Why SME Exchange Financing Should Be Focused on the Upcoming Budget 2026

Small and Medium Enterprises (SMEs) form the backbone of India's economy, contributing nearly 30% to the nation's GDP and providing employment to over 110 million people. They also drive around 45% of exports, playing a crucial role in the manufacturing and services sectors. Despite their significance, SMEs face persistent challenges in accessing capital, which limits growth, innovation, and scalability. SME exchange financing, through dedicated platforms like BSE SME and NSE Emerge, provides a powerful alternative to traditional bank loans by enabling these businesses to raise equity capital via Initial Public Offerings (IPOs). As India prepares for the Union Budget 2026-27, prioritizing SME exchange financing could be transformative, helping bridge financing gaps, boost job creation, enhance export competitiveness, and support inclusive development.

In 2025, the SME IPO market showed strong momentum, with around 257-269 listings raising approximately ₹11,000 crore. BSE SME surpassed 600 listings, and the combined market capitalization of listed SMEs reached ₹1,84,574 crore. NSE Emerge alone facilitated over ₹7,000 crore in mobilizations in FY25, reflecting growing participation by MSMEs in capital markets. However, challenges persist: about 57% of 2025 listings traded below issue price, with 37% closing lower on debut, highlighting the need for policies to strengthen investor confidence and market stability.

SMEs in India continue to struggle with severe financing constraints. A persistent credit gap of ₹30 lakh crore plagues the MSME industry, as estimated in a May 2025 report by the Small Industries Development Bank of India (SIDBI) titled "Understanding Indian MSME Sector: Progress and Challenges." This addressable gap represents about 24% of the sector's total debt demand, with higher shortfalls in services (27%) and among women-owned businesses (35%). Traditional lenders often perceive SMEs as high-risk due to collateral shortages, high interest rates, inadequate financial records, liquidity issues, and weak credit histories. In rural and underserved regions, documentation barriers compound the problem, forcing many to rely on costly informal sources. SME exchanges address this by offering equity-based funding without collateral demands, though regulatory hurdles and post-listing compliance often discourage participation.

The 2026 budget arrives at a pivotal time, with India's economy targeting Viksit Bharat and sustained high growth amid manufacturing revival and global integration. Enhancing SME access to exchanges aligns with priorities like Atmanirbhar Bharat, green industrialisation, and formalisation. Industry groups, including PHDCCI, have called for measures such as 2% interest subsidies, expanded credit guarantees, and tax incentives. For SME exchanges specifically, the budget could introduce targeted reforms: reduced listing fees, tax exemptions on IPO proceeds for eligible SMEs, simplified compliance for first-time issuers, and incentives for investor participation to improve liquidity and pricing.

Focusing on SME exchange financing would deliver broad benefits. It would democratize capital access, allowing more SMEs to scale debt-free and reduce the "missing middle" phenomenon where businesses stagnate between microcredit and institutional finance. Greater listings could attract venture capital, private equity, and institutional investors, spurring innovation in high-growth areas like digital services, exports, and sustainability. This approach supports massive employment generation, SMEs employ about 62% of the workforce, and strengthens global competitiveness, with MSME exports reaching ₹12.39 lakh crore in FY2024-25.

In conclusion, emphasising SME exchange financing in Budget 2026 is a strategic necessity. By easing regulations, offering incentives, and tackling the ₹30 lakh crore credit gap, the government can empower SMEs to fuel India's next economic surge. This targeted focus would promote resilient, inclusive growth and solidify India's position as a global economic leader.