Lucknow: Parliament has approved the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026, marking a significant step towards making the business environment for India’s MSME sector simpler, more transparent and more conducive to growth.
The Lok Sabha passed the Bill on August 7, 2026, after the Rajya Sabha approved it on August 3. The amendments seek to modernise the MSME Development Act, 2006, nearly two decades after its introduction, in response to technological advances, expanding digital systems and the rapid transformation of the MSME ecosystem.
According to government data cited in the announcement, the number of MSMEs registered on the Udyam portal has increased sharply from 1.65 crore on April 1, 2023, to more than 9.16 crore currently. The sector provides employment to more than 400 million people and remains a crucial pillar of the Indian economy.
Changes to MSME Classification
One of the key changes is the incorporation into law of the dual criteria of investment in plant and machinery and annual turnover for MSME classification.
The Udyam Registration Portal has also been given permanent statutory recognition as a digital, free and voluntary registration platform. The move is expected to strengthen the formalisation of businesses and simplify access to government schemes and other institutional benefits.
Faster Resolution of Payment Disputes
The amendments seek to strengthen mechanisms for resolving payment-related disputes involving MSME suppliers.
The framework provides for greater use of online dispute resolution. In cases where an application seeking to set aside an arbitration award remains pending for more than six months, the court will be required to direct payment of at least 50 per cent of the amount awarded in favour of the MSME supplier, subject to the applicable provisions.
The process is also intended to be completed within 90 days from the date of the first appearance, helping reduce prolonged litigation and improve cash flow for small businesses.
Stronger Recovery Mechanism
The amended framework strengthens provisions for recovering dues owed to MSMEs.
Outstanding amounts can be recovered through the District Collector, Deputy Commissioner or another notified authority in the same manner as recovery of land revenue. The provision is aimed at strengthening the ability of MSMEs to recover legitimate dues and address one of the sector’s persistent challenges—delayed payments.
Push for Digital Payments in Government Procurement
The amendments also promote the use of the Trade Receivables Discounting System (TReDS) for settling invoices relating to goods and services procured by Central Public Sector Enterprises from MSMEs.
According to the government, the value of invoices processed through TReDS increased from around ₹40,000 crore in 2022-23 to ₹3.47 lakh crore in 2025-26.
Greater use of the platform could help MSMEs convert receivables into working capital more quickly, reducing pressure caused by delayed payments.
Greater Role for States
The amendments give states greater flexibility to establish more than one MSME Facilitation Council within their jurisdictions.
The move is expected to facilitate faster resolution of disputes at the local level and improve access to institutional mechanisms for MSMEs located across different regions.
Decriminalisation of Certain Provisions
Another important feature is the reduction of criminal penalties for certain violations.
Some provisions will replace conviction and fines with civil penalties and a graded warning mechanism. For violations relating to registration or furnishing information, the framework provides for a warning for the first violation, a penalty for the second and fines for subsequent violations.
The government has linked the reforms to its broader Viksit Bharat@2047 vision, stressing that a strong, vibrant and sustainable MSME sector will be critical to India’s long-term economic growth.
The amendments are expected to improve ease of doing business, strengthen payment discipline, expand digital integration and provide MSMEs with more effective mechanisms for resolving disputes and recovering dues.
With millions of enterprises and hundreds of millions of workers dependent on the sector, the government sees the legislative changes as an important step towards creating a more resilient and competitive MSME ecosystem.
