The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 is an Act of the Parliament of India, enacted to facilitate the promotion, development, and enhancement of the competitiveness of Micro, Small, and Medium Enterprises (MSMEs). The Act came into effect in October 2006. Its origin lies in the need to provide a single, comprehensive legal framework for the sector, following recommendations by committees like the Abid Hussain Committee. The problem it solved was freeing these enterprises from a "plethora of laws and regulations" and facilitating their natural growth from small to medium-sized businesses.
The Act works by classifying enterprises into Micro, Small, and Medium categories based on investment in plant and machinery or equipment and turnover. A key mechanism is the establishment of the National Board for Micro, Small and Medium Enterprise to oversee the sector's development. Crucially, the Act addresses the major challenge of delayed payments through Section 15, which mandates that buyers must pay MSME suppliers within the agreed terms or a maximum of 45 days. Failure to comply requires the buyer to pay interest at three times the Reserve Bank of India's bank rate, compounded monthly. The Act also provides for the establishment of Micro and Small Enterprises Facilitation Councils (MSEFCs) for dispute resolution.
The MSMED Act, 2006, connects to the Ministry of Micro, Small and Medium Enterprises and the Industries (Development and Regulation) Act, 1951, which previously governed some aspects of small-scale industries. A significant recent change is the introduction of the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026, in the Rajya Sabha on July 28, 2026. This Bill proposes to modernize the framework by making Udyam Registration voluntary for all MSMEs, introducing a free national digital registration platform, and mandating that Central Public Sector Enterprises (CPSEs) settle invoices from MSMEs through the Trade Receivables Discounting System (TReDS) to ensure faster liquidity. The core objective of promoting and protecting MSMEs remains the same, but the mechanisms are being updated to enhance ease of doing business and strengthen payment safeguards.