Budget 2026 reflects a maturing view of India’s micro, small, and medium enterprises (MSME) sector and its role in the national growth strategy. The emphasis has clearly shifted from survival and incremental formalisation towards productivity, scale, and competitiveness. This shift is supported by sustained improvements in India’s logistics ecosystem, where public investment and regulatory reform have begun to deliver measurable efficiency gains.
MSMEs form the backbone of India’s economy. MSMEs contribute over 30% of India’s Gross Domestic Product (GDP), account for around 45% of merchandise exports, and employ more than 30 crore people, making the sector the second-largest source of employment after agriculture. Their productivity, therefore, has direct implications not only for growth but also for jobs, exports, and regional economic balance.
Over the past decade, India has made notable progress in reducing logistics costs at the national level. According to estimates by the National Council of Applied Economic Research, logistics costs declined from approximately 14% of GDP in 2014 to about 8.9% in 2022, reflecting a structural improvement in freight efficiency. This reduction has been driven by highway expansion, better freight rail utilisation, the rollout of dedicated freight corridors, and increasing multimodal integration. Digital systems such as e-way bills and FASTag have further reduced transit delays and compliance-related stoppages.
These gains are significant for MSMEs. Lower inter-state logistics costs reduce input price volatility, expand sourcing options, and improve access to regional and national markets. Road and rail investments have shortened transit times, while digital compliance systems have eased border-related friction. From a macro perspective, these reforms have strengthened the operating environment for small firms across sectors.
Logistics, however, is not uniform across firm types or operating geographies. MSMEs engage with logistics differently from large enterprises. Their shipments are smaller, more frequent, and more time-sensitive. While inter-city and inter-state freight movement has become faster and cheaper, MSME competitiveness is increasingly shaped by how efficiently goods move within cities and across neighbouring districts.
This critical distinction is reinforced by research from the Indian Institute of Technology Delhi. The inquiry on urban freight movement shows that technology-enabled logistics service providers now account for a growing share of short-haul goods movement in major Indian cities, particularly for MSMEs engaged in retail, light manufacturing, and services. These service providers complement national logistics networks by enabling the final stages of goods movement that traditional transport models are not optimised to handle efficiently at scale.
Urban logistics operates under more fragmented conditions. Congestion, variations in enforcement practices, and differences in regulatory interpretation across states translate into and at the level of municipalities introduce variability in costs and service availability. For MSMEs operating across multiple cities or state boundaries, this lack of consistency can offset some of the gains achieved through national logistics reform.
Parity, therefore, becomes central to the discussion. Logistics services performing similar economic functions often face different compliance and tax treatment depending on whether coordination is digital or offline. Where a technology-enabled service provider and a traditional operator facilitate comparable goods movement, unequal interpretation creates friction without improving safety or compliance outcomes. The issue is not preferential treatment for digital models, but functional parity across modes of service delivery.
The implications for MSMEs are tangible. Variability across states, combined with digital–offline disparities, affects goods transport pricing, service coverage, and the ability of small firms to scale across urban clusters. While national logistics indicators show improvement, urban and intra-district inefficiencies continue to shape everyday business decisions for MSMEs.
Urban logistics efficiency has direct productivity effects. Faster and more predictable goods movement shorten inventory cycles, reduce wastage, and improve demand responsiveness. Global research suggests that even incremental improvements in last-mile and urban freight efficiency can raise small firm productivity by several percentage points over time. In India’s context, these gains complement the reduction in national logistics costs identified by NCAER rather than substituting for it.
The IIT Delhi research does not argue for exemptions or carve-outs. Its findings point towards alignment. Where logistics services perform similar economic roles, regulatory expectations and tax treatment should be applied consistently, irrespective of whether operations are digitally mediated or offline. Predictable interpretation, proportional compliance, and clarity on service provider responsibilities would reinforce efficiency while supporting gradual formalisation.
Budget 2026 has strengthened the macro foundations for MSME growth and logistics modernisation. The next phase lies in ensuring continuity across the logistics continuum, from national corridors to state boundaries and urban streets. As India continues to drive logistics costs down at the aggregate level, attention must increasingly turn to the last stretch of goods movement, where MSME competitiveness is ultimately shaped.
MSME ambition in India is not constrained by intent. It is shaped by how smoothly goods move through the final few kilometres of the value chain.
This article is authored by Mahadeo Jaiswal, founding director, IIM Sambalpur and Arvind Gupta, head, Digital India Foundation.
