Delayed payments to MSMEs undermine the ease of doing business. Critically evaluate the adequacy of statutory (MSMED Act) and institutional (TReDS) mechanisms in addressing this.

Q. Delayed payments to MSMEs undermine the ease of doing business. Critically evaluate the adequacy of statutory (MSMED Act) and institutional (TReDS) mechanisms in addressing this. (15 marks, 250 words)

Delayed receivables lock up the working capital of India's 8.70 crore Udyam-registered MSMEs, which employ nearly 38 crore persons [1]. India has adopted a twin approach — a statutory payment guarantee under the MSMED Act, 2006 and an institutional settlement route via the TReDS platform — yet gaps in both persist.

Statutory mechanism (MSMED Act, 2006) — strengths and limits - Mandates buyers to clear MSME dues within 45 days, with compounded interest on default [4]. - Backed by MSE Facilitation Councils for dispute resolution. - Weakness: enforcement is litigation-heavy and slow; fearing loss of future orders, small suppliers rarely invoke it, blunting deterrence.

Institutional mechanism (TReDS) — strengths and limits - RBI-authorised electronic platform enabling collateral-free, without-recourse invoice discounting through competitive bidding by multiple financiers [1][2]. - Discounting volumes surged from ₹40,000 crore (FY22) to ₹3.47 lakh crore (FY26) [1]. - Weakness: adoption stayed uneven — mandatory onboarding since 2018 covered only buyers above ₹500 crore turnover [4], leaving many buyers outside.

Recent corrective - The 30 June 2026 notification makes TReDS settlement compulsory for all CPSEs, adding auditor certification and disclosure duties — closing the turnover loophole for the public sector [1].

Together, the Act supplies the legal obligation and TReDS the enforcement channel; each covers the other's blind spot. Extending mandatory TReDS to private corporates (threshold proposed at ₹250 crore [3]) and faster Council disposal would fully operationalise the goal of timely payment, strengthening ease of doing business and the Aatmanirbhar MSME vision.

(~250 words)

Sources: 1. Government Mandates TReDS for Settlement of All MSME Invoices by CPSEs (PIB, 10 July 2026) — CPSE mandate, TReDS features, discounting-volume and Udyam data 2. TReDS FAQ — Reserve Bank of India — MSME-only sellers, without-recourse financing 3. Union Budget 2026–27: Building Champion MSMEs (PIB) — proposed ₹250 crore onboarding threshold 4. Dues of MSMEs: Ministry of MSME efforts (PIB) — 45-day payment rule, 2018 ₹500 crore mandatory-onboarding threshold