The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 is an Act of the Parliament of India, which came into effect in October 2006. Its origin lies in the recommendations of the Abid Hussain Committee and the S.P. Gupta study group, which sought a single, comprehensive legal framework to free small enterprises from a "plethora of laws and regulations". The Act's primary objective is to facilitate the promotion, development, and enhanced competitiveness of Micro, Small, and Medium Enterprises (MSMEs).
The Act works by providing the first-ever legal framework that recognizes the concept of "enterprise," encompassing both manufacturing and service entities, and integrates the three tiers: micro, small, and medium. A key provision is the classification of MSMEs based on investment in plant and machinery or equipment, and turnover. It also mandates the establishment of the National Board for Micro, Small and Medium Enterprise to review policies and make recommendations. Crucially, the Act includes provisions to address delayed payments, making a buyer liable to pay monthly compounded interest at three times the bank rates to MSME suppliers if payment is not made within the agreed terms or a maximum of 45 days.
The Act connects to the Ministry of Micro, Small and Medium Enterprises (M/o MSME), which was formed in May 2007 by merging the erstwhile Ministries of Small Scale Industries and Agro and Rural Industries. It also connects to the Udyam Registration platform, which is the current system for MSME registration. The Act has changed recently with the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026, which was passed by Parliament in August 2026. This amendment seeks to simplify compliance, make Udyam Registration voluntary for all MSMEs, and make settlement through the Trade Receivables Discounting System (TReDS) mandatory for Central Public Sector Enterprises (CPSEs). Furthermore, the amendment replaces the earlier penalty for not reporting unpaid dues with a graded civil penalty framework. The core objective of promoting MSME growth and competitiveness remains the same.