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By Mahesh Shukla

The Union Budget 2026 will be announced soon, and at this moment, the nation’s financial landscape is at a critical juncture. It is clear that the country has made significant progress in digital payments; however, the next step in the journey toward “Viksit Bharat” is the democratisation of credit. As the new fiscal year draws near, the industry has high hopes for the Ministry of Finance, expecting a detailed policy to tackle the credit gap affecting millions of unserved and underserved Indians.

To that end, the policy objective is being predicted to be very straightforward this year: credit should be sustainable, available, and affordable to everyone, including those who are economically disadvantaged.

Digital Public Infrastructure And The Push For Cash-Flow-Based Lending

Expanding on this vision of accessibility, one result that is being expected out of the union budget 2026 is the continued development of the Digital Public Infrastructure (DPI). The success of the “India Stack” shows how technology can help boost customer acquisition and reduce costs. In fact, reports suggest that systems backed by public DPIs help digital firms reduce customer onboarding costs.

To achieve this goal, the industry believes that a more streamlined and centralised Digital KYC process is necessary. Furthermore, with the Account Aggregator (AA) framework incentivised and more than 112.34 million accounts linked, the government is poised to enable “cash-flow-based lending." This would allow salaried professionals and small business owners to obtain loans backed by real-time data rather than traditional physical collateral, which is often unavailable.

Why Liquidity Still Matters

Nonetheless, despite these technological strides, limitations remain. In order for digital creditors to extend low-cost loans, they must obtain lower-cost capital. Presently, MSMEs face a credit shortage upwards of Rs 25.8 lakh crore, and a significant portion of small firms lack formal bank access.

Consequently, anticipation of governmental measures to stimulate sector liquidity, including potential increases to Priority Sector Lending (PSL) quotas, is warranted. Should lenders' fund costs be lower, they can reduce rates and potentially transform credit from a source of financial imperilment into a tool for empowerment. 

Budget 2026 And MSME Financing

Parallel to these liquidity needs, the MSME sector is highly anticipated to receive significant growth funding from this budget, as it currently contributes around 30 per cent to India’s GDP. During the last cycle, the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) increased its cover to Rs 10 crore; now, the industry is optimistic for further expansion.

Moreover, greater guarantee coverage, alongside increased agility in the claims process, would embolden lenders to be more risk-seeking in the absence of default concerns. Additionally, there is great anticipation for clarity regarding First Loss Default Guarantee (FLDG) regulations. A consistent and transparent policy structure concerning the FLDG would drive significant collaboration between banks and fintechs to support the smallest entrepreneurs in Tier 2 and Tier 3 cities.

Tax Policy And Fintech Growth

Finally, regarding the operational tax burdens on the fintech ecosystem, the budget has a clear starting point. Streamlining the tax structure under the Goods and Services Tax (GST) for financial services, along with operational tax incentives for 'Financial Inclusion' startups, would enable these firms to reinvest in sophisticated credit underwriting mechanisms.

Most AI-based models for underwriting credit are aimed at identifying creditworthy people whom the traditional banking system rejects. With digital lending in India expected to grow by more than 22 per cent CAGR by the end of the year 2030, less tax friction means more potential to lend transparently and affordably to users.

How Budget 2026 Could Redefine India’s Credit Culture

In conclusion, the union budget of the year 2026 may change the credit culture in the country. With an emphasis on liquidity support, digital integration, and risk-mitigation frameworks, it will give people an equal opportunity to grow financially, including every entrepreneur and every salaried individual.

Once the sector has matured, a supportive policy framework will keep the credit system open. This will enable India to reshape the economy and transform credit from a privilege into a basic right.

(The author is Founder & CEO of PayMe)