Budget 2026 MSME Reforms: ₹10,000 Crore Growth Fund and TReDS Overhaul

Finance Minister Nirmala Sitharaman, in her Union Budget 2026-27 presentation, unveiled a comprehensive roadmap to strengthen India's Micro, Small, and Medium Enterprises (MSMEs). Describing the sector as a vital engine of economic growth, the Minister introduced a three-pronged strategy focusing on equity support, liquidity access, and professional compliance assistance. The announcements mark a significant shift from traditional debt-based support to a more robust equity and market-linked framework designed to create global champions.

The ₹10,000 Crore SME Growth Fund

The centerpiece of the MSME announcements is the introduction of a ₹10,000 crore SME Growth Fund. This fund is specifically designed to provide equity support to high-potential small and medium enterprises, helping them scale operations without the immediate burden of debt repayment. The government aims to identify and incentivize enterprises based on specific performance criteria, such as productivity, formalization, and export readiness. This move is expected to help mid-sized firms transition into larger, globally competitive entities.

In addition to the new growth fund, the Finance Minister proposed a ₹2,000 crore top-up for the Self-Reliant India Fund. Originally established in 2021, this fund-of-funds mechanism provides risk capital to micro-enterprises. By bolstering this fund, the government ensures that even the smallest players in the industrial pyramid have access to the capital necessary for expansion and technological adoption.

Structural Reforms in Trade Finance and TReDS

To address the persistent issue of delayed payments and working capital cycles, the Budget introduced four major measures to enhance the Trade Receivables Discounting System (TReDS). The government has mandated TReDS as the transaction settlement platform for all purchases made by Central Public Sector Enterprises (CPSEs) from MSMEs. This mandate ensures that payments are processed within a 45-day window, serving as a benchmark for the broader corporate sector.

Furthermore, the Budget proposes turning TReDS receivables into asset-backed securities. This move is intended to develop a secondary market for trade receivables, thereby unlocking fresh liquidity for financiers and lowering the cost of credit for MSME suppliers. The Government e-Marketplace (GeM) will also be linked with TReDS to share information with financiers, facilitating quicker and cheaper invoice discounting for government suppliers.

Reviving Legacy Industrial Clusters

The government plans to launch a scheme to revive 200 legacy industrial clusters across the country. These traditional manufacturing hubs have historically faced challenges due to credit stress and outdated technology. The revival plan focuses on infrastructure development and technology upgradation to improve cost competitiveness and efficiency. By restoring these forgotten manufacturing zones, the government hopes to rebuild local jobs and strengthen the domestic supply chain.

Professional Support through Corporate Mitras

Recognizing that regulatory compliance can be a significant hurdle for scaling businesses, the Budget proposed the creation of a cadre of 'Corporate Mitras.' These accredited para-professionals will be trained through short-term modular courses designed by professional institutions like the ICAI, ICSI, and ICMAI. Based primarily in Tier-II and Tier-III towns, Corporate Mitras will assist MSMEs in meeting compliance requirements at affordable costs, reducing the administrative burden on small business owners.

Key MSME and Startup Allocations

Support for Startups and Deep Tech

The Budget also extended significant support to the startup ecosystem. A new ₹10,000 crore Fund of Funds was announced to broaden support for early-stage ventures. In a decisive shift toward high-end innovation, the government proposed a Deep Tech Fund of Funds, supported by a ₹20,000 crore allocation for private sector-driven research and development. This is complemented by a tax holiday until 2047 for global cloud companies operating data centers in India, aimed at making the country a global hub for digital infrastructure.

Industry Reactions and Market Impact

Industry leaders have largely welcomed the measures. Executives from major digital commerce platforms noted that the integration of TReDS with GeM and the focus on cluster modernization would meaningfully ease working capital constraints for small sellers in smaller markets. Analysts suggest that the shift toward equity funding through the SME Growth Fund will make MSME IPOs more attractive to both domestic and foreign investors, potentially strengthening the Alternative Investment Fund (AIF) ecosystem in India.

Analysis of the MSME Roadmap

The Budget 2026-27 strategy represents a transition from short-term relief to structural reform. By focusing on equity rather than just credit guarantees, the government is encouraging MSMEs to build stronger balance sheets. The emphasis on TReDS and asset-backed securities addresses the root cause of liquidity stress—delayed receivables—while the 'Corporate Mitra' initiative tackles the capability gap in smaller towns. Together, these measures aim to convert India's vast network of small businesses into a resilient and scalable industrial base.

Conclusion

The Union Budget 2026-27 provides a clear roadmap for the formalization and scaling of the MSME sector. By addressing capital, liquidity, and compliance through targeted funds and systemic reforms, the government is positioning small businesses to lead India's next export push. The success of these initiatives will depend on the effective implementation of the TReDS mandate for CPSEs and the rapid deployment of the SME Growth Fund to high-potential enterprises.