Finance Minister Nirmala Sitharaman is preparing to present the Union Budget for financial year 2026-27 on February 1, with market experts anticipating a defence-centric approach. The upcoming budget is expected to place strong emphasis on emerging priority sectors that can drive long-term growth and strategic resilience, particularly building on the Centre's formation of a dedicated committee to nurture allied defence capabilities.

Previous Budget Allocation Sets Foundation

The Union Budget for FY 2025-26 established a strong foundation for defence sector growth with significant financial commitment:

Expert Expectations for Budget 2026

Pranay Aggarwal, Director and CEO of Stoxkart, outlined key areas where the defence sector's growth could be accelerated through stronger budget support. The focus areas include expanding Positive Indigenisation Lists, strengthening defence industrial corridors with better fiscal incentives and infrastructure, and simplifying licensing and export procedures. Additionally, increased allocations for research and development, innovation, and technology transfer are anticipated, alongside targeted export incentives and credit support to help scale defence exports towards long-term targets.

Ravi Singh, Chief Research Officer at Master Capital Services Ltd., expects continued government support focused on indigenisation. The budget may reinforce this approach through higher capital allocation, stronger preference for domestic procurement, and policies that encourage exports. Measures that speed up procurement timelines or provide long-term visibility on orders would be particularly beneficial for the sector.

Sectoral Focus and Growth Opportunities

Defence electronics and aerospace are expected to benefit most from the upcoming budget measures. Modern defence systems rely heavily on electronics including radars, communication systems, sensors, and missiles, making this a high-priority area. The aerospace sector should gain from ongoing aircraft, helicopter, and engine programs.

Export-related support mechanisms are anticipated to play an important role, including:

• Easier financing options for defence companies
• Government-backed deals for overseas markets
• Incentives for international sales
• Streamlined export procedures

These measures would help Indian defence companies scale up operations and compete globally while building domestic capability and gradually expanding India's footprint in defence exports.

Companies Positioned for Long-term Growth

According to industry experts, companies with strong order visibility, execution capability, and policy tailwinds appear best positioned for long-term growth. Leading players in aerospace, defence electronics, and naval shipbuilding that benefit from indigenisation, exports, and long-term strategic procurement are expected to see significant advantages.

Specific companies identified for potential higher growth include:

Experts emphasize focusing on companies with execution capability and alignment with the government's indigenisation roadmap rather than chasing short-term budget reactions. The key lies in identifying organizations that can capitalize on long-term policy support and strategic procurement initiatives.

India's MSME sector stands at a critical juncture as the country approaches Union Budget 2026. The scale and significance of micro, small, and medium enterprises is no longer debatable, with these businesses now forming the operational core of India's economy.

Current MSME Landscape

The numbers reflect the sector's remarkable growth and transformation. As of September 2025, comprehensive data shows the sector's impressive scale:

This digital transformation represents a fundamental shift in how small businesses manage cash flows, process payments, and interact with the financial system. The progress has created a strong foundation for growth while simultaneously making remaining constraints more visible.

Four Key Budget Priorities

Modernise Credit Guarantee Frameworks

Credit guarantees have proven among the most effective tools for expanding collateral-free lending to MSMEs. By sharing risk with lenders, these frameworks have unlocked credit at scales traditional asset-backed models could not achieve.

As MSMEs become more data-rich and digitally visible, these frameworks require evolution. Key improvements include:

• Expanding coverage limits for growth-stage enterprises
• Simplifying claim settlement processes
• Extending eligibility criteria
• Supporting cashflow-based lending models

A dedicated Budget allocation to expand the MSME credit guarantee corpus, focused on cashflow-based models rather than static balance-sheet assessments, would catalyse the next growth cycle.

Reduce Compliance Friction

While formalisation has delivered clear benefits, it has simultaneously increased compliance burden on smaller businesses. Many micro and small enterprises find managing GST filings, audits, and reporting requirements demands disproportionate time and effort.

Essential reforms include:

• Simplifying compliance thresholds
• Rationalising reporting requirements
• Reducing process duplication
• Advancing unified digital compliance systems

Regulation proportionate to scale encourages businesses to remain formal and grow within the system, strengthening the ecosystem rather than constraining it.

Invest in Financial Literacy

Despite significant government resources committed to supporting MSMEs through multiple schemes and direct benefit transfers, adoption remains uneven. Many entrepreneurs lack awareness of available schemes or understanding of navigation processes.

Dedicated funding for regional outreach, borrower education, and digital onboarding can bridge this gap. When MSMEs understand credit product mechanics, repayment structures, and digital tool benefits, confidence and responsible borrowing behaviour improve significantly.

Strengthen Market Access

Government procurement from MSMEs demonstrates successful outcomes when access frameworks function as intended. The broader challenge lies in ensuring consistent execution across programmes.

Key improvements include:

• Clearer processes and better institutional coordination
• Simplified borrower journeys
• Reduced delays and fragmented processes
• Improved last-mile execution

For MSMEs, predictability matters more than novelty. Reliable credit access, manageable compliance, and consistent support systems enable entrepreneurs to plan, invest, and scale with confidence.

Path Forward

India's MSME ecosystem has demonstrated its capacity to formalise, digitise, and grow at scale when proper foundations exist. Budget 2026 presents an opportunity to shift focus from inclusion to expansion through system-level strengthening rather than incremental additions.

By addressing these four priorities, the Budget can help MSMEs transition from resilience to scale, positioning India's small businesses to become global exporters and national champions.