Pre-Budget Call: Boost SMEs, Revamp PLI & Manufacturing

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TL;DR: Economists urged a pre-Budget pivot to strengthen SMEs with PLI tweaks, manufacturing policy and green R&D incentives.
Key asks: tweak PLI for MSMEs, boost digital infrastructure, and pursue import substitution while keeping capex steady.

Why SMEs Must Be Central in the 2026–27 Budget

In the first pre-Budget meeting ahead of the 2026–27 Union Budget, economists and policy experts pressed for a recalibrated approach that prioritises small and medium enterprises (SMEs). They emphasised strengthening domestic manufacturing through targeted PLI (production-linked incentive) adjustments, import substitution measures, and sharper incentives for green R&D. Alongside continued capital expenditure, experts urged the government to expand digital infrastructure and technology upgradation to make SMEs more competitive globally.

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Key Recommendations from Economists

• Tune the PLI scheme to better include MSME participation and make incentives accessible for smaller manufacturers.
• Introduce manufacturing policy measures that reduce import dependence, modernise capital goods access, and spur employment generation.
• Boost R&D and green tech incentives to accelerate renewable energy adoption and climate-friendly manufacturing among SMEs.
• Streamline indirect taxes and customs to improve ease of importing critical inputs and to promote import substitution where feasible.
• Maintain capital expenditure momentum while preserving fiscal discipline to ensure multiplier effects across states and sectors.

Policy Levers to Strengthen the SME Ecosystem

Economists highlighted several policy levers that can transform SME competitiveness. Fiscal support can be paired with regulatory ease and targeted credit lines to improve liquidity for micro and small firms. Increased public investment in digital infrastructure and research facilities will catalyse productivity gains. For those tracking policy changes and regulatory updates, the government’s announcements and consultations are critical and can be followed as part of broader Start-Up News and SME policy updates to understand evolving opportunities for SMEs.

Addressing External Headwinds

Global trade tensions and tariff pressures—especially in major export markets—are weighing on MSME exporters. Economists urged the adoption of import substitution strategies, more streamlined customs procedures, and targeted export support to shield smaller exporters from sudden tariff shocks. For a clearer view of macro drivers shaping SME prospects, stakeholders can consult Economic insights and SME trends that unpack demand trends, capital flows, and sectoral shifts affecting small businesses.

Fiscal Outlook and Long-Term Debt Targets

The government plans to shift focus from an annual fiscal deficit target to an overall debt-to-GDP ratio target from 2026–27. Economists welcomed the move but stressed that debt reduction should not compromise growth-enhancing capital expenditure. Maintaining the public investment envelope while pursuing fiscal consolidation will be critical for sustaining the multiplier effects that support SME demand and supply chains.

Opportunities for D2C and Manufacturing Startups

Direct-to-consumer (D2C) startups and manufacturers can gain from policy tweaks that lower input costs and fast-track technology adoption. Measures such as simplified compliance for smaller producers, sector-specific PLI adjustments, and incentives for onshoring critical components would directly benefit the D2C and SME ecosystem—an area that continues to show rapid innovation and market reach, especially among younger entrepreneurs focused on scaling production and distribution. Learn more about the evolving startup landscape and how manufacturing policy can help D2C startups and SME ecosystem thrive.

Practical Actions for SMEs to Prepare

1. Audit supply chains to identify import dependencies and potential substitution opportunities.
2. Invest in digital tools and skilling to access newer markets and cut operating costs.
3. Engage with policy consultations and industry groups to shape PLI and regulatory tweaks that include MSME needs.
4. Explore green technology grants and incentives to reduce long-term energy costs and meet global buyer standards.

Conclusion

The pre-Budget consultations underscored a consensus: SMEs are central to job creation, export resilience, and a resilient manufacturing base. Policymakers will be weighing inputs on PLI fine-tuning, indirect tax reforms, customs streamlining, and green R&D incentives as they draft the Budget. For SMEs, preparedness—through digital adoption, supply-chain resilience, and engagement with policy channels—will determine how effectively they capitalise on upcoming reforms.

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