Chasing dues could get easier for small businesses under new rules, MSME Secy Bharat Khera explains

With the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026, the government is looking to address long-standing challenges of smaller businesses, such as delayed payments, working-capital constraints, access to finance, regulatory compliance, and the need for enterprises to scale up.

In an exclusive interview with The Economic Times Digital, Union MSME Secretary Bharat Khera discussed the implications of the MSMED Amendment Bill, the government’s efforts to strengthen the Trade Receivables Discounting System (TReDS), and resolve delayed-payment disputes, as well as the ministry’s priorities to make Indian MSMEs more competitive globally. Khera also said the ministry is continuously engaging with industry associations to encourage larger companies to become more disciplined and responsible in making timely payments to MSMEs.

Khera said the amendments to the MSMED Act, originally enacted in 2006, introduce “sweeping changes”, which could have a major and transformational impact on the sector. According to Khera, one of the key changes is the statutory recognition of the formalisation mechanism introduced through the Udyam portal in 2020.


The number of enterprises in the formal ecosystem has increased from around 16.5 million three to four years ago to 92 million currently, he said. The amendment also formally recognises the composite criteria of investment and turnover for classifying enterprises as micro, small and medium.

The limits were enhanced in 2025, with investment thresholds increased 2.5 times and turnover thresholds doubled. As a result, an enterprise with an investment of up to Rs 125 crore and turnover of up to Rs 500 crore falls within the MSME definition, Khera said.

Another major reform is the inclusion of TReDS in the statutory framework. “TReDS goes a long way towards ensuring easy liquidity and timely payments to the MSMEs,” Khera said, adding that the platform has made invoice discounting possible and has emerged as a success story.

The MSME sector contributes 31.1% to the country’s gross domestic product (GDP), 35.4% to manufacturing output, and 48.58% to India’s total exports, according to the Economic Survey 2025-26. Government data shows that India has more than 91.6 million registered MSMEs as of August 2026, employing more than 400 million people.

TReDS settlement rises to Rs 3.5 lakh crore

Khera said the value of invoices settled through TReDS has increased sharply, from around Rs 40,000 crore in 2021-22 to Rs 3.5 lakh crore in 2025-26. The number of users has also risen to around 2.5 lakh, he said.

Under the amended framework, all central public sector enterprises (CPSEs) will have to onboard onto TReDS and settle invoices related to procurement from MSMEs through the platform.

Khera said the move would help ease payment cycles for small businesses.

For an MSME, timely cash flow is critical because payments received from one order are often used to purchase raw materials and finance production for subsequent orders.

“The liquidity crunch is something that acts as the biggest challenge for any small enterprise,” he said.

With invoice discounting, financial institutions can arrange payment much earlier than the stipulated 45-day payment period, allowing MSMEs to access working capital while buyers and financiers also benefit.

Khera said the government is also working to raise greater awareness among MSMEs and provide handholding through ministry field offices. The Reserve Bank of India (RBI), he added, has also been working to popularise TReDS among small businesses.

TReDS has so far unblocked more than Rs 7 lakh crore in liquidity.

Additional MSME facilitation councils to tackle payment disputes

Delayed payments have also been addressed through changes to the dispute-resolution framework.

Khera said there are currently 161 MSME facilitation councils across the country. Some states, however, have faced large caseloads, resulting in an accumulation of cases. The amended law will allow states to establish additional facilitation councils where required, helping speed up disposal of cases.

The government has also introduced an online dispute resolution mechanism, under which buyers, sellers, mediation agencies, and arbitration agencies can participate.

The new framework provides defined timelines for dispute resolution. Khera said the mediation process would have a stringent timeline, with matters moving towards arbitration if mediation is not successful within the specified period.

The government has also created scope for buyers and sellers to negotiate before a dispute formally reaches the facilitation council.

50% of awarded amount after six-month appeal period

One of the significant provisions relates to appeals against arbitral awards. Khera said that if an appeal remains pending for more than six months, 50% of the awarded amount would be payable to the MSME seller by order of the court.

He said technology would play an important role in ensuring that these provisions are implemented effectively, as the various stages of the process are logged and monitored digitally.

The MSME Samadhan portal, he added, provides the government with updated information on dues and will support monitoring of the dispute-resolution process.

The amendment also provides for the recovery of dues as an arrear of land revenue, allowing state authorities, such as deputy commissioners or district collectors, to recover the amount.

“These steps are targeted at making sure that there is a faster adjudication of disputes and the payments are released before they take the form of a formal dispute,” Khera said.

Government to nudge large companies on timely payments

On concerns that large companies may use litigation to delay payments to MSMEs, Khera said MSMEs are an important part of global value chains, particularly as Tier II and Tier III suppliers.

He said large industrial companies also have an interest in ensuring that their vendors maintain healthy cash flows, because disruptions among suppliers can affect their own production.

The ministry, he said, is engaging with industry associations to encourage larger companies to become more disciplined and responsible in releasing payments to MSMEs on time.

Rather than imposing additional compliance requirements on private industry, the government is relying on what Khera described as a “soft nudge.”

The amended framework excludes certain investments, including those related to pollution-control equipment, R&D, and industrial safety devices, from the calculation of investments for MSME classification.

Khera said the change serves two purposes: encouraging enterprises to invest in these areas and ensuring that the classification reflects the core investment in plant and machinery contributing to production.

He also highlighted the government’s use of technology to simplify classification. The Udyam portal is integrated through APIs with the GST and income-tax systems, allowing investment and turnover figures to be obtained from these databases.

Government wants MSMEs to scale up

Khera acknowledged concerns that MSMEs may deliberately remain small to continue receiving benefits.

He said the decision in 2025 to raise the investment and turnover thresholds aimed at partly addressing this issue. The government’s focus now, he said, is to encourage enterprises to scale up, improve quality, reduce costs, and become globally competitive.

“Today, the majority of our enterprises are actually micro enterprises,” Khera said, adding that the government would periodically review classification limits to ensure enterprises are able to grow.

He said improving cost competitiveness, quality production, and access to newer markets would be central to helping MSMEs move up the value chain.

Greater policy support for micro and small enterprises

On concerns that medium enterprises sometimes feel left out within the broader MSME category, Khera said government policy naturally gives greater support to micro and small enterprises because they face greater constraints.

However, he stressed that medium enterprises remain part of the ecosystem and have access to dedicated government initiatives.

He cited the Self-Reliant India Fund and the SME Growth Fund as examples of initiatives that can support larger enterprises and provide opportunities for equity infusion and growth.

The broader objective, he said, is to ensure that enterprises can graduate from smaller to larger businesses.

Shift towards trust-based compliance

Khera said the decriminalisation provisions in the amended law are part of the government’s broader move towards trust-based governance.

Earlier, three offences under the Act carried conviction-based fines that had to be decided by the courts. These have now been replaced with graded penalties.

The framework provides for a warning for a first instance where the violation may have resulted from a procedural lapse rather than deliberate wrongdoing. Subsequent violations can attract administrative penalties without requiring court intervention.

The objective, Khera said, is to reduce compliance burdens while maintaining an effective regulatory framework.

MSME credit rises from Rs 10 lakh crore to Rs 38 lakh crore

Khera said access to credit, which was once a major constraint for MSMEs, has improved significantly in recent years.

According to him, credit to the sector has increased from around Rs 10 lakh crore in 2014 to Rs 38 lakh crore currently.

He attributed the increase partly to government-backed credit guarantees and the greater formalisation of enterprises.

As enterprises increasingly enter the formal ecosystem, they become better positioned to access government schemes and financial facilities.

Khera said the government’s next objective is for every new enterprise to automatically become part of the formal MSME ecosystem so that it can access the available benefits.

Global competitiveness is the next priority

Looking ahead, Khera said the ministry’s focus is shifting from formalisation and credit access to global competitiveness, with the aim of integrating Indian MSMEs deeper into global value chains.

He identified three priorities: quality and standardisation, sustainable and cost-efficient manufacturing, and innovation and technology adoption. The MSME Champion scheme will play a key role in this transition, alongside efforts to promote conformity to standards, lean manufacturing, waste reduction and cost optimisation.

“Technology is no more just an enabler,” Khera said, stressing that MSMEs must adopt the latest technologies, including artificial intelligence (AI), to remain competitive. Innovation, he added, will be increasingly critical for businesses seeking to compete in global markets.