As global headwinds bite, labour-intensive MSMEs look to Budget for job protection

India's labour-intensive MSME sectors, including textiles, leather, footwear, and rural micro enterprises, are approaching the Union Budget with a specific request for continued policy, focused support, and more effective solutions to shield employment amidst rising global trade challenges.

Across industry bodies and grassroots development organisations, the prevailing sentiment is that exporters and small manufacturers are operating under severe stress, squeezed by geopolitical tensions, tariff disadvantages in key markets, high borrowing costs, and rising compliance burdens.

For sectors that collectively employ millions, especially semi-skilled and rural workers, stakeholders say the upcoming budget should move beyond headline schemes and address frictions on the ground.


Home textiles: Policy continuity, cost relief and export competitiveness

For the textile and home furnishings segment, which is among India’s largest labour-intensive export segments, predictability in incentive regimes remains the top priority. Vikas Singh Chauhan, Director at the Home Textile Exporters’ Welfare Association (HEWA), says the continuation of the Rebate of State and Central Taxes and Levies (RoSCTL) scheme until 2030 is critical to maintain price competitiveness in overseas markets. He points to anomalies within the RoDTEP (Remission of Duties and Taxes on Exported Products) scheme, where products such as towel rolls attract just 1% reimbursement, while yarn and cotton receive higher rates. “This disparity needs to be rationalised to reflect value addition and employment intensity,” Chauhan said, adding that such inconsistencies erode margins for downstream exporters, most of whom belong to the labour intensive SME segment.

Notably, according to government data, the Indian home textile industry is a major global player, commanding about 7-8% of the global home textiles market and ranking among the top suppliers to the US and UK. With a 3.9% to 4.1% share in the overall global textiles and apparel trade, the sector is a key growth engine for Indian exports. Home textiles (including bed linens, carpets, and furnishings) comprise a significant portion of these trade volumes.

Considering the severe pressure on working capital, industry representatives are also pushing for the revival of the Ministry of MSME’s Interest Credit (IC) scheme and stronger incentives linked to R&D and compliance investments, particularly as global buyers raise sustainability and traceability standards. Although many MSMEs are export-oriented, the common view is that they still rely on NBFC financing at rates as high as 18–20% annually, highlighting the need for cheaper and more accessible credit.

With Indian home textile exporters facing elevated tariffs in the US market amid unresolved trade negotiations, Chauhan also called for short-term product-specific support schemes to help firms tide over the disruption. His other demands include aligning shipping line freight charges with the customs exchange rate – a move exporters say would curb arbitrary currency mark-ups, and creating a dedicated e-commerce export wing within post offices to speed up small parcel exports.

The absence of an Indian shipping line remains another structural gap. “Some budgetary or institutional mechanism must be created to promote an Indian shipping line, as logistics costs continue to undermine exporters,” Chauhan said, while also urging the government to include MSME exporters more systematically in official councils and consultations.

The pressure is particularly acute for several home textile merchant exporters, who act as intermediaries between manufacturers and overseas buyers. Shoeb Bamboowala, Vice President (Sales) at Mumbai based home textile firm, Fem Exports, describes the current environment as “survival mode,” shaped by geopolitical conflicts, tariff wars, and severe margin pressure. To prevent job losses in labour-heavy sector, Bamboowala proposed either a temporary income-tax exemption or a special concessional 5% tax slab for textile exporters for the next five years. “This relief is essential to sustain textile exports and employment during an extraordinary global slowdown,” he said.

Leather and footwear: bridging the tariff gap

Similar concerns are echoed by the leather and footwear industry, another employment-dense segment concentrated in clusters such as Agra, Kanpur, Kolkata and Chennai. Puran Dawar, Northern Regional Chairman of the Council for Leather Exports(CLE India) and President of the Agra Footwear Manufacturers and Exporters Chamber (AFMEC), notes that Indian exporters continue to face tariff disadvantages compared to rival countries while a free trade agreement with the US remains under negotiation. “In this transition period, the industry expects supportive and compensatory measures in Union Budget 2026 to sustain exports, protect employment, and maintain global market share,” Dawar said, adding his key expectations include the restoration and strengthening of interest subvention to offset high financing costs, duty-free or Focus Product export entitlements to neutralise tariff impacts, and the reintroduction of the Integrated Development of Leather Sector (IDLS) scheme with adequate funding. He said IDLS is essential for technology upgradation, productivity gains and cluster-based infrastructure development, all of which directly influence the sector’s ability to absorb labour and meet global quality benchmarks.

Rural employment: Spotlight on mini and nano enterprises

Besides export-oriented clusters, industry analysts contend that the budget should re-establish its employment strategy within rural India, given that millions of young individuals join the labour market annually. Neeraj Ahuja, Associate Director at Transform Rural India, says Mini and Nano Rural Enterprises (MNREs) with investments up to Rs 25 lakh and employing one to ten workers, represent the biggest untapped source of quality rural jobs. He opined that this segment needs priority in the FM’s budget speech this year. “Despite their potential, MNREs often miss out because budget provisions favour larger urban enterprises,” Ahuja said. He called for a dedicated MNRE window within the CGTMSE, offering a 100% credit guarantee up to Rs 25 lakh for rural entrepreneurs, along with interest subvention for women and youth-led enterprises.

Ahuja also stressed the need to move away from fragmented schemes towards a cohesive rural entrepreneurship ecosystem. He proposed that the budget allocate dedicated funds to states to set up one-stop Enterprise Facilitation Hubs — one per one lakh population, providing credit facilitation, skilling, market linkages, mentorship and compliance support. To ensure accountability, he suggested creating an MNRE Outcomes Fund that pays state and non-profit organizations for creation of verified rural mini and nano firms. “It will help crowd in funds from CSR and philanthropies while keeping the government’s funds focused on performance-linked outcomes,” he added.

Lakshmi Venkataraman Venkatesan, Founding & Managing Trustee, Bharatiya Yuva Shakti Trust (BYST) said key expectations include higher MUDRA loan limits beyond the Rs Rs 7,000 average, up to 4% interest subvention, faster 15-day GST refunds, and raising the GST exemption from Rs 40 lakh to Rs 1.5 crore. "Extending Rs 20 crore credit guarantees to women-led micro enterprises and expanding the Lakhpati Didi target from 3 to 5 crore women by 2027 will support inclusive growth, job creation, and stronger grassroots entrepreneurship,” she added.