Ahead of 2026–27 Budget: MSMEs Seek Better Credit Access, Safeguards Against Exchange Rate Risks and Tariff Shocks
As preparations begin for India’s 2026–27 Union Budget, voices from the country’s micro, small and medium enterprises (MSMEs) are growing louder and more urgent. Representing the backbone of India’s economy, MSMEs are calling for easier access to credit, protection against volatile exchange rates, and policy buffers against sudden tariff shocks.
These demands are not aspirational. They are defensive—rooted in the realities of rising global uncertainty, fluctuating currencies, and unpredictable trade policies that increasingly affect even the smallest Indian businesses.
Why MSMEs Matter More Than Ever
India’s MSME sector accounts for:
- Nearly 30% of GDP
- Over 40% of exports
- More than 110 million jobs
Yet despite their scale and importance, MSMEs often operate with thin margins, limited bargaining power, and restricted access to financial tools available to larger corporations.
As global economic conditions tighten, these vulnerabilities are being exposed more sharply than before.
Credit Access: The Core MSME Demand
At the top of the wish list is affordable and timely credit.
While multiple government schemes exist, MSMEs continue to face:
- High interest rates compared to large firms
- Collateral-heavy lending requirements
- Slow loan approvals
- Limited access to working capital during downturns
For many small businesses, cash flow disruption—not lack of orders—is the biggest existential risk.
Why Current Credit Systems Fall Short
Traditional banking systems remain risk-averse. MSMEs with informal balance sheets, seasonal revenues, or export exposure are often categorised as “high risk,” even when their businesses are fundamentally sound.
Fintech lenders have helped bridge some gaps, but at significantly higher borrowing costs.
MSME groups are urging the government to expand credit guarantee coverage, incentivise banks to lend more aggressively, and reduce the cost of capital for growth-oriented small firms.
Exchange Rate Volatility: A Growing Threat
One of the newer and less visible challenges MSMEs face is currency risk.
Export-oriented MSMEs are increasingly exposed to:
- Sudden rupee depreciation increasing import costs
- Sharp appreciation reducing export competitiveness
- Lack of affordable hedging instruments
Large exporters routinely hedge currency exposure. MSMEs rarely can.
Most small firms lack access to:
- Simple hedging products
- Advisory support on forex risks
- Affordable forward contracts
As global currencies swing due to geopolitical and monetary shifts, MSMEs bear the brunt without protection.
Tariff Shocks and Trade Uncertainty
Another major concern is tariff unpredictability.
Changes in:
- Import duties on raw materials
- Export tariffs in overseas markets
- Trade restrictions and compliance costs
can instantly disrupt MSME supply chains.
Unlike large corporations, MSMEs cannot:
- Quickly switch suppliers
- Absorb sudden cost increases
- Negotiate volume-based discounts
Industry bodies are calling for advance notice mechanisms, phased tariff changes, and targeted relief for sectors heavily exposed to global trade volatility.
What MSMEs Are Asking From Budget 2026–27
The demands coming from MSME associations are pragmatic rather than populist.
Key expectations include:
- Expansion of credit guarantee schemes
- Lower interest subvention for MSME loans
- Simplified forex hedging products for small exporters
- Emergency support mechanisms during tariff disruptions
- Faster GST refunds to ease working capital stress
These are not subsidies for inefficiency—they are buffers against systemic shocks.
Strongest Arguments Against Additional MSME Support
Critics argue:
- Government resources are limited
- Credit risk cannot be socialised indefinitely
- Market forces should discipline inefficient firms
- Over-protection could distort competition
These concerns are valid. Poorly designed support can encourage dependency.
Strongest Arguments For MSME-Focused Measures
Supporters counter with stronger points:
- MSMEs are shock absorbers for employment
- Global volatility is not of their making
- Small firms lack risk management tools
- Failure of MSMEs has social, not just economic, costs
In short, MSME distress spreads quickly—from jobs to local economies.
The Human Reality Behind the Numbers
Behind every MSME statistic is a human story.
A small exporter struggling with delayed payments.
A manufacturer hit by higher steel import duties overnight.
A family-run unit unable to hedge currency risk but still paying salaries on time.
These businesses don’t ask for protection from competition. They ask for predictability.
Lessons Policymakers Should Take
The MSME message ahead of Budget 2026–27 is clear:
- Credit must flow when uncertainty rises
- Risk protection matters as much as growth capital
- One-size-fits-all policies don’t work for MSMEs
- Stability enables productivity and innovation
Ignoring these signals risks weakening the very base of India’s economic pyramid.
What Happens If Demands Are Ignored?
If these concerns are not addressed:
- MSME closures could rise
- Informal employment may increase
- Export competitiveness could weaken
- Credit stress may shift to banks and NBFCs
Preventive policy is cheaper than crisis management.
Final Reflection: A Budget That Must Listen
The upcoming Union Budget is not just about fiscal math—it’s about economic resilience.
MSMEs do not want special treatment. They want fair access to finance, tools to manage risk, and protection from sudden policy shocks they cannot control.
If Budget 2026–27 acknowledges this reality, it can strengthen India’s growth story from the ground up. If not, the cost will be paid quietly—by small businesses that keep the economy running but rarely make headlines.
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