The Union Budget for FY27 (2026-2027) is currently in the pre-budget consultation stage, with final announcements expected on 1st February 2026. Although the official details are yet to be shared publicly, it is clear from industry discussions that labour-intensive MSMEs are set to continue receiving more focus, as has been outlined in the FY26 Budget.
MSMEs are again at the forefront of the policy debate as India faces global trade uncertainty and employment priorities.
For HR leaders, MSME employers, founders, and workforce partners, this development assumes importance not only from the perspective of fiscal benefits but also from the implications it could hold in terms of staffing, labour law compliance, workforce formalization, and skilling.
Why MSMEs Remain Central to India’s Employment Strategy
MSMEs are the backbone of the Indian workforce, as they provide employment to millions of Indians. Even the labour-intensive MSMEs account for approximately 45% of the country’s exports and are the largest source of non-farm employment in the country.
The government has repeatedly emphasised that India’s ambition of becoming a developed economy by 2047 depends heavily on the strength and scalability of MSMEs. Budget FY27 offers a critical opportunity to convert this vision into a people-first policy response in the near term, particularly in sectors where expansion is inextricably linked to the availability and productivity of labour.
From an HR perspective, MSMEs represent a unique intersection of opportunity and challenge:
- The hiring function is extremely sensitive to policy changes, access to credit, and visibility of demand
- Compliance complexity often limits growth, particularly for small employers
- Workforce formalisation is still evolving, with many businesses balancing between informal and structured employment models
The policy intervention in this sector has a direct and immediate impact on employment outcomes.
What HR and Employers Are Watching Closely
- Credit Access and Hiring Confidence
Expected measures include a 2% interest subsidy on new MSME loans, along with an increase in MUDRA loan ceilings to improve access to affordable credit for small and labour-intensive businesses.
Greater access to affordable credit can create a cascading effect on employment. MSMEs with improved cash flows can:
- Rehire or increase the workforce
- Minimize delays in hiring and wage payments
- Shift from short-term contract labour to more stable employment models
For HR teams, improved financial stability allows for more systematic workforce planning, as opposed to reactive hiring.
- LabourLaw Simplification for Small Units
Expected measures include simplified labour law compliance through single digital returns and streamlined rules across GST, EPFO, and ESIC. Additionally, there are calls to revise Section 80JJAA, raising the monthly emolument cap from ₹25,000 to ₹100,000 to account for inflation and updates under the Code on Wages, 2019.
Simplified compliance norms could significantly reduce administrative friction for small employers. At the same time, enhanced tax incentives for job creation strongly encourage formal hiring over informal arrangements.
This shift is likely to:
- Increase demand for compliant payroll systems
- Drive adoption of statutory documentation and reporting
- Elevate the role of HR advisors and compliance partners
For MSMEs, compliance readiness may soon become a prerequisite for accessing policy benefits.
- Skilling and Technology Adoption
MSMEs emphasize the need for last-mile programs and cluster-level incentives to provide digital training including AI technologies, accounting, and other useful skills.
As technology adoption accelerates, skill requirements across manufacturing and services will evolve. HR teams will need to focus on:
- Upskilling and reskilling employees
- Redesigning roles and evaluating productivity
- Alignment of recruitment strategies with future-ready skills
The emphasis will shift from headcount-driven growth to capability-led hiring, prioritizing skills, adaptability, and measurable performance.
How FY27 Could Shape Hiring Trends in Labour-Intensive MSMEs
If implemented effectively, the expected FY27 policies could:
- Boost employment generation in manufacturing and export industries
- Promote formal employment over informal work arrangements
- Improve wage stability and employment continuity
- Boost demand for labour law compliance, payroll, and HR advisory services
For HR leaders, this means that they need to be ready for growth while ensuring compliance readiness, especially as labour codes continue to move closer to full implementation.
Labour Law Compliance: A Growing Priority for MSMEs
As policy incentives increasingly favour formal employment, MSMEs will face higher expectations around:
- Wage restructuring
- Social security contribution calculations
- Employee documentation and contracts
- Statutory filings and reporting
The relationship between policy benefits and compliance discipline is anticipated to be further strengthened in Budget FY27, making HR function competence a crucial competitive advantage rather than a back-office requirement.
Book a 1-on-1 consultation with our experts to understand how your MSME can remain compliant while scaling up its workforce.
Conclusion
As India approaches the Union Budget for FY27, it is becoming increasingly evident that MSMEs will continue to be at the forefront of the development plans of India. The plan of the government to develop the country by 2047 is not only dependent on investment and infrastructure but also on the strength and stability of the workforce of the country.
Budget 2026 provides a great opportunity to carry forward the momentum that was created in the last budget by focusing on employment generation, ease of compliance with labour laws, development of skilling ecosystems, and scaling up MSMEs without becoming less employment-intensive.
For HR leaders and MSME employers, the next phase of growth will be driven by people strategy. Access to credit can open doors to new employment opportunities, but sustainable growth depends on compliant employment practices, organized payroll processes, and continuous skill development.
India @2047 will be built on the backs of its workforce. MSMEs will be the driving force behind this, and HR will be the catalyst that turns policy into jobs, livelihoods, and future-ready enterprises.
At Prompt Personnel, we are assisting organizations in this transition, from temporary staffing and labour law compliance to permanent recruitment and upskilling, so that MSMEs can scale efficiently while developing a skilled, capable, and future-ready workforce.