Small businesses have significantly expanded their share of central government procurement, with purchases from micro and small enterprises (MSEs) reaching ₹48,635 crore in H1 FY27, accounting for 53% of total reported procurement. According to data from the government's MSME Sambandh portal, this figure is already more than double the 25% procurement target mandated for MSEs, which specifically excludes medium enterprises from the calculation. In the first half of the previous fiscal year, MSEs accounted for 45.8% of government contracts, worth approximately ₹38,000 crore, as reported by Mint in October 2025. Industry representatives expect procurement to accelerate in the second half of the fiscal year, though they caution that a record full-year number will depend on overall government spending and opportunities available to smaller suppliers.
The Union Cabinet, chaired by Prime Minister Narendra Modi, has approved two key proposals linked to the government's growth and infrastructure priorities, including the ₹10,000 crore SME Growth Fund and the establishment of an Integrated Transport and Logistics Authority (ITLA). Finance Minister Nirmala Sitharaman announced this dedicated fund in the Union Budget 2026-27 to provide equity support and risk capital to promising enterprises, with the initiative aimed at creating future champions by incentivising businesses based on select criteria. The fund will be set up as an Alternative Investment Fund (AIF) and will provide growth capital to SMEs seeking to expand capacity, adopt technology, enter international markets, undertake acquisitions and integrate into global value chains. A majority of the fund's allocation will be towards small and medium manufacturing enterprises, with the fund also considering SMEs operating in industrial clusters in Tier-II and Tier-III cities. The government said the fund will address the shortage of long-term risk capital available to SMEs beyond the early stages of business, supporting enterprises seeking to expand capacity, adopt advanced technologies, enter international markets, integrate into global value chains and undertake strategic investments or acquisitions.
The increased procurement share coincides with a dramatic expansion in the pool of formally registered small businesses. According to data from the MSME ministry's performance smartboard, the number of MSMEs recognized under the government's Udyam system rose from 65 million to nearly 97.4 million in the first half of FY27. This substantial growth in the MSME ecosystem provides a larger pool of suppliers for government procurement opportunities, supporting the sector's participation in government contracts. The share of central government procurement going to MSEs has risen steadily, from 23.11% in FY17 when total central government procurement was about ₹114,000 crore, to almost 49% in FY26 when total procurement reached ₹238,01 crore.
Finance Minister Nirmala Sitharaman's May directive to lenders to adopt cashflow-based approaches for MSMEs has gained significant momentum through recent legislative and regulatory changes. The MSME (Amendment) Act, 2026 strengthens payment frameworks with a 45-day payment rule and interest at three times the Bank Rate for delayed payments, addressing the ₹8.1 trillion locked in delayed payments that the Economic Survey 2025-26 estimated. The Trade Receivables Discounting System (TReDS) has facilitated more than ₹7 lakh crore in cumulative transactions by FY26, with the defence ministry now integrating TReDS into its procurement ecosystem. As per Bank of Baroda's Beena Vaheed, defined timelines for mediation and arbitration, along with provisions for 50% payment of awarded amounts where challenges remain pending beyond six months, could further support timely realization of dues.
The government has proposed making TReDS the mandatory settlement platform for all purchases by central public sector enterprises from MSMEs, which would also serve as a benchmark for other corporate buyers. A second proposal would introduce credit guarantee support through the Credit Guarantee Fund Trust for Micro and Small Enterprises for invoice discounting on TReDS. The government also proposed linking the Government e-Marketplace with TReDS to share information with financiers about government purchases from MSMEs, encouraging cheaper and quicker financing. For professional support, the government plans to facilitate institutions including ICAI, ICSI and ICMAI in designing short-term modular courses and practical tools for a cadre of accredited 'Corporate Mitras'. These para-professionals, particularly in Tier-II and Tier-III towns, would help MSMEs meet compliance requirements at affordable costs, complementing the Budget's proposed capital and liquidity measures for enterprises seeking to expand their operations and access financing.
