Union Budget 2026: MSMEs ask for faster payments and policies that match reality

India’s micro, small and medium enterprises (MSMEs) sector is entering 2026 with cautious confidence, but also with clear expectations from policymakers.

After years of struggling with cost inflation, delayed payments, and regulatory complexity, business sentiment has begun to improve. According to NeoGrowth’s latest MSME Business Confidence Study, about eight in 10 MSMEs report better performance in recent months, and 86% expect growth in 2026. 

However, founders and industry stakeholders across logistics, FMCG, and product-led tech businesses say that staying optimistic alone will not sustain momentum. 

As the Union Budget approaches, MSMEs are not asking for headline-grabbing schemes. Instead, they want policy execution that reflects how long it actually takes to build, validate, and scale real businesses on the ground. 

SMBStory dives deeper. 

The ‘policy’ issue

One of the most important concerns raised by MSME founders is the growing mismatch between policy timelines and real-world product development cycles.

Chereku Srikant, Founder of Digital CFO, points out that for many product-led businesses, reaching true product–market fit is a long and capital-intensive journey. “For most serious product companies, achieving product–market fit takes close to 10 years, involving multiple iterations, field validation, certifications, tooling investments, and customer onboarding,” he says.

Yet, most government incentives and recognitions, including DPIIT benefits, are time-bound and often expire around the same period. 

“By the time this maturity is achieved, the ‘startup’ tag often falls away, and a large part of incentives also lapse, precisely when scale-up capital, global market entry, and talent retention become most critical,” Srikanth adds.

He argues that Budget 2026 must move away from short policy windows and instead offer “Upto 10–15 years, predictable incentives for product development, R&D, and industrialisation.” 

He also called for “a pragmatic compliance holiday or simplified regime for the first three to five years, especially around procedural burdens in TDS and labour-law compliance.”

The cost of misaligned policy, he says, is structural. “The country does not lose because a product startup did not get a concession in year two; it loses when a credible product venture shuts shop in year eleven due to a policy cliff.”

Payments and cash flow challenge 

If policy cliffs represent the long-term challenge, delayed payments remain the everyday reality MSMEs struggle with.

Srikanth describes delayed receivables as a silent but powerful constraint on growth, especially for MSMEs supplying to large enterprises, PSUs, or multinational buyers. “Many startups face chronic, extended payment cycles, and invoice holdbacks from large customers who have disproportionate bargaining power,” he says.

He has called for stronger enforcement of the existing 45-day payment framework, backed by “automatic interest accrual, mandatory disclosure of MSME dues, and fast-track dispute resolution so that overdue invoices cannot become an unpriced, indefinite credit exposure.”

The same concern cuts across traditional manufacturing and logistics. 

Mukesh Agarwal, CFO of Dhillon Freight Carrier Ltd, says logistics MSMEs also need “time-bound payment resolution for MSMEs supplying to large corporates and PSU logistics contracts.”

With fuel accounting for 35–45% of operating costs, Agarwal adds that even marginal reliefs could have a meaningful impact. “Even a Rs 2–3 per litre reduction in diesel would significantly lower freight costs for essentials like food grains, FMCG, and pharmaceuticals,” he says.

GST-related issues 

Goods and Services Tax (GST) remains another structural pain point, particularly for consumer-facing manufacturing MSMEs.

Nikhil Doda, Co-founder and COO of Lahori Zeera, highlights how inverted duty structures are quietly increasing working capital stress. 

“Most items now fall under the 5% GST slab, which makes it difficult for brand owners, as most of the services used in manufacturing fall under a higher GST slab,” he says.

As a result, input tax credits accumulate without timely refunds, especially for marketing spends and capital equipment purchases. 

“This leads to continuous accumulation of credits, increasing working capital requirements, and the overall cost of conversion,” Doda explains, adding the sector is “eagerly awaiting a solution that does not discourage further investment in plant and machinery.”

Thermocool Home Appliances also echoes similar concerns. Tushar Gupta, Director of Operations, says rising raw material and energy costs have compressed margins more. 

“Further simplification of the GST regime through the optimisation of rates and the reduction of issues related to the flow of input credits will help,” he adds.

Exports and global competitiveness

While domestic demand has improved, particularly in FMCG, food and beverage, and personal care, many MSMEs see exports as the next growth lever.

Srikanth believes competing globally requires more than broad digitalisation schemes. 

He suggests “dedicated ‘Product MSME Desks’ at Indian embassies” to help businesses navigate regulatory requirements, access buyers, and enter procurement networks. 

He also flags the need for streamlined cross-border payments, noting that delays in remittances directly impact working capital.

For logistics MSMEs, digital tools are critical to improving efficiency. Agarwal proposes a ‘National Freight Exchange Platform’ to reduce empty truck returns and improve asset utilisation, along with subsidies for GPS and fleet-management systems.

Other asks

Several founders also stress the need for shared infrastructure rather than isolated, high-cost execution.

Srikanth proposes a national “Shared Capability Infrastructure”—a network of government-backed, academia-anchored hubs that provide MSMEs access to technical talent, IP support, compliance assistance, and go-to-market guidance. 

“The biggest failure mode for MSMEs is not lack of ideas, it is high-cost fragmentation,” he says. 

From a product innovation perspective, Shaily Mehrotra, CEO and Co-founder of Fixderma, echoes the same need. 

She says, “If these were available at subsidised rates, like a national network of innovation hubs, it would level the playing field,” referring to labs, testing facilities, and certification infrastructure.

Final word

Despite persistent challenges, MSMEs’ confidence is rising. 

NeoGrowth’s study indicates festive demand, improved cash flows, and GST 2.0 benefits have helped stabilise operations, with many businesses planning expansion or new product launches in 2026.

As Arun Nayyar, Managing Director and CEO of NeoGrowth, puts it: “What stands out is the measured confidence among MSMEs, with growth plans.”

For Budget 2026, the sector’s message is consistent: fix payment discipline, align policy timelines with business realities, reduce operational friction, allowing India’s MSMEs to scale with certainty rather than just ‘survival instincts’.