Examine the federal dimensions of MSME facilitation council reforms proposed in the 2026 Amendment Bill.

The Micro and Small Enterprises Facilitation Council (MSEFC) is a rare hybrid institution — created by a Central law (MSMED Act, 2006) but constituted and staffed by State governments [2]. The MSME Development (Amendment) Bill, 2026, passed by the Rajya Sabha on 3 August 2026, deepens this shared design by devolving council composition to States [1], making its federal balance central to its success.

Existing federal design

• MSMED Act, 2006 sets uniform national norms — payment within 45 days, compound interest at three times the RBI bank rate, disposal in 90 days [3][4].
• States constitute and run the Councils; the Centre only monitors outcomes through the MSME Samadhaan portal [2][4].
• Result: a single statutory promise delivered through 35+ varying State machineries — uniform right, uneven remedy.

What the Bill changes

• Gives States flexibility to decide MSEFC composition, enabling more Councils closer to enterprise clusters [1].
• Strengthens enforcement by empowering courts to release at least 50% of an award where a set-aside plea is pending beyond six months [1].
• Mandates CPSEs to settle MSME invoices on TReDS, an RBI-regulated platform [1].

Federal gains and frictions

• Gain — subsidiarity: composition decided locally lets industrially dense States create district-level Councils instead of one State-level bottleneck.
• Gain — cooperative federalism: Centre sets the entitlement, States design delivery; the Union acts as enabler, not administrator.
• Friction — asymmetric capacity: flexibility helps States with administrative depth; weaker States may see thin, irregular Councils, widening remedy gaps.
• Friction — centralised levers: MSME classification thresholds remain fixed by Central notification, and the TReDS mandate binds only CPSEs — State PSUs and private buyers stay outside [1].
• Friction — legislative scrutiny: the Bill passed by voice vote without Opposition participation, limiting deliberation on State-level feasibility [5].

Overall, the reform shifts MSEFCs from a uniform Central template toward genuine cooperative federalism, where the Union guarantees the right and States tailor its delivery. Going forward, capacity-building grants for lagging States, publication of Council-wise disposal data on Samadhaan, and voluntary extension of the TReDS mandate to State PSUs would convert this flexibility into equal justice for small enterprises — realising Article 39's promise of an economic order that does not disadvantage the weak.