Subject: GS Paper 3: Indian Economy
Context: The Rajya Sabha passed the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026.
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About Micro, Small and Medium Enterprises (MSMEs)
- MSMEs are enterprises engaged in the manufacturing or service sectors, classified by the Central Government based on the composite criteria of investment in plant and machinery/equipment and annual turnover.
Significance of the MSME Sector:
- Contribution to GDP: Accounts for 31% of India’s GDP.
- Manufacturing Output: Contributes 36% of India’s manufacturing output.
- Export Performance: Accounts for 41% of India’s exports.
- Employment%: MSMEs in India employ over 60% of the workforce.
- Credit Growth: Outstanding credit to MSMEs has increased from ₹10 lakh crore (2014–15) to over ₹38.35 lakh crore.
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- Legal Framework: Governed by the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006.
- Administrative Ministry: Ministry of Micro, Small and Medium Enterprises (MoMSME).
- Classification (Effective from 1 April 2025):
- Micro Enterprise: Investment up to ₹2.5 crore and turnover up to ₹10 crore.
- Small Enterprise: Investment up to ₹25 crore and turnover up to ₹100 crore.
- Medium Enterprise: Investment up to ₹125 crore and turnover up to ₹500 crore.
About MSME Development (Amendment) Bill, 2026
- The bill repeals and replaces the MSME Development Act, 2006. Its primary objectives are to solve working capital issues, improve liquidity, speed up payment dispute resolutions, and ease business compliance for MSMEs.
Key Provisions of the Bill
- Replacement of Existing Law: Repeals and replaces the MSME Development Act, 2006.
- Revised MSME Classification: Empowers the Central Government to classify enterprises as Micro, Small and Medium Enterprises (MSMEs) based on:
- Investment in plants and machinery or equipment.
- Annual turnover.
- National Digital Platform: Provides for the notification of a National Digital Platform for the free and voluntary registration of MSMEs.
- Mandatory TReDS for CPSEs: Mandates all Central Public Sector Enterprises (CPSEs) to route invoice settlements for procurement from MSMEs through the Trade Receivables Discounting System (TReDS) to ensure timely payments and improve liquidity.
- Online Dispute Resolution: Empowers the Central Government to establish an online mediation and arbitration mechanism using audio-video and other electronic means.
- Time-bound Dispute Resolution: Prescribes timelines for MSME payment disputes:
- Mediation to be completed within 90 days.
- Arbitration award within 90 days after completion of pleadings.
- Arbitration to commence within 30 days after termination of mediation.
- Strengthening MSME Facilitation Councils: Mandates States to establish an adequate number of Micro and Small Enterprises Facilitation Councils (MSEFCs), provide infrastructure and manpower, and ensure regular meetings for timely disposal of cases.
- Enforcement of Awards: Makes mediated settlement agreements and arbitral awards recoverable as arrears of land revenue and recognises them as enforceable debts under the Insolvency and Bankruptcy Code, 2016.
About TReDS (Trade Receivables Discounting System)
- TReDS is an RBI-regulated electronic platform that facilitates the financing and discounting of trade receivables (invoices) of Micro, Small and Medium Enterprises (MSMEs) through multiple financiers.
- Objective: To provide timely liquidity to MSMEs by enabling them to convert unpaid invoices into immediate working capital at competitive rates.
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- Mandatory Pre-deposit for Appeals: Requires buyers challenging an award or mediated settlement to deposit 75% of the awarded amount before the court entertains the application.
- Compliance and Reporting: Requires notified public entities to disclose details of invoices routed and settled through TReDS.
- Penalty Framework: Replaces criminal penalties with a graded system for furnishing false information, non-compliance with reporting obligations, and other violations, along with an adjudication and appeal mechanism.
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Government’s Rationale
- Addressing Liquidity Constraints: Seeks to resolve delayed payments and improve liquidity for MSMEs.
- Promoting Digital Governance: Encourages digital registration, greater transparency, and improved access to government support.
- Balancing Stakeholder Interests: Aims to safeguard the interests of MSMEs, buyers, and other stakeholders while strengthening the business ecosystem.
4 Aug 2026
