As Budget 2026 approaches, much of the debate remains centred on fiscal discipline and capital expenditure. But a contrarian proposal from Saurabh Mukherjea has shifted the spotlight to a different pressure point in the economy: India’s small and mid-sized enterprises, which account for the bulk of job creation but have seen little benefit from the post-pandemic recovery.
India’s economic rebound, he says, has been sharply K-shaped, with smaller firms struggling while larger corporates continue to compound profits. “Companies earning less than Rs 1 crore of PAT in India, they’ve had a really rough time in the last 10 years,” he said. “Their profit growth has been barely 5-6%, whereas above Rs 1 crore profit growth has been 16-17%.”
That divergence matters because of where employment sits. “Eighty percent of the jobs are created in companies with less than Rs 1 crore PAT,” Mukherjea said. “If you want jobs and consumption to come back, this is the segment you have to support.”
The Case for Targeted MSME Tax Cuts
Mukherjea’s proposal centres on a targeted corporate tax cut for small profit-making companies-those earning under Rs 1 crore in PAT-arguing that relief here would have an outsized impact on hiring, wage growth and confidence. Unlike large corporates, MSMEs lack balance-sheet buffers and are far more sensitive to tax outflows and working-capital stress.
“Give them a tax break,” he said. “It doesn’t cost the exchequer much.” According to Mukherjea, such a tax cut could be financed by trimming 10-15% of the government’s capex budget without derailing fiscal consolidation. “You can very easily finance all of that by knocking off 10 to 15% of the capex budget and still maintain fiscal discipline,” he argued.
While capex has played a critical role in supporting growth over the past few years, Mukherjea believes its marginal impact is now lower than that of reviving stressed businesses at the bottom of the corporate pyramid.
Why MSMEs Matter Right Now
The proposal comes at a time when private investment remains hesitant, exports are under pressure, and consumption is recovering unevenly. Market participants note that central government capex has been doing most of the heavy lifting, masking weakness elsewhere in the economy.
For MSMEs, the past few years have been particularly punishing-marked by pandemic disruptions, tighter credit conditions, and rising compliance costs. Even as headline growth numbers stabilise, many smaller firms continue to operate below capacity.
Mukherjea argues that reviving this segment could unlock a virtuous cycle. Lower taxes would improve cash flows, encourage hiring and investment, and eventually lift tax buoyancy. “If confidence around growth comes back,” he said, “the investors will come back. But growth has to come first.”
A Shift in Budget Thinking?
Politically, infrastructure spending offers visible assets and long-term payoffs, while MSME tax relief delivers results more gradually. Instead of asking how much more the government can spend, Mukherjea’s idea asks where limited fiscal resources can generate the most immediate economic impact. For an economy where jobs, not just assets, are the binding constraint, the answer may lie less in pouring more concrete – and more in easing the tax burden on the firms that employ most Indians.
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