MSMEs may get their payments faster as new bill aims to cut delays

Published 28 July 2026 · local

New Delhi: Smaller businesses struggling with delayed payments have reason for hope, with a new bill aiming to reduce delays and speed up dispute resolution

New Delhi: Smaller businesses struggling with delayed payments have reason for hope, with a new bill aiming to reduce delays and speed up dispute resolution. The Centre on Tuesday introduced the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026, which also proposes to remove minor penalties for MSMEs. Mint reported on 23 June that the ministry was planning to amend the MSME Development Act 2006 in the monsoon session of the parliament, with changes geared towards better dispute resolution and removal of minor penalties. “The original MSME Development Act was made in 2006. That is why there is a need to make additions and improvements to the law,” Union MSME minister Jitan Ram Manjhi said while presenting the bill in the Rajya Sabha.

The law will mandate government procurers from MSMEs to only pay them through certified Trade Receivables Discounting System (TReDS), and allow states to ensure a similar system for state government entities, according to the statement of objectives of the proposed law. Ministry mandates The MSME ministry on 10 July mandated all central public sector undertakings (PSUs) to clear MSME invoices only on TReDS platforms. There are five TReDS platforms approved by the RBI: RXIL, M1xchange, Invoicemart, C2treds and DTX. The shift towards increasing the use of TReDS platforms follows finance minister Nirmala Sitharaman’s FY27 budget announcement, which approved the use of these receivables as asset-backed securities, a long-awaited demand from the MSME sector, which contributes to 31.1% to India’s GDP and 48% of the exports.

In a bid to assist more MSMEs in addressing grievances, the proposed law also allows state governments to set up more micro and small enterprises facilitation councils (MSEFCs). As per the procedure in the MSME Development Act, 2006, an MSME which is facing delayed payments must raise a complaint with an MSEFC set up by the state government. The MSEFC can then authenticate the complaint and direct parties to resolve the dispute using out-of-court settlement methods such as arbitration and mediation. Timelines prescribed Tuesday's bill also prescribed timelines to ensure faster adjudication of delayed payment disputes of micro and small enterprises. According to the MSME Samadhaan portal, over 103,000 payment-related complaints involving claims of over ₹29,000 crore have been filed since 2017.

This assumes significance given that India's 87 million registered MSMEs contribute about 30.1% to India’s GDP and account for 35.4% of manufacturing output and nearly 45% of India’s trade. These councils were established in 2017 in state capitals and other metropolitan regions under the MSME Development (MSMED) Act, 2006. There were 161 MSEFCs in the country as of March 2025.