From Policy to Profitability: How Reforms Are Impacting MSMEs on Ground
The Micro, Small, and Medium Enterprises (MSME) sector has long been recognized as the backbone of the Indian economy. Yet for decades, this backbone bore the weight of persistent credit gaps, regulatory bottlenecks, and delayed payments. Today, that narrative is changing. What was once a boardroom aspiration- to move from policy to profitability, has become a ground-level reality, powered by bold structural reforms and a new wave of institutional support.
As the PHD Chamber of Commerce and Industry (PHDCCI) continues to bridge the gap between industry and policymakers, we observe that the MSME landscape in 2026 is defined by resilience and formalization. With over 7.47 crore enterprises of this landscape employing more than 32.82 crore people, the sector’s health is the most accurate barometer of India’s journey toward a $5 trillion economy.
MSME growing with the Strategic Redefinition: Scaling Without Fear
For years, MSMEs suffered from the fear that growing larger would result in the loss of government benefits. However, now the revised classification (based on a composite criterion of investment and turnover) was the first major domino to make this fear fall.
In the Union Budget 2025-26, these limits were further enhanced. Investment and turnover thresholds were raised by 2.5x and 2x respectively, allowing units to scale operations, adopt modern technology, and hire more workers without losing their MSME status. This reform has directly impacted profitability by enabling economies of scale.
Unleashing the Liquidity with the TReDS and CGTMSE Synergy
Profitability is often a function of liquidity and over the years, Trade Receivables Discounting System (TReDS) has emerged as the central nervous system of MSME cash flow environment.
Mandatory TReDS for CPSEs
The 2026 policy mandate requiring all Central Public Sector Enterprises (CPSEs) to settle MSME purchases through TReDS has been a gamechanger. By the start of 2026, TReDS facilitated the flow of over ₹7 lakh crore to MSMEs.
· The Impact: MSMEs no longer have to wait for 90–180 days for payments. They can discount their invoices and receive cash within 24–48 hours.
· Cost of Capital: With the introduction of the CGTMSE guarantee for invoice discounting, the perceived risk for financiers has dropped. This has led to more competitive discounting rates, reducing the interest burden on small businesses.
The MSME Growth Fund
While debt is essential, the Union Budget 2026 recognized that transformational growth requires equity. The establishment of the ₹10,000 Crore MSME Growth Fund provides risk capital to promising enterprises, allowing them to invest in R&D and global marketing- activities that were previously impossible to fund through traditional bank loans.
The Healthy Impact of the PLI Scheme
Initially perceived as a big industry initiative, the Production Linked Incentive (PLI) scheme has trickled down to the MSME level with remarkable efficacy. As of March 2025, production under PLI crossed ₹7.5 lakh crore. While global giants like Apple and Samsung lead the headlines, the real story lies in the supply chain.
· Direct Participation: Approximately 176 MSMEs are direct beneficiaries in sectors like medical devices, drones, and food processing.
· The Multiplier Effect: Large-scale manufacturing requires thousands of components. MSMEs acting as Tier-2 and Tier-3 suppliers have seen their order books grow by 25–30% annually. To meet the quality standards of global OEMs, these MSMEs have upgraded their technology, inadvertently making them more competitive in the international market.
The Revolution Brought in by the Udyam Portal
Formalization is the precursor to institutional credit. The Udyam Registration Portal has brought in this formalization and simplified the process of becoming a business in India. As of early 2026, over 6.3 crore MSMEs are registered on the portal. Two key benefits of the portal include:
· Integration with the Government e-Marketplace (GeM) and the Udyam Assist Platform allows even the smallest micro-enterprises to access "priority sector lending."
· The new Customized Credit Card scheme provides ₹5 lakh in credit to registered micro-units, targeting 10 lakh cards in the first year alone.
Breaking Export Competitiveness
Logistics and regulatory costs have historically stifled small-scale exports. The Union Budget 2026 addressed this by removing the ₹10 lakh per consignment cap on courier exports. This single move has unlocked the potential of India's artisans and D2C (Direct-to-Consumer) brands. By utilizing e-commerce hubs, MSMEs are now contributing nearly 48.58% of India's total exports. This shift from domestic-only to export-oriented production has significantly improved the Bottom Line (profitability) by tapping into higher-margin global markets.
Sector Specific Triumphs
The policy impact on India’s industrial landscape is most visible when examining specific high-growth clusters, where targeted interventions have catalyzed remarkable ground-level results. In the drone sector, the combination of the PLI Scheme & Liberalized Rules has sparked a technological revolution, leading to the emergence of 100+ MSME startups specializing in Agri-tech and Defense applications. Similarly, the food processing industry has been reinvigorated by a substantial ₹10,900 Cr PLI Outlay, which has directly contributed to a 10% increase in processed food exports driven by MSMEs. The manufacturing of toys has also undergone a total metamorphosis through strategic Cluster Development, successfully transforming India from a net importer into a global toy hub. Furthermore, the grassroots economy has been bolstered by the PM Vishwakarma Scheme, which has empowered the artisan community by providing training and digital enablement to more than 30 lakh beneficiaries. Collectively, these sector-specific triumphs demonstrate how specialized support frameworks are turning policy intent into tangible profitability across diverse industries.
The Road Ahead: PHDCCI’s Vision for 2030
At PHDCCI, our research indicates that while policy intent is at an all-time high, the focus must now shift to Ease of Compliance. The reduction in the number of required licenses and the move toward a flat 25% tax regime for MSMEs are steps in the right direction.
However, to ensure sustained profitability, we must focus on:
Green Manufacturing: Helping MSMEs adopt ESG (Environmental, Social, and Governance) standards to remain part of global supply chains.
Skill Upgradation: Bridging the gap between traditional manufacturing and Industry 4.0 (AI, IoT, and Robotics).
Last-Mile Credit: Ensuring that the CGTMSE expansion (now covering loans up to ₹10 crore) reaches the rural entrepreneur.
A New Era of Viksit MSMEs in the making
The narrative of the Indian MSME is changing. We are moving away from a story of survival against odds to growth through strategy. The reforms of 2024-2026 have provided the tools- liquidity via TReDS, capital via the Growth Fund, and market access via GeM and PLI.
For the entrepreneur on the ground, these aren't just policy terms; they represent a lower cost of doing business and a higher probability of profit. As we march toward Viksit Bharat, the MSME sector will not just be a contributor to the GDP- it will be the engine that drives it.
PHD Chamber
