Since its introduction in 2017, the Goods and Services Tax (GST) has profoundly transformed the Indian economic framework. Commonly referred to as a 'one nation, one tax' initiative, its primary objective was to remove the cascading effect of multiple indirect taxes and establish a unified national market. India is now entering a new phase known as GST 2.0, which is defined by efforts to rationalise tax rates, automate compliance mechanisms, and employ data-driven enforcement strategies. This transition places the micro, small, and medium enterprise (MSME) sector at a pivotal juncture. Although the overarching goal of a simplified tax system persists, the day-to-day realities of compliance obligations and liquidity constraints present considerable threats to the viability of smaller enterprises. GSTMSMEs form the backbone of India's economy, accounting for approximately 30% of the nation's GDP. Yet their continued operation frequently depends on narrow profit margins and fragile working capital cycles. GST 2.0 has given rise to what can be described as a liquidity paradox. Under the prevailing accrual-based framework, tax obligations crystallise at the moment an invoice is raised, rather than when payment is actually received. For MSMEs routinely subjected to delayed payments from larger corporate buyers—delays that can extend from 90 to 120 days—this creates a substantial cash flow shortfall. Small business owners are often compelled to take on expensive working capital borrowings simply to meet their GST payment deadlines, thereby depleting the financial reserves necessary for sustained operations. A further enduring obstacle for MSMEs is the phenomenon of the Inverted Duty Structure, whereby the tax rate applicable to inputs exceeds the rate levied on the finished product. This imbalance results in a persistent build-up of Input Tax Credit that cannot be fully set off, effectively tying up the business's capital within the government's coffers. Although the GST Council has taken steps to address rate distortions, a significant number of manufacturing MSMEs continue to grapple with this structural challenge. The refund mechanism, despite having been digitised, remains burdened by administrative scrutiny and procedural delays. For a small production unit, a delayed refund is not merely a bookkeeping inconvenience; it can bring production to a standstill or cause wages to go unpaid. The progression of GST 2.0 has also brought with it the introduction of e-invoicing, GSTR-2B reconciliation, and real-time data matching requirements. For large, technologically equipped corporations, these developments represent efficiency gains. For a rural MSME, however, they constitute formidable barriers to compliance. The increasingly exacting expectation of near-perfect compliance means that even a trivial clerical error on the part of a supplier can result in the blocking of Input Tax Credit for the purchasing MSME, thereby generating a trust deficit across the supply chain. Unlike larger firms with dedicated tax departments, MSMEs rarely possess in-house expertise, and the expense of engaging external consultants or procuring compliance software further inflates their overhead costs. To ensure that GST 2.0 serves as an enabler rather than an impediment to business sustainability, a number of targeted policy adjustments are warranted. Expanding the scope of the Composition Scheme, or introducing a quarterly payment arrangement for a wider segment of MSMEs, could meaningfully alleviate liquidity pressures. Implementing a threshold-linked safe harbour provision for minor compliance discrepancies would help prevent the disproportionate penalisation of small businesses for immaterial errors. Additionally, bolstering the MSME Samadhaan portal to compel large buyers to settle GST-inclusive invoices within 45 days is an essential measure to protect small suppliers from payment exploitation. GST 2.0 represents the maturation of India's indirect tax architecture. Its ultimate success, however, will not be judged solely by revenue collection figures, but rather by the health and resilience of the MSME ecosystem it governs. Achieving a genuine balance between tax rationalisation and business sustainability demands a transition towards a facilitation-first regulatory model. By confronting the structural challenges of liquidity stress, inverted duty distortions, and disproportionate compliance costs, India can safeguard the role of its small businesses as the engine of inclusive economic growth. (The views expressed are personal)This article is authored by Rajat Bose, partner, Indirect Tax, Shardul Amarchand Mangaldas & Co.