India’s micro enterprises — the smallest but most employment-intensive segment of the economy — have placed a detailed set of demands before the Centre ahead of the Union Budget 2026–27. Citing global tariff wars, exchange rate volatility and mounting compliance burdens, industry representatives argue that without targeted fiscal and regulatory support, micro units risk being squeezed out of supply chains at a time when India seeks to expand manufacturing and exports.
Why micro enterprises are flagging distress now
Micro enterprises operate with thin margins, limited capital buffers and almost no hedging capacity against global shocks. The recent spike in tariffs across major economies, volatile freight costs, container shortages and currency fluctuations have disproportionately affected small exporters and domestic suppliers. Unlike larger firms, micro units cannot easily absorb sudden increases in input costs or delays in payments and refunds.
Representations made to the Finance Ministry emphasise that these stresses are structural rather than efficiency-related. The argument is that policy design often assumes scale, digital capacity and financial resilience — conditions that micro enterprises typically lack.
Credit access and counter-cyclical finance proposals
A central demand is “fair access” to affordable credit. The Association of Indian Entrepreneurs has sought statutory collateral-free lending up to ₹1 crore for micro enterprises, with an interest cap of 6–7 per cent. The proposal goes beyond routine credit expansion, suggesting built-in interest subvention during stress periods as a counter-cyclical tool, allowing firms to survive external shocks without turning non-performing.
In addition, interest-free loans have been proposed for import-substitution development costs. The idea is to encourage micro units to locally develop components and inputs that are otherwise imported, aligning financial relief with industrial policy goals.
Export risk, tariffs and forex volatility
With global trade increasingly shaped by tariff retaliation and protectionism, micro exporters face sudden market losses without warning. To address this, MSME representatives have sought the creation of an export risk equalisation fund that would compensate micro exporters impacted by abrupt tariff hikes in destination markets.
Exchange rate swings pose a similar challenge. Since most micro enterprises lack access to sophisticated hedging tools, a forex fluctuation protection scheme has been proposed, along with simplified and subsidised hedging instruments overseen by the Reserve Bank of India. This would help insulate micro exporters from currency shocks without exposing them to complex financial products.
Compliance burden and GST-related demands
Another major area of concern is regulatory compliance, especially under the Goods and Services Tax regime. MSMEs have sought higher exemption thresholds for micro units and a single simplified GST return, replacing multiple periodic filings.
Time-bound GST refunds within 15 days, with statutory interest for delays, have also been demanded, given the severe liquidity stress caused by blocked working capital. Further, the proposal calls for complete decriminalisation of procedural lapses, ensuring that minor filing errors do not trigger prosecution.
Towards unified and simplified regulation
Beyond GST, the Association has argued for a Unified Annual Compliance Return that would replace multiple filings under tax, labour and local laws. The intent is to reduce transaction costs, compliance fatigue and the fear of penalties that often discourages informal micro units from formalising or scaling up.
This approach aligns with the broader ease-of-doing-business narrative but pushes it towards the smallest enterprises rather than focusing only on medium and large firms.
Emergency support during global disruptions
Given recent conflicts disrupting shipping routes, fuel prices and raw material supply, MSMEs have sought an ‘Emergency Working Capital Window’ that activates automatically during wars or major global disruptions. Additional proposals include freight equalisation subsidies during abnormal container shortages and priority access to containers through public sector ports and shipping companies.
The underlying argument is that micro enterprises are the first to be hit and the last to be supported during crises — a gap that budget-backed mechanisms could correct.
What to note for Prelims?
- Role and definition of micro enterprises within the MSME framework
- GST compliance structure and exemption thresholds
- Concept of collateral-free lending and interest subvention
- Functions of the Reserve Bank of India in forex and credit regulation
What to note for Mains?
- Structural vulnerabilities of micro enterprises in globalised trade
- Need for counter-cyclical fiscal tools for MSMEs
- Balancing compliance with ease of doing business
- Linkages between MSME resilience, employment and manufacturing capacity
