These impressive numbers, however, have little meaning when these very MSMEs have to run from pillar to post, seeking payment for goods and services supplied to large corporate and state-owned companies. These delayed payments, according to official estimates, have ballooned to ₹8.1 lakh crore.

The Union Government has tried to address the problem of delayed payments in the past and this time around came up with a bill to amend the MSME legislation. 

The MSME Development (Amendment) Bill, 2026, seeking to improve the ease of doing business for small and medium units, was approved during the monsoon session of Parliament. Unfortunately, this important legislation was passed by the Lok Sabha amid din and without debate.

Piloting the amendment bill in the Rajya Sabha, MSME Minister Jitan Ram Manjhi said the aim of the legislation was to address the liquidity problems being faced by the MSMEs. 

What The Bill Says

The Bill mandates all central public sector enterprises (CPSEs) to route invoice settlements through the Trade Receivables Discounting System (TReDS) towards procurement of goods and services from MSMEs. State governments too have been advised to issue similar directions to their PSUs.

Reiterating the Narendra Modi government’s commitment to extend strong support to MSMEs, Manjhi said the objective of the amendment legislation “is to balance the interests of all concerned parties while maintaining constitutional principles and the interests of businesses”.

The proposed amendments, according to the statement of objects and reasons of the Bill, “shall incentivise the growth of the micro, small, and medium enterprises, enable them to scale up and become champions of growth. This will augment ease of doing business and promote compliance”.

Observing that MSMEs are the key drivers of economic growth, generate employment, and foster innovation, it said, “over the years, the micro, small and medium enterprises landscape has undergone a change due to technological advancements, emergence of information technology enabled systems and changing legal landscape which require that the (MSME Act 2006) be amended to facilitate growth of micro, small and medium enterprises.”

Having been approved by the Rajya Sabha and the Lok Sabha, the bill will now be placed before President Droupadi Murmu for her assent. Thereafter, the requisite changes will be incorporated in the MSME Act, 2006.

Tackling Liquidity Issues

Delayed payments for goods and services supplied by MSMEs to larger corporates has historically been a major problem for the small and medium units. According to the Economic Survey 2025-26, a document prepared by the Finance Ministry, the amount blocked in delayed payments to MSMEs has been estimated at around ₹8.1 lakh crore. 

What it means is that the MSMEs will have less working capital to that extent and will have to rely on bank loans or other sources of funding. It becomes a liquidity trap for MSMEs. There are over 7.69 crore enterprises registered on the Udyam Registration Portal and Udyam Assist Platform.

“Delayed payments from buyers lock up the very working capital that MSMEs need to service bank loans and continue production. An MSME may have a healthy order book and profitable operations, but if receivables remain outstanding for months, it can face an artificial liquidity crisis,” Anil Bhardwaj, Secretary General, Federation of Indian Micro and Small & Medium Enterprises (FISME), told The Secretariat.

The union government has been taking steps to deal with the liquidity problem of MSMEs. Finance Minister Nirmala Sitharaman, in her 2026-27 budget speech, announced steps to create “Champion SMEs”. The thrust of her initiative was to ensure more capital for the MSMEs. 

She introduced a dedicated ₹10,000 crore SME Growth Fund to create future Champions and increased the corpus of the Self-Reliant India Fund set up in 2021 by another ₹2,000 crore to support micro enterprises and maintain their access to risk capital.

“To leverage its (TReDS’) full potential, I propose 4 measures: (i) mandate TReDS as the transaction settlement platform for all purchases from MSMEs by CPSEs, serving as a benchmark for other corporates; (ii) introduce a credit guarantee support mechanism through CGTMSE for invoice discounting on TReDS platform; (iii) link GeM with TReDS for sharing information with financiers about government purchases from MSMEs, encouraging cheaper and quicker financing; (iv) introduce TReDS receivables as asset-backed securities, helping develop a secondary market, enhancing liquidity and settlement of transactions” she said.

The Bill provides a legislative cover to her announcement by making it mandatory for all CPSEs to route the settlement of invoices for goods and services procured from MSMEs through the TReDS platform.

TReDS is a Reserve Bank-authorised electronic platform that facilitates the financing or discounting of trade receivables. In practical terms, it allows MSMEs to auction their trade receivables (invoices) to multiple financiers and receive cash immediately rather than waiting for months for the buyer to pay.

The Bill also empowers the Central and state governments to notify other entities, authorities, or State Public Sector Enterprises to adopt this mandatory TReDS routing. Furthermore, these entities will be required to disclose their compliance and report the details of invoices settled through the platform, ensuring transparency and accountability.

Why Keep Private Sector Out?

The Bill, however, does not mention the private corporate sector, especially the larger ones who procure goods and services from MSMEs. The government could have made it mandatory for companies listed on NSE and BSE, or with some other objective criteria like the turnover limit. It would be incorrect to assume that all large corporates clear the dues of MSMEs promptly.

“This is perhaps the most important limitation of the present reform,” Bhardwaj said, adding, “if the objective is to fundamentally solve the delayed-payment problem, the reform ultimately needs to address the entire B2B ecosystem, and not only government procurement. There is a strong case for progressively bringing large private-sector buyers within a similar framework, particularly where they have significant purchasing power vis-à-vis MSME suppliers.”

FISME, he said, would favour a graduated and risk-based approach rather than imposing identical requirements on every private enterprise. The objective should be to protect the small supplier from abusive payment practices without creating disproportionate compliance costs for smaller buyers.

“In the longer term, we would like to see a system in which large buyers — whether public or private — cannot use their market power to routinely stretch payment periods at the expense of small suppliers,” he added.

Expediting Dispute Resolution

Litigation is not easy in India, whether it is through courts, mediation, or arbitration. Securing an arbitral award is only half the battle; enforcing it is even harder.

Addressing the annual India conference of the Singapore International Arbitration Centre (SIAC) last month, Chief Justice of India Surya Kant has said that “arbitration is starting to look like the very court process it was meant to replace”. The arbitration process is often marred by multi-day hearings, heavy document production modelled on common law, and the awards may take years, not months.

The MSME Bill sought to address these challenges by incorporating certain changes in the parent Act to ensure expeditious resolution of disputes.

There is a provision for Micro and Small Enterprises Facilitation Councils (MSEFC), or mediation service providers, in the Act. They are expected to settle the disputes between the parties quickly. However, there was no time limit for completion of the process after the dispute has been referred to the council. The Bill sought to address this problem by specifying that mediation must be completed within 90 days from the date fixed for first appearance. 

Requisite efforts, however, will have to be made to strengthen the infrastructure of MSEFCs to enable them to meet the specified deadline of 90 days. State governments will be required to establish an "adequate number" of MSEFCs and provide them with physical and digital infrastructure to ensure timely resolution of disputes. Each council will consist of three to five members, including a Chairperson (not below the rank of Joint Director), representatives from MSME associations, and crucially, at least one member from the field of law to ensure legal rigour in the proceedings.

Similar provisions have been made for arbitration. In case mediation fails, the dispute has to be referred for arbitration. The Bill requires that the reference must be made within 30 days from the date of termination of mediation. It also adds that an award must be made within 90 days from the date of completion of pleadings.

A party aggrieved by the arbitral award can move the court for setting aside the award only after depositing 75% of the award amount. As per the new provisions, such an application can also be submitted against a mediated settlement agreement.

However, pending disposal of the application, the Court, at its discretion, can order payment of a reasonable percentage of the deposited amount to the MSME. The amendment bill also says at least 50% of the award must be paid to the supplier if the case has remained pending for more than six months. This provision is expected to prevent buyers from dragging MSME suppliers into endless appeals.

Moreover, the amount determined by the mediated settlement agreement or arbitral award “shall constitute a valid and legally enforceable debt and is liable to be recognised under the provisions of the Insolvency and Bankruptcy Code, 2016”.

Classification Of Enterprise

Under the MSME Act, 2006, an entity was classified as medium, small, or micro enterprise based on the investment plant and machinery in case of manufacturing, and equipment in case of services. The Bill removes these thresholds and empowers the Central government to specify new thresholds, including investment in plant and machinery or equipment and turnover. 

In order to encourage green initiatives and innovation, it has been specified that the cost of pollution control devices, industrial safety equipment, and research & development (R&D) will be explicitly excluded from the investment calculation.

Simplified Registration

The other important objective of the amendment bill is to promote frictionless entry of unorganised businesses into the formal sector of the economy. 

The Central government will establish a national digital platform for the free and voluntary filing of memorandums by MSMEs. State governments will also be encouraged to create their own parallel digital platforms.

Although registration will remain voluntary, it will act as the gateway to accessing benefits from both Central and state government schemes. By digitising this process, the Bill aims to bring a larger section of India's unorganised sector into the formal fold.

The amendments to the MSME Act are significant, as they seek to address the real problems faced by small and micro enterprises, be it registration or expediting the release of funds. By digitising compliance, weaponising TReDS to solve cash flow issues, and setting strict deadlines for dispute resolution, the legal provisions will encourage Indian MSMEs to scale up operations and expand globally. 

The sore point, however, is that the corporate sector has been kept out of the TReDS mandate. As the proof of the pudding is in the eating, one will have to wait and see how these changes help in unlocking ₹8.1 lakh crore of MSME’s fund blocked in delayed payments.

Observing that the Bill itself will not automatically eliminate delayed payments, Bhardwaj said, “disputed invoices, administrative delays, weak enforcement and payment practices outside the CPSE ecosystem will continue to require attention”.