MSME Bill Does Not Address All Challenges Of The Sector
While the Trade Receivables Discounting System (TReDS) facilitates financing, it is not a regulatory mechanism. The MSME Act creates a legal obligation for buyers to pay within 45 days and imposes penal interest on delays
Chennai: The MSME Development Amendment Bill being presented in Parliament is trying to address just a few challenges faced by MSMEs, such as delayed payments, dispute resolution and easing some of the compliance burden. While the Bill attempts to tackle these issues, it fails to address several other key structural challenges, and implementation remains a major concern, says Anil Bharadwaj, Secretary General of the Federation of Indian Micro and Small & Medium Enterprises (FISME).
According to Bharadwaj, the MSME sector continues to grapple with four major challenges—delayed payments, lack of affordable finance, rising compliance burden and inadequate technology adoption. While delayed payments remain the most pressing issue, smaller enterprises also struggle to secure affordable credit. Compliance requirements under GST, labour laws and environmental regulations have increased significantly, while many MSMEs lack the financial capacity to upgrade technology, affecting their competitiveness against cheaper imports.
The Bill's focus on delayed payments is a step forward but not a complete solution, he says. While the Trade Receivables Discounting System (TReDS) facilitates financing, it is not a regulatory mechanism. The MSME Act creates a legal obligation for buyers to pay within 45 days and imposes penal interest on delays. The amendments also introduce Online Dispute Resolution (ODR), which is expected to make dispute settlement faster by digitising hearings. However, Bharadwaj cautions that implementation remains the bigger challenge. Even when MSME Facilitation Councils pass orders in favour of enterprises, enforcement often remains weak.
On compliance, the amendments provide only limited relief. While the Bill gives statutory backing to the Udyam portal, simplifies data sharing and reduces penalties for procedural lapses, the larger compliance burden stems from GST, labour, environmental and tax laws, which remain outside the scope of the MSME Act.
Access to finance continues to be another major concern despite schemes such as CGTMSE. Bharadwaj says banks continue to insist on physical collateral because loan recovery remains a lengthy legal process. This disproportionately affects women entrepreneurs, many of whom do not own assets that can be pledged as collateral. He argues that stronger credit guarantee mechanisms are needed to encourage collateral-free lending.
He also calls for insolvency reforms tailored to proprietorships and partnerships, which account for nearly 97 per cent of MSMEs but fall outside the Insolvency and Bankruptcy Code. A dedicated framework, he says, would allow entrepreneurs to recover from business failure and restart.
Bharadwaj also advocates a permanent emergency credit framework, noting that the pandemic-era collateral-free loan scheme helped prevent a sharp rise in bad loans and provided crucial liquidity to businesses during the crisis.
On technology, he argues that MSME competitiveness can improve only through cluster-based technology upgradation involving industry, IITs, CSIR laboratories and machinery manufacturers. He has also called for a National Technology Mission for MSMEs.
While India has a significant opportunity to benefit from the China Plus One strategy, Bharadwaj believes policy support has to extend beyond large corporations. PLI-like incentives should also reach MSMEs, particularly medium-sized enterprises that are better positioned to become part of global value chains. However, India has only around 25,000 medium enterprises among nearly eight crore MSMEs, far too few for a country aspiring to become a global manufacturing hub.
