Why in the News?
The Rajya Sabha passed the Micro, Small and Medium Enterprises (MSME) Development (Amendment) Bill, 2026, replacing the MSME Development Act, 2006. It aims to improve formalisation and liquidity by introducing a digital registration platform and mandatory invoice settlement through Trade Receivables Discounting System (TReDS).
Key Provisions
- National Digital Registration: Free, voluntary online registration for MSMEs.
- Mandatory TReDS: Central Public Sector Enterprises (CPSEs) must settle MSME invoices through the Trade Receivables Discounting System (TReDS).
- Updated Framework: Replaces the 2006 Act governing MSME classification, credit and delayed payments.
- Objective: Improve timely payments while balancing business interests.
What is TReDS?
- Trade Receivables Discounting System (TReDS) is a Reserve Bank of India (RBI) regulated electronic platform where MSMEs sell approved invoices to financiers for immediate cash.
- Process: MSME uploads invoice → financiers bid → MSME gets upfront payment → buyer pays financier on the due date.
Why is the Amendment Needed?
- Delayed payments reduce MSME working capital.
- Easier registration promotes formalisation and access to credit.
- Institutional credit has grown, but access remains uneven.
Importance of MSMEs
- Contribute 31% of Gross Domestic Product (GDP).
- Account for 36% of manufacturing output.
- Contribute 41% of exports.
- Second largest employer after agriculture.
Challenges
- Voluntary registration may exclude many firms.
- TReDS mandate covers only CPSEs.
- Smaller firms may struggle to attract financiers.
- Weak enforcement and digital literacy remain concerns.
MSME Classification
- Micro: Investment ≤ ₹2.5 crore; Turnover ≤ ₹10 crore
- Small: Investment ≤ ₹25 crore; Turnover ≤ ₹100 crore
- Medium: Investment ≤ ₹125 crore; Turnover ≤ ₹500 crore
Key Initiatives
- Udyam Registration Portal
- MSME Samadhaan
- Trade Receivables Discounting System (TReDS)
- Priority Sector Lending (PSL)
“[2023] Consider the following statements with reference to India:
1. According to the ‘Micro, Small and Medium Enterprises Development (MSMED) Act, 2006’, the ‘medium enterprises’ are those with investments in plant and machinery between Rs. 15 crore and Rs. 25 crore.
2. All bank loans to the Micro, Small and Medium Enterprises qualify under the priority sector.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2.