Budget 2026 marks a decisive shift in India’s financial sector strategy—from incremental interventions to structural reform. The focus is firmly on deepening capital markets, improving credit transmission and strengthening financial institutions to support India’s journey towards a Viksit Bharat.

The decision to raise the investment limit for persons of Indian origin in Indian-listed companies from 5% to 10 % (aggregate investment limit for all individual PROIs, or Persons Resident Outside India, hiked to 24%, up from the current 10%), reflects a calibrated approach to capital market liberalisation. This move is likely to broaden India’s equity capital base by attracting stable, long-term diaspora capital, improving market liquidity without diluting regulatory safeguards.

For MSMEs, Budget 2026 adopts a clearly defined three-pronged approach that moves beyond credit schemes to systemic reform. First, the creation of a ₹100 crore fund and enhanced support of up to ₹200 crore for micro enterprises signals targeted backing for the smallest and most vulnerable businesses. This addresses the entry-level financing gap without distorting broader credit markets. Second, the continuation of the AMRIT scheme for bond issuances up to ₹200 crore reinforces the expectation that capable MSMEs should progressively transition to market-based funding. This is critical for reducing over-dependence on bank balance sheets and encouraging financial discipline and transparency among growing enterprises. Third—and most structurally significant—the Budget mandates TReDS (Trade Receivables Discounting System) as the MSME trade settlement platform for all trades by CPSEs. Integration of TReDS and GeMs creates more transparency and an enhanced marketplace for MSMEs and corporates.

Mandatory TReDS adoption institutionalises invoice-based, cash-flow-driven financing, shortens working capital cycles, improves payment discipline among large buyers and materially reduces information asymmetry for lenders. This move could also enable MSMEs to balance financing away from collateral-heavy models towards transaction-led credit. Further allowing securitisation of trade receivables on TReDS is strong measure to systematically increase liquidity.

On debt markets, the push for larger municipal bond issuances, with single issues scaling up to ₹1,000 crore for large cities, reflects an intent to make urban infrastructure finance institutional and investible. This scale is essential to attract long-term investors and build credible price discovery in municipal debt. The proposed market-making framework for corporate bonds, including access to funds linked to bond indices, addresses a long standing structural gap in India’s debt markets. Improving secondary market liquidity is critical to lowering borrowing costs and broadening investor participation beyond buy-and-hold strategies.

Budget 2026’s vision for NBFCs in a Viksit Bharat, including restructuring and efficiency improvements in PSU NBFCs such as PFC and REC, signals a shift towards sharper mandates and better capital utilisation. The repositioning of these entities as specialised development finance institutions will strengthen long-tenor infrastructure and energy transition financing without crowding out banks. Further, the proposed comprehensive review of foreign exchange management regulations and non-debt instruments reflects recognition that India’s regulatory framework must evolve alongside deeper markets and increasing foreign participation.

Finally, the proposal to set up a high-level committee on banking for Viksit Bharat acknowledges that the banking system must now be redesigned for growth, not just stability and restructuring. Capital adequacy, risk-sharing mechanisms, governance, consolidation and technology adoption will need a holistic rethink to support India’s next investment cycle. Overall, from the perspective of the financial services sector, Budget 2026 focuses on rebuilding the financial architecture needed for durable, high-quality growth.

(The author is National Financial Services Leader, EY India. Views are personal.)