Centre eyes TReDS extension to defence procurement to ease MSME payments

Government is exploring extending TReDS to defence procurement to improve MSME liquidity, address delayed payments, and encourage greater participation in the sector

The Centre is examining ways to extend the Trade Receivables Discounting System (TReDS) framework to defence procurement supply chains. This could ease working capital constraints faced by micro, small and medium enterprises (MSMEs), according to three people aware of the matter.

 

The proposal was discussed at a meeting chaired by the Controller General of Defence Accounts (CGDA) earlier this week, with representatives from the MSME ministry, TReDS platforms and industry bodies in attendance.

 

The move aims to improve liquidity for MSMEs supplying to defence public sector undertakings (PSUs) and government units, where payment cycles are often prolonged due to layered approvals and strict compliance requirements, said the people.

 

For smaller firms with limited balance sheets, such delays cause working capital stress, constraining their ability to take on fresh orders or scale production.

 

Industry bodies said MSMEs are increasingly emerging as key suppliers in defence manufacturing, supported by the government’s push for indigenisation and domestic sourcing.

 

They added that extending TReDS to defence procurement could encourage more firms to enter the sector by improving payment visibility and easing working capital constraints.

 

MSMEs form a critical part of India’s defence manufacturing ecosystem, with around 16,000 such firms contributing to indigenous capabilities.

 

Domestic defence production has also surged to ₹1.27 trillion in 2023-24 from ₹464.3 billion in 2014-15, according to government data.

 

Emails sent to the CGDA, Department of Defence, Department of Military Affairs, Department of Defence Production and the MSME ministry did not elicit a response till going to press.

 

TReDS, launched by the Reserve Bank of India (RBI) in 2014, is an electronic platform that enables MSMEs to discount invoices raised on corporate buyers, government departments and PSUs, allowing them to access early payments from financiers.

 

While transaction volumes on TReDS have grown in recent years, participation by buyers — particularly in government-linked procurement — remains uneven, with onboarding and procedural requirements cited as key challenges.

 

“Defence contracts often involve long payment cycles, which have historically discouraged capable MSMEs from entering or scaling within this sector. By ensuring that every accepted invoice is routed through TReDS, MSMEs can unlock immediate liquidity. They can sustain production, invest in quality, and meet the rigorous demands of defence supply chains,” said Vinod Kumar, president at the India SME Forum.

 

The Centre has been actively encouraging greater MSME participation in defence procurement through initiatives such as reserved procurement quotas, simplified vendor registration norms and dedicated schemes under the defence production policy. However, industry bodies have flagged that access to timely finance remains a key bottleneck despite these measures.

 

The Ministry of Defence has procured over ₹17,540 crore worth of goods and services from micro and small enterprises in 2025-26. The bulk of the sourcing was undertaken by the Department of Defence Production, according to data from the MSME Sambandh portal.

 

Major defence public sector undertakings such as Hindustan Aeronautics and Bharat Electronics account for over half of these purchases.

 

The move comes amid mounting stress on MSMEs from the ongoing West Asia crisis, which has disrupted key maritime routes, pushed up fuel and petrochemical prices, and sharply increased freight and insurance costs, squeezing margins and delaying payments across export-oriented sectors.

 

“Equally important, it introduces transparency and financial discipline into the procurement process, giving MSMEs the confidence that timely payments are assured. TReDS, in this context, will not just be a financing mechanism, it can become a strategic enabler for building a resilient, self-reliant defence industrial base powered by Indian MSMEs,” added Kumar.

 

The development follows recent regulatory measures by the Reserve Bank of India (RBI) to streamline MSME access to TReDS platforms. The central bank has proposed simplifying onboarding norms, including the removal of certain due diligence requirements, to facilitate quicker participation by smaller firms and improve access to receivables financing. The changes form part of a broader effort to enhance the operational efficiency and reach of the TReDS framework since its introduction in 2014.

 

“We support this proposal and are seeking a simplified procedure for public procurement. This would help address liquidity constraints and ensure smoother payment realisation for MSMEs, while also improving ease of doing business,” said Om Prakash, general secretary at Laghu Udyog Bharati, an MSME industry body.