The ongoing crisis in West Asia is no longer a distant geopolitical issue discussed only on news channels. Its impact is slowly reaching factories, warehouses, transport operators and small businesses across India. For many MSMEs, the effects are already visible. Input costs are rising. Freight charges are fluctuating. Delivery timelines have become uncertain. In some sectors, sudden price spikes are increasing pressure on already thin margins.

While large companies may have the balance sheet strength to absorb temporary shocks, MSMEs often operate with limited financial buffers. Even a small increase in raw material costs or a delay in receivables can disrupt working capital cycles significantly. In this backdrop, the Government of India’s emergency credit support initiative comes at an important time. The move is expected to provide immediate liquidity relief to eligible borrowers and help businesses manage short-term disruptions.

The Real Problem Is Liquidity.

Many entrepreneurs assume business stress begins when profits decline. In reality, the first warning sign is usually cash flow pressure. A business may still be profitable on paper and yet struggle operationally because cash gets locked in inventory, receivables or rising input costs.

Consider what is happening currently across sectors:

• Imported raw materials have become costlier

• Logistics costs are fluctuating

• Commodity-linked industries are witnessing volatility

• Suppliers are tightening credit periods

• Customers are delaying payments to conserve cash

The result is simple. Businesses need more working capital to run the same operations. For MSMEs already operating with stretched limits, this creates immediate liquidity stress. 

Working capital is often misunderstood as just a finance term. In reality, it is the fuel that keeps a business moving every single day. During stable periods, businesses can plan cash flows with reasonable accuracy. But during external shocks, uncertainty increases across the supply chain. For example, a shipment delay may increase inventory holding costs, a sudden rise in fuel prices may impact transportation margins and customers facing stress may delay payments by another 30 days. Individually, these may appear manageable. Collectively, they can create a serious strain on MSMEs. This is exactly where timely credit support becomes important.

A Welcome Move by the Government

The emergency credit support scheme announced by the Government of India aims to address this short-term liquidity challenge. Many MSMEs have already started receiving communication from their banks regarding additional credit eligibility under the scheme. Reports indicate that eligible borrowers may avail additional working capital support of up to 20% of their peak working capital limits, subject to applicable norms and conditions.

The broader intent behind the move is important.

The government is acknowledging that external geopolitical developments can create temporary stress for businesses that are otherwise operationally healthy. Instead of waiting for stress to become a crisis, liquidity support can help businesses navigate the disruption early.

This is particularly relevant for MSMEs because they contribute significantly to employment, manufacturing output and economic activity in India.

Around 1.1 Crore MSMEs Could Benefit

One of the most notable aspects of the announcement is the potential scale of impact. Estimates suggest that around 1.1 crore MSME accounts could benefit from the additional credit support framework. That is significant.

For many businesses, access to timely liquidity during uncertain periods can make the difference between continuity and disruption.

More importantly, emergency support helps entrepreneurs avoid reactive decisions such as:

• Delaying salaries

• Cutting productive capacity

• Reducing inventory sharply

• Borrowing at very high informal interest rates

• Missing supplier commitments

When liquidity support reaches businesses quickly, it improves confidence across the ecosystem.

MSMEs Must Use This Opportunity Carefully

While additional credit support is helpful, businesses must also use this phase to strengthen financial discipline. Emergency liquidity should not become an excuse for weak cash flow management. Instead, MSMEs should use this period to review:

• Inventory cycles

• Customer credit policies

• Vendor negotiations

• Pricing structures

• Cash flow forecasting

• Working capital utilization

Many businesses track profitability monthly but do not monitor cash conversion cycles closely. During uncertain times, that becomes risky. Entrepreneurs must remember one important point. Growth problems and liquidity problems often look similar in the beginning. Both create cash pressure. But the solutions are very different.

A Reminder for Entrepreneurs

External crises are beyond the control of MSMEs. Geopolitical tensions, commodity volatility and global supply chain disruptions can emerge suddenly. But preparedness, financial discipline and timely access to liquidity can reduce the impact significantly.

This is why working capital management is not merely an accounting exercise. It is a survival capability for businesses. The current emergency credit support initiative is therefore more than just another banking announcement. It is a recognition that MSMEs need support during periods of uncertainty, especially when disruptions originate outside the domestic economy.

For entrepreneurs, this is also a reminder to build stronger financial systems, improve visibility on cash flows and remain prepared for volatility. Because in business, resilience is not built during stable times. It is tested during uncertain ones.

Link to press release:  https://www.pib.gov.in/PressReleasePage.aspx?PRID=2258114&reg=3&lang=1

In a welcome move last week, RBI increased the collateral-free loan limit for Micro & Small Enterprises (MSEs) to Rs. 20 lakhs. Additionally, this limit has been extended to all units financed under the Prime Minister Employment Generation Programme (PMEGP) administered by KVIC. Banks, at their discretion, are also allowed to increase the limit to Rs. 25 lakhs for borrowers with good credit standing.

The changes have been incorporated into the Master Direction on Lending to the MSME Sector, which was last updated in July 2025. The twist, however, lies in one statement. To quote the notification: “However, accepting gold and silver as collateral pledged voluntarily by borrowers for loans sanctioned by the banks up to the collateral free limit, will not be construed as a violation of the above mandate.”

On the face of it, this may appear harmless. But structurally, it creates a serious grey area. 

If a borrower is willing to pledge gold, the borrower can simply get the gold pledged elsewhere and take a loan. Gold loans are among the easiest and fastest ways to access credit. Why should they take the trouble of navigating the MSME loan process  or wait for sanction cycles? 

When gold is introduced into a “collateral-free” MSME loan, the lines begin to blur. Is the loan unsecured in spirit, or merely unsecured in classification? From a borrower’s perspective, the distinction may not be immediately evident. From a risk perspective, however, it makes a material difference. 

While there has been a huge uptake in loans through CGTMSE, the ground reality is that many bankers do not sanction loans even if the borrower is eligible. Credit officers are accountable for NPAs. They are under audit scrutiny. Naturally, they tend to safeguard their books wherever possible. Collateral-free lending is designed to assess enterprise viability, cash flows and creditworthiness rather than asset backing. When an option exists within the regulatory framework, it gradually becomes acceptable practice. What begins as an exception can easily evolve into routine. In such a scenario, bankers may begin to assume that pledging gold is an informal prerequisite rather than a voluntary choice.

This is precisely why the wording of such provisions matters. Policy intent must align with ground-level incentives. The clause permitting voluntary pledging creates room for risk-averse interpretation at the branch level. It is not about accusing banks of wrongdoing. It is about recognising risk and incentives. When an officer has the option of securing additional comfort through gold or silver, the tendency will be to prefer it.

Another large concern, however, lies on the borrower side. Most MSE founders are first-generation entrepreneurs. They are focused on running operations, managing cash flows and meeting deadlines. Regulatory language, master directions and circular nuances are not their daily reading material. There is a clear information asymmetry between the banker and the borrower.

Typical loan documentation runs into pages and terms are often vague to many borrowers. They just sign the pages as instructed by the bankers. In many cases, borrowers are in urgent need of working capital. When funds are required to pay salaries or suppliers, negotiation power weakens. If a bank suggests that pledging gold will “help the process move faster,” very few borrowers will question whether it defeats the spirit of a collateral-free scheme.

All it takes is an additional declaration stating that the borrower “voluntarily” pledged the asset. Technically, the bank is compliant. Practically, the intention is diluted.

In a truly collateral-free framework, there should be no need for voluntary pledging. A policy designed to expand access to unsecured credit should not indirectly normalise secured comfort. The intent of the RBI is unquestionably positive. But if voluntary collateral becomes the norm rather than the exception, the spirit of the mandate weakens.

A good intention can lose its impact because of a loosely framed provision. I truly hope that the RBI will review and tighten this aspect to preserve the integrity of the collateral-free framework. 

The Hon’ble Finance Minister Ms. Nirmala Sitharaman, presented the Union Budget for 2026–27. This budget comes at a time of global uncertainty and realignment. Rather than dramatic announcements done last year, when the Income Tax rates were slashed, the Finance Minister has focussed solely on the big picture this time.  This blog is not a deep-dive into the budget.  There are umpteen press reports, analyst videos, debates and podcasts which do that.  While the push on manufacturing across seven strategic sectors is an excellent initiative no doubt, let me highlight three themes that stood out to me. 

Infrastructure development is the key to India’s growth strategy. I remember, the golden quadrilateral road network ushering in a new phase of growth for India. As we keep growing, the infrastructure has to grow at a much faster rate. Yes, we are getting better and better but still there are many more miles to go. Within the infrastructure segment, there are 3 specific announcements that I would like to highlight. 

High-speed Rail Networks:  I see this as a mini golden quadrilateral. It connects key Southern capital cities, Chennai, Bengaluru and Hyderabad with Mumbai and Pune in Western India. I personally felt it would have been much better if a full-fledged golden quadrilateral HSR network along with regional circular connectivity was announced. 

Rare-Earth Corridor: Another notable initiative is the focus on rare earths and strategic minerals.  Rare earth elements are critical inputs for sectors such as clean energy, electronics, electric vehicles and defence manufacturing. Building domestic capability across this value chain is as much an economic decision as it is a strategic one. The proposed integrated corridors connecting mineral-rich states such as Odisha, Andhra Pradesh, Kerala and Tamil Nadu will be a game-changer. 

Inland waterways & Coastal Cargo: The plan to operationalise twenty new national waterways over the next five years is much needed. I would say, much delayed but most welcome at least now. India is naturally blessed with so many rivers, tributaries and long shorelines. We haven’t used its potential. Similar to the road networks, the inland waterways can significantly boost trade and reduce logistics and transportation costs. 

I’m reminded of Dr. APJ Abdul Kalam’s words - “We need to have a safe border for carrying out our development tasks peacefully”. Yes, safe borders are an absolute necessity given the geopolitical turmoil surrounding India. Secure borders and strategic preparedness create the environment in which businesses and citizens can operate with confidence. What is particularly relevant from a business perspective is the continued emphasis on indigenisation. Defence procurement is increasingly being aligned with domestic manufacturing, local sourcing and deeper participation by MSMEs and startups. This marks a shift from viewing defence as a closed ecosystem dominated by a few large players, to one where smaller firms can participate meaningfully across supply chains.

For MSMEs, defence offers the prospect of long-term, relatively stable demand, albeit with high expectations around quality, certification and reliability. For startups working in areas such as electronics, advanced materials, systems integration, artificial intelligence and precision manufacturing, defence is emerging as a serious customer rather than a distant opportunity.

One of the most structurally important announcements in this Budget is the creation of a ₹10,000 crore SME Growth Fund. This marks a subtle but important shift in how MSMEs are being viewed within the broader economic framework. Though MSMEs have often been hailed as the backbone of the Indian economy, the truth is that the backbone faced severe stress. Capital availability is one of the major reasons for this stress. 

Historically, MSMEs in India have relied overwhelmingly on debt to finance growth. While debt is necessary, over-dependence often results in constrained cash flows, limited flexibility and vulnerability during downturns. Equity support, when deployed selectively and responsibly, allows businesses to invest in capacity, systems and market expansion without immediate repayment pressure. The stated objective of the SME Growth Fund is to support high-potential MSMEs based on performance and growth criteria, with the aim of helping them scale. This indicates a move away from blanket support toward targeted capital allocation. The additional infusion into the Self-Reliant India Fund further ensures that micro enterprises continue to have access to risk capital at early stages. Together, these measures suggest a recognition that MSMEs are not just engines of employment, but potential creators of long-term economic value, provided they are supported beyond the survival phase. 

Another welcome measure is to support liquidity and cashflow for MSMEs by mandating TReDS (Trade Receivables Discounting System) as the default settlement platform for all purchases from MSMEs by Central Public Sector Enterprises (CPSEs).

Everyone knows that the tariff impacts were real. There could have been schemes to alleviate the sectors. They were largely addressed in the budget but not directly. I felt that the focus should have been on direct benefit for the textile and other sectors affected by tariffs. Probably the Government wanted to play it cautiously against the backdrop of a trade deal happening with the US shortly. 

Closing Thoughts

Union Budget 2026–27 is not designed to create immediate excitement. It is designed to create a multiplier effect. By continuing to invest in infrastructure, reinforcing defence and strategic manufacturing and enabling equity-based growth for MSMEs, the government is laying a long-term foundation. The outcomes will depend less on policy announcements and more on how businesses respond.

Budgets can shape direction, but they do not guarantee results. Companies that read these signals early, invest in strengthening their fundamentals and align themselves with long-term priorities are far more likely to benefit over time. The opportunity, as always, lies not in reacting to the Budget, but in preparing for what it makes possible.

The India-EU trade deal, which started in 2007, has finally come to a conclusion. The last year saw a serious tussle involving the EU and India over Russian imports. The US aligned with the EU against India and imposed punitive measures through tariffs. However, over the last few months, EU-US relations deteriorated rapidly. This article is not about geopolitics or who was right or wrong. 

Instead, this blog looks at the agreement through a different lens - what this long, drawn-out negotiation teaches business owners, MSMEs, and startups about negotiation, patience, and strategic positioning. At its core, this deal is a reminder that negotiations are rarely linear, rarely fast, and almost never emotional decisions. They are long games played with intent.

The key takeaway from this entire deal right from 2007 to 2025 is to keep your communication channels open. Yes, despite all the hard talk, public posturing and strong statements, the communication channels were never fully closed. Conversations continued in the background. There is no doubt that the sudden rift between the EU and the US pushed the EU closer to India. But that alone did not create the breakthrough. Had either side walked away completely or chosen a one-sided approach early on, this agreement may not have materialised at all. The eventual outcome was possible only because dialogue remained intact over time.

For businesses, this lesson is critical. Whether it is a client negotiation, investor discussion, or vendor relationship, shutting doors prematurely limits future options. You may not need the deal today, but circumstances change. Markets shift. Power equations evolve. Keeping the channel open preserves optionality.

Clarity of Position Builds Credibility

The ability to clearly communicate your stand, without ambiguity, builds credibility. Whether it is a customer, investor or partner, people engage seriously only when they know where you stand. Throughout the negotiation, India maintained clarity on its priorities - whether related to market access, regulatory concerns, or strategic autonomy. While positions evolved, the core stance remained consistent. In business, clarity is very important. Ambiguity erodes trust over time. Customers, investors, and partners prefer clear positions, even if they disagree with them.

Clarity does not mean rigidity. It means knowing your non-negotiables and communicating them without confusion. Businesses that lack this clarity often prolong negotiations unnecessarily or end up accepting unfavourable terms under pressure.

Timing Matters, So Does Preparation

One of the most underappreciated aspects of this agreement is timing. The breakthrough did not happen because of urgency. It happened because the timing became right. Shifts in global trade dynamics, supply chain realignments, and geopolitical recalibration created a window of opportunity. Yes, you never know when the wind will blow in your favour. Those who stay prepared and keep conversations alive are the ones who benefit when circumstances shift. It is often said that fortune favours the brave. I believe it favours the most prepared. So what you do in the downshift determines whether you can reap the benefits of the upshift. 

Negotiation Is A Long-Haul Game

The India-EU FTA reinforces one uncomfortable truth. Important negotiations take time. Sometimes even years or decades. Short-term setbacks are not failures. They are part of the process. In business, many founders walk away too early. A rejected proposal, a delayed term sheet, or a stalled client discussion is often interpreted as the end. In reality, it is just one phase. Deals are frequently concluded much later than expected, provided the relationship survives the waiting period. Patience and perseverance are not just soft traits. They are strategic capabilities. Businesses that understand this build resilience into their negotiation approach and avoid emotionally driven decisions.

Don’t Let Ego Override Strategy

One of the silent lessons from this episode is the cost of ego-driven decisions. Antagonising partners or taking hardline positions purely to assert dominance often leads to unintended consequences later. In business, burning bridges to prove a point may feel satisfying in the moment, but it reduces strategic flexibility. Relationships have memory. Markets do not forget easily. Today’s rejected partner could be tomorrow’s critical enabler.

Strong negotiators separate emotion from intent. They focus on long-term outcomes rather than short-term wins. Restraint, when exercised consciously, often achieves more than aggression.

What This Means for Businesses

For MSMEs and startups, the India-EU FTA is not just a trade story. It is a negotiation case study. It shows that sustainable outcomes are built through consistency, preparedness and engagement over time. Whether you are negotiating funding, entering a strategic partnership, or restructuring a key relationship, the principles remain the same. 

• Keep conversations alive
• Be clear about your position
• Prepare during slow phases
• Respect timing
• Avoid ego-led decisions

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