NEW DELHI: The Indian government plans to include the service sector in a scheme earlier meant to make small manufacturing companies globally competitive and help them get easier access to capital, a top official said.
Work on the proposed inclusion of the service sector in the Zero Defect Zero Effect (ZED) scheme comes in the backdrop of the passage of the Micro, Small, and Medium Enterprises Development (Amendment) Bill in Parliament this month.
Discussions are underway with the Quality Council of India (QCI), which implements the ZED scheme, and the National Productivity Council to determine the quality parameters for services to be included in the scheme, MSME secretary Bharat Khera said in an interview.
“We have a vision now to bring in services also into this (ZED scheme) … There are certain service sectors also in which quality can be evaluated and assessed. For example, healthcare and hospitality… These are again service sector enterprises in which there could be parameters for quality,” said Khera.
The amendments passed by parliament seek to reduce payment-related constraints, make dispute resolution time-bound and simplify compliance. The broader objective is to facilitate the growth and competitiveness of MSMEs while promoting the ease of doing business.
Service sector MSMEs account for 38% of the 92 million small businesses in the country, according to ministry data. Manufacturing MSMEs make up 20% and trading MSMEs account for 42%. Registered MSMEs contribute about 30% to India’s gross domestic product, 35.4% of manufacturing output and over 48% of India’s exports.
From April to December, 281,391 MSMEs were ZED-certified, according to the ministry’s FY26 annual report.
The ZED scheme provides 80% subsidy on the certification cost for micro enterprises, 60% for small enterprises and 50% for medium enterprises. It funds technology upgrades and product testing to ensure quality compliance.
Subsidy for women
The government also offers handholding and consultancy services and supports technology upgrades for pollution control and cleaner production. There is an additional 10% subsidy for units owned by women and Scheduled Caste/Scheduled Tribe entrepreneurs.
ZED-certified MSMEs get subsidized stalls and airfares for participating in overseas businesses exhibitions and fairs.
“There are much more parameters required to be fulfilled, but if the MSMEs have to become part of global value chains, they have to look at conformity to quality,” Khera said.
The ZED scheme does not have a direct budgetary allocation. It is part of the MSME Champions Scheme implemented by the ministry and also receives funds under the World Bank-backed Raising and Accelerating MSME Performance (RAMP) scheme. The MSME Champions Scheme includes incentives for generating intellectual property rights and building competitiveness.
According to the ZED portal, the central government has spent ₹964.19 crore since 2022, when the scheme started. The Centre spent ₹241.24 crore under the ZED scheme in FY25, up from ₹192.79 crore in the previous fiscal, according to an MSME ministry statement to the Lok Sabha on 3 April 2025, the latest publicly available record.
The government’s focus on the MSME sector will be on continuing the formalization of smaller businesses and improving their access to capital. It aims to make Indian MSMEs more competitive globally by ensuring quality compliance to boost exports and push more businesses to become part of global value chains, said Khera.
Speaking about global disruptions that India’s MSMEs have faced over the past few years, including the covid-19 pandemic, harsh tariffs on exports and conflict-led supply chain breakdowns, Khera said Indian MSMEs are resilient and should leverage free trade agreements with multiple nations to build market access to weather high tariffs.
In 2025, Indian MSMEs faced the brunt of steep tariffs of as much as 50% on Indian goods exported to the US, prompting Indian businesses to consider diversifying to newer markets.
Credit line
Khera added that the government rolled out the Emergency Credit Line Guarantee Scheme (ECLGS 5.0) in May in light of rising commodity and energy costs for Indian businesses due to the West Asia war to largely support MSMEs.
Khera said that while MSMEs contribute to almost 50% of India’s exports, the number of export units in the sector is still very small and needs to widen.
According to Khera, the amendments passed by parliament in the July-August monsoon session are aimed at creating a trust-based system that does not penalize businesses. Penalties have been replaced by warnings to be given in the first instance of wrongdoing.
Reforms related to Trade Receivables Discounting System (TReDS) platforms in the 2026 amendments will help resolve liquidity issues for many businesses, Khera said, and strict dispute resolution timelines would allow MSMEs to access at least a part of their dues to keep operations going.
Mint reported earlier that stricter dispute resolution timelines would help MSMEs to resolve delayed payments from suppliers quickly, a ₹8 trillion problem, according to the FY26 Economic Survey.
The government in June made it compulsory for central public sector enterprises to pay their MSME suppliers through Reserve Bank of India-approved TReDS platforms, strengthening efforts to curb chronic payment delays and improve access to working capital for small businesses, giving effect to a proposal in the Union Budget for 2026-27.
These reforms were then included in the 2026 amendments, which allowed state government-run companies to be onboarded onto TReDS platforms for payments, Mint reported earlier.
While some reforms in the 2026 amendment were notified before the bill was tabled, Khera said legislative backing for them provides much-needed policy stability to the sector.