MSME Bill must address structural issues: The Micro, Small and Medium Enterprises Development (Amendment) Bill 2026 addresses a problem that has affected MSMEs for years. Delayed payments lock up working capital and force enterprises with weak balance sheets to finance their larger customers. Stronger Micro and Small Enterprises Facilitation Councils, faster dispute resolution and wider use of the Trade Receivables Discounting System could reduce that burden. Requiring Central Public Sector Enterprises to settle MSME invoices through TReDS should also improve payment discipline.
These provisions deserve support. Their reach, however, is limited by the conditions in which most small firms operate. An enterprise that struggles to obtain affordable credit, works from a poorly serviced industrial cluster or cannot afford professional help will not be transformed by a better mechanism for recovering unpaid invoices. The amendment deals with an important commercial problem. Much of the economic disadvantage facing MSMEs lies outside its scope.
READ | MSME procurement could drive next digital commerce boom
Smaller MSMEs may find enforcement difficult
The legal protections created by the amendment will not be equally accessible across the sector. A professionally managed manufacturer with accountants and legal advisers has far greater capacity to use TReDS, mediation or statutory dispute resolution than a micro enterprise employing a few workers.
Documentation and professional assistance cost money. That expense becomes harder to justify when the disputed invoice is small. Commercial dependence can be an even stronger deterrent. A supplier that receives most of its business from one purchaser may be reluctant to pursue a legal claim if doing so could jeopardise future orders.
The amendment should therefore be judged by more than the number of claims filed or cases disposed of. Payment behaviour among large buyers will provide a better indication of whether the law has changed conditions for small suppliers. A system that requires frequent litigation to secure payment will remain costly for the firms that need protection most.
TReDS needs evidence on who benefits
TReDS allows accepted invoices to be discounted so that suppliers receive cash before the buyer pays. For enterprises short of working capital, this can reduce dependence on bank borrowing while an invoice remains outstanding.
Its usefulness cannot be established from enrolment figures alone. Evaluation should show which enterprises actually discount invoices, how long buyers take to accept them and what financing cost suppliers bear. The distribution of users across firm size and states would show whether micro enterprises are participating on terms comparable with larger MSMEs.
READ | MSME productivity needs sequence before subsidy
The ASSOCHAM-EGROW report MSMEs Facing Challenges in Doing Business points to financing constraints that TReDS cannot resolve. Access to finance was identified as the largest challenge by 30 per cent of respondents. Among respondents reporting financing difficulties, 38 per cent cited lack of collateral while 30 per cent cited high interest rates.
Receivables financing can help a business awaiting payment from a customer. It cannot provide collateral to a firm seeking a bank loan or reduce an interest rate that makes an investment uneconomic. Credit policy therefore remains central to the MSME problem even if the amendment works as intended.
Poor infrastructure raises the cost of being small
The disadvantages become more visible inside industrial clusters. Many enterprises still work with inadequate roads, unreliable electricity, poor drainage or weak logistics. Testing laboratories and common production facilities are unavailable in several locations where small manufacturers operate.
Large companies can sometimes compensate for these failures from their own balance sheets. They can install captive power or establish internal testing facilities. A small manufacturer has fewer options and bears the additional cost in each unit it produces.
This affects firms competing with manufacturers in China, Vietnam, Korea and other production centres. A faster payment mechanism cannot compensate for expensive electricity or delays in moving goods. Cluster infrastructure should therefore receive the same policy attention as finance and payment protection.
Regulatory change can impose heavy adjustment costs
The steel re-rolling industry in Mandi Gobindgarh, Punjab, shows how regulatory policy can affect the viability of a cluster. Restrictions on coal and the move towards piped natural gas have raised concerns among rolling mills about higher energy costs.
Environmental standards require firms to change production practices when existing technologies impose unacceptable costs on health or the environment. The financial burden of that adjustment, however, falls heavily on smaller units when new equipment is expensive and operating costs rise at the same time.
Some firms may need transitional finance or access to common facilities while making the change. Technology assistance can also reduce the cost of replacing older processes. Without such support, regulation can weaken enterprises that do not have enough capital to finance the transition from internal resources.
MSME policy therefore has to consider the cost of producing a good before dealing with the terms on which the finished product is paid for.
National policy cannot substitute for cluster diagnosis
The ASSOCHAM-EGROW study also shows why national averages reveal only part of the MSME problem. A textile manufacturer in Tirupur works under conditions different from those facing a steel unit in Mandi Gobindgarh. An engineering enterprise in Rajkot will have different technology requirements from a leather producer in Kanpur.
Energy costs, labour availability and local infrastructure vary across these locations. Environmental rules and access to markets can differ as well. A national programme designed around an average MSME can therefore miss the constraint preventing investment in a particular cluster.
State and cluster studies can identify those constraints more accurately. They can also expose failures that originate below the level of the Union government. Central legislation cannot repair a municipal road, guarantee reliable local power supply or ensure predictable enforcement by a state agency.
MSME policy has concentrated too heavily on survival
Credit guarantees, subsidies and payment protection help firms survive periods of financial stress. Yet an enterprise that remains small because it cannot improve its products or adopt better technology will continue to face weak productivity and limited markets.
READ | MSME financing must move beyond collaterals
Most small firms cannot maintain their own research laboratories or product-development teams. International certification and technology acquisition can also be too expensive for an individual enterprise. Universities, engineering colleges and public research institutions could reduce these costs by working more closely with industrial clusters.
Common technology facilities could help firms test products, improve production processes and meet export standards. Public support would then assist enterprises in raising productivity rather than merely compensating them for the disadvantages of remaining small.
The proposal for an MSME University, or an equivalent specialised institution, in every state deserves examination from this perspective. Such an institution should be judged by its effect on enterprises rather than by the number of students enrolled. Useful measures would include firms that adopt transferred technologies, workers whose skills improve and products that reach commercial markets. It could also produce the state and cluster research needed for better policy design.
India’s jobs problem raises the stakes for MSME Bill
About one crore young people enter India’s working-age population every year. Government employment cannot absorb them, while large corporations employ only a fraction of the labour force. Agriculture already carries more workers than its share of national output would warrant.
MSMEs have a wide geographical presence and generally require less capital per unit of employment than large industrial projects. Their capacity to expand therefore affects how many productive jobs India can create outside agriculture.
The Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026 should improve one part of the business environment by strengthening payment discipline. The next set of reforms has to deal with the conditions that prevent viable small firms from investing and growing. Affordable finance, functioning industrial clusters and support for technological upgrading will determine whether more MSMEs can move from fragile survival to sustained expansion.