The passing of the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026, by both Houses of Parliament marks an important step in bringing India’s legal framework for such enterprises in line with the rapidly evolving ecosystem of such businesses.
Over the past two decades since the original Act, millions of enterprises have entered the formal economy.
Micro, small and medium enterprises (MSMEs) have become a significant contributor to national growth, exports and employment generation.
The amendment seeks to make the MSME ecosystem more responsive and trust based. It makes registration simpler, classification flexible, access to credit and timely payments easier, digitizes and speeds up dispute resolution and makes compliance less cumbersome.
The amendment provides for a national digital platform for free and voluntary registration of enterprises. This will remove existing barriers and help the government deliver benefits more efficiently. Registration under the Act is an entitlement which an enterprise can claim, not an obligation.
The amendment also provides a clear framework for the classification of enterprises on the basis of composite criteria of investment in plant and machinery or equipment and turnover. It allows the classification framework to respond more quickly to changes in technology, costs, markets and business models and empowers the Centre to prescribe limits by notification.
For most MSMEs, a pressing concern is regular cash flow. An unpaid invoice for a small enterprise has an overarching impact on processes such as the timely payment of salaries to employees, purchase of raw materials and acceptance of the next order. Hence, delayed payments can severely constrain an enterprise’s ability to operate and grow.
This amendment has addressed this in three steps—prevent, resolve and enforce.
Prevention: Transparency has been introduced by mandating the settlement and disclosure of invoices related to MSMEs through the Trade Receivables electronic Discounting System (TReDS) for Central Public Sector Enterprises. State governments may extend the same requirement to State Public Sector Enterprises.
As an RBI-regulated digital platform, TReDS enables an accepted invoice to be financed by banks and other financiers. It allows the supplier to receive payment upfront, while the buyer settles with the bank or financier on the due date. A receivable becomes a source of liquidity for the supplier, giving the enterprise greater flexibility to manage operations, pay its bills and pursue growth.
Resolution: The dispute-resolution framework of the Act has been strengthened. It enables state governments to establish additional Micro and Small Enterprises Facilitation Councils for mediation and arbitration.
It also prescribes timelines for mediation and arbitration and provides statutory recognition to online dispute resolution. This will lead to faster disposal of cases and create a system whereby an enterprise can pursue a legitimate claim with certainty about the process and timelines.
Enforcement: Awards by Facilitation Councils can be recovered as arrears of land revenue. A buyer wishing to challenge an award must deposit 75% of the amount in court and if that challenge remains pending for six months, the court can release half the awarded amount to the supplier out of that deposit. Thus, legitimate claims will not be denied by prolonged litigation and time spent in court would no longer be only in the buyer’s favour.
The amendment also reflects a shift towards a more balanced and trust-based approach to compliance for enterprises. A minor contravention now leads to a warning in the first instance, with graded monetary penalties only if it recurs.
By making compliance more predictable and less cumbersome, the amendment enables enterprises to focus their energies on building and growing their business. This improves the ease of doing business and trust-based governance.
In conclusion, this amendment is a statement of confidence in MSMEs which will strengthen them to further innovate, create jobs, enter new markets and become more competitive. A stronger and more dynamic MSME sector will be a key driver for India’s Viksit Bharat goal.
The author is India’s minister for micro, small and medium enterprises.