Union Budget 2026 Introduces Rs 10,000 Crore SME Growth Fund to Strengthen MSME Sector
In a significant move to bolster the Micro, Small, and Medium Enterprises (MSME) sector, Union Finance Minister Nirmala Sitharaman has announced a comprehensive package in the Union Budget 2026-27. The centerpiece of this initiative is the introduction of a dedicated Rs 10,000 crore SME Growth Fund, aimed at ensuring timely payments and fostering future champions within the SME landscape.
Financial Boost and Support Mechanisms
While presenting the Budget in New Delhi, Sitharaman emphasized the government's commitment to enhancing liquidity for SMEs. "I propose to introduce a dedicated Rs 10,000 crore SME Growth Fund to create future champions, incentivising enterprises based on select criteria," she stated. Additionally, the Finance Minister proposed topping up the Self-Reliant India Fund, established in 2021, with an extra Rs 2,000 crore to continue support for micro enterprises and maintain their access to risk capital.
The Budget also outlines four key measures to maximize the potential of the Trade Receivables Discounting System (TReDS) platform:
- Mandating TReDS as the transaction settlement platform for all purchases made by central power sector companies from MSMEs.
- Introducing a Credit Guarantee Support Mechanism (CGTMSE) through the credit guarantee fund trust for MSMEs to facilitate invoice discounting on the platform.
- Linking the Government E-marketplace with TReDS for information sharing with financiers regarding government purchases from MSMEs, thereby encouraging cheaper and quicker financing.
- Introducing TReDS receivables as tradeable asset-backed securities to enhance liquidity options.
Expert Insights on TReDS Reforms
Industry experts have welcomed these reforms, highlighting their potential to strengthen payment discipline and improve cash flow predictability for MSMEs. "The enhancement of CGTMSE is directionally supportive, but its impact will ultimately depend on improved receivable flows—where TReDS becomes critical," noted Neermoy Shah, Associate Director at India Ratings & Research. "The mandatory onboarding of CPSEs and large buyers on TReDS under Budget 2026-27 should strengthen payment discipline and enhance the effectiveness of credit guarantees by reducing cash‑flow unpredictability."
The TReDS platform, conceptualized by the Reserve Bank of India (RBI) in 2014 and operational since 2018, enables MSMEs to discount invoices and monetize trade receivables. This mechanism helps smaller companies with limited cash flows improve liquidity and address issues like delayed payments from buyers without requiring collateral.
Addressing Regulatory Compliance Challenges
Recognizing the long-standing burden of excessive regulatory requirements on MSMEs, Sitharaman also announced measures to make affordable professional help available. The government will facilitate institutions such as the Institute of Chartered Accountants of India, Institute of Company Secretaries of India, and Institute of Cost Accountants of India to design short-term modular courses and practical tools. These initiatives aim to develop 'Corporate Mitras' (corporate friends), particularly in Tier-II and Tier-III cities.
"These accredited para-professionals will help MSMEs meet compliance requirements at affordable costs," Sitharaman explained. This move comes in response to concerns raised by Comptroller and Auditor General (CAG) K Sanjay Murthy, who highlighted that regulatory burdens reduce the competitiveness of smaller companies. The CAG advocated for a 4-pronged strategy of Simplification, Digitalisation, Decriminalisation, and Elimination of redundant laws, all of which are highly relevant for MSMEs.
Broader Implications for the MSME Ecosystem
The Union Budget 2026-27's focus on MSMEs underscores the sector's critical role in India's economic growth and job creation. By combining financial support through the SME Growth Fund with structural reforms like TReDS enhancements and regulatory compliance assistance, the government aims to create a more resilient and competitive MSME ecosystem. These measures are expected to not only improve liquidity but also empower smaller enterprises to navigate regulatory landscapes efficiently, fostering sustainable growth in the years to come.
