will be watching closely to see whether these recommendations are adopted. For a sector that underpins employment, exports and manufacturing, the stakes are high. Relief in compliance, access to finance and support for scaling could determine whether India’s millions of small businesses remain resilient in the face of global volatility or continue to struggle with familiar constraints.

India’s foreign direct investment (FDI) resilience stands out in global slowdown

Mumbai: India continues to attract foreign direct investment (FDI) despite subdued global flows, according to a new report by CareEdge Ratings. The study highlights that while worldwide FDI has slowed, India has maintained annual gross inflows in the range of $70–85 billion over the past five years, with growth picking up in the current financial year. The report positions India as one of the more resilient destinations for investors, supported by reforms and a strong return profile.

Globally, FDI has been on a downward trajectory. CareEdge notes that the ratio of FDI flows to GDP fell to 1.3 per cent in 2024, down from 2.4 per cent in 2021. This decline reflects a longer trend since the 2008 financial crisis, with Europe’s share shrinking, US outflows stagnating and China’s outward investment rising sharply. Countries benefiting from the China+1 strategy, such as Vietnam and Mexico, have seen notable gains, while resource‑rich nations in Africa have also attracted higher inflows. Against this backdrop, India’s ability to sustain inflows stands out.

The report finds that India’s services sector was the largest recipient of FDI equity in 2025, followed by computer software and hardware, trading and renewable energy. Greenfield projects in manufacturing have also expanded, particularly in semiconductors, electronics, EV components and basic metals. CareEdge points out that this diversification is critical, as it reduces reliance on a single sector and signals broader investor confidence. “India’s manufacturing story is beginning to show results, with global players committing capital to long‑term projects,” the report states.

Outward investment from Indian firms has also risen. Average annual overseas investment has reached $20 billion in the past three years, compared with $8 billion before the pandemic. CareEdge highlights a 20 per cent increase in greenfield project announcements by Indian investors in 2024, placing the country among the world’s top ten investor nations. This outward push reflects the growing ambition of Indian companies to establish a global footprint, even as they continue to draw foreign capital into domestic projects.

The report underscores India’s strong return on inward FDI, averaging 7.3 per cent. On a risk‑adjusted basis, India ranks second only to Indonesia among major economies analysed. This performance, CareEdge argues, is a key factor in sustaining investor interest despite global uncertainty. “Returns remain robust, and when adjusted for risk, India compares favourably with peers,” the report notes, adding that this strengthens the country’s case as a stable destination.

Policy reforms have played a significant role in bolstering investor confidence. CareEdge points to recent labour code simplifications and ongoing efforts to improve infrastructure and reduce logistics costs. These measures, combined with regulatory reforms in financial markets, are expected to enhance India’s ability to attract diversified and stable inflows. The report suggests that continued progress in these areas will be essential to maintain momentum, particularly as global competition for capital intensifies.

At the same time, CareEdge acknowledges challenges. Higher repatriation of profits and increased outward FDI from India have weighed on net inflows, even as gross figures remain strong. The report cautions that balancing inflows with outflows will be important to ensure sustained benefits for the domestic economy. Nevertheless, the overall outlook remains positive, with India positioned as a leading destination for both greenfield and equity investments.

The findings reinforce India’s role in the global investment landscape. While many economies struggle to attract capital, India’s combination of sectoral diversity, policy reforms and strong returns has kept it on investors’ radar. As CareEdge concludes, the country’s ability to adapt and strengthen its frameworks will determine how far it can build on this momentum. For now, India’s resilience offers a rare bright spot in an otherwise subdued global FDI environment.

India’s exports to US slump under steep tariff hikes, $3.3 billion wiped out May–Sept 2025

Mumbai: India’s exports to the United States have experienced a significant downturn, marking one of the sharpest short-term declines in recent years. Between May and September 2025, exports to the US fell by 37.5 per cent, dropping from $8.8 billion to $5.5 billion. This decline comes in the wake of steep tariff hikes imposed by the US government, which began at 10 per cent on April 02, 2025, escalated to 25 per cent on August 07, 2025, and reached a punitive 50 per cent by late August 2025. The Global Trade Research Initiative (GTRI) has analysed the impact of these tariffs, revealing a widespread contraction across various sectors.

Surprisingly, tariff-free products, which account for nearly one-third of India’s total shipments to the US, suffered the most severe contraction. Exports in this category fell by 47 per cent, from $3.4 billion in May to $1.8 billion in September. Among the hardest-hit products were smartphones and pharmaceuticals, both of which are key beneficiaries of India’s Production Linked Incentive (PLI) manufacturing programme. 

Smartphone exports, which had seen a remarkable 197 per cent surge between April and September 2024 compared to the same period in 2025, plummeted by 58 per cent during the review period. Monthly shipments fell consistently, from $2.29 billion in May to $884.6 million in September. The reasons behind this sharp decline remain unclear and warrant further investigation. Pharmaceutical exports also experienced a notable drop, slipping by 15.7 per cent from $745.6 million to $628.3 million, despite being exempt from tariffs.

In contrast, sectors subject to uniform tariffs for all countries, such as industrial metals and auto parts, showed a milder decline. Exports in these categories fell by 16.7 per cent, from $0.6 billion to $0.5 billion. Within this group, aluminium exports dropped by 37 per cent, copper by 25 per cent, auto parts by 12 per cent, and iron and steel by 8 per cent. The relatively smaller contraction in these sectors suggests that the decline may be more closely linked to a slowdown in US industrial activity rather than a loss of competitiveness for Indian exporters.

The most severe impact was felt in labour-intensive sectors, which were subjected to the 50 per cent India-specific tariffs. These sectors, including textiles, gems and jewellery, chemicals, agri-foods, and machinery, collectively account for nearly 60 per cent of India’s exports to the US. Exports in these categories fell by 33 per cent, from $4.8 billion in May to $3.2 billion in September. 

Within this group, gems and jewellery exports were particularly hard-hit, collapsing by 59.5 per cent from $500.2 million to $202.8 million. Gold jewellery exports fell by 58 per cent, diamond-studded pieces by 63 per cent, and lab-grown jewellery by 37 per cent. Exports of cut and polished diamonds dropped by 54 per cent, while lab-grown diamond exports plunged by a staggering 89 per cent. The decline has severely impacted manufacturing hubs in Surat and Mumbai, as competitors from Thailand and Vietnam have captured lost US orders.

Solar panel exports also suffered a sharp decline, falling by 60.8 per cent from $202.6 million to $79.4 million. India’s competitiveness in the renewable energy sector has been eroded, particularly as China and Vietnam face lower tariffs of 30 per cent and 20 per cent, respectively. Textiles and garments, another key labour-intensive sector, saw exports fall by 37 per cent, from $944 million to $597 million. Within this category, garments experienced a 44 per cent decline, home textiles fell by 16 per cent, and yarn and fabrics dropped by 41 per cent. Knitted apparel exports decreased by 39 per cent, woven apparel by 50 per cent, and girls’ suits by 66 per cent.

Chemical exports also faced a significant downturn, shrinking by 35 per cent from $537 million to $350 million. Agrochemicals fell by 37 per cent, while essential oils dropped by 44 per cent. This decline has adversely affected production hubs in Vapi, Dahej, Ankleshwar, and Vizag, which are home to major firms such as UPL and Rallis India, as well as numerous micro, small, and medium enterprises (MSMEs) in Maharashtra and Karnataka.

Marine and seafood exports, another labour-intensive sector, declined by 49 per cent, from $223 million to $113 million. Vannamei shrimp exports fell by 51 per cent, while processed seafood dropped by 22 per cent. Coastal hubs such as Nellore, Bhimavaram, Kakinada, Paradeep, Veraval, and Porbandar have been severely impacted, as buyers have shifted their focus to competitors in Ecuador and Vietnam.

Agricultural and processed food exports also recorded a broad-based slump. Preparations of cereals fell by 27 per cent, processed fruits and vegetables by 44 per cent, roots and tubers by 45 per cent, cocoa products by 99 per cent, oilseeds by 53 per cent, dairy and honey by 59 per cent, processed foods by 35 per cent, coffee and spices by 40 per cent, and resins by 61 per cent. These losses have had a devastating impact on agricultural clusters in regions such as Nashik, Gujarat, Kerala, Karnataka, Jharkhand, and Chhattisgarh, erasing two years of steady growth.

The sharp decline in exports has prompted calls for urgent government intervention. Exporters are urging authorities to implement targeted relief measures to mitigate the impact of the tariffs. Proposed actions include enhanced interest-equalisation support to reduce financing costs, faster duty remission to alleviate liquidity pressures, and emergency credit lines for MSME exporters. Without swift and decisive action, India risks losing its market share to competitors such as Vietnam, Mexico, and China, even in sectors where it has traditionally held a strong position.

The data presented in the GTRI report underscores the significant impact of the US tariffs on India’s export performance. The tariffs have not only squeezed trade margins but have also exposed structural vulnerabilities across key industries. As the situation continues to unfold, it remains imperative for policymakers to address these challenges and support exporters in navigating the difficult terrain ahead.