Union Budget 2020 India: Indian MSME sector has suggested enacting a Payment Act in the upcoming budget to ensure timely payments by the government and large companies to MSMEs.
Budget 2020-21: Indian MSME sector, which currently contributes around 29 per cent to India’s GDP, has suggested enacting a Payment Act in the upcoming budget to ensure timely payments by the government and large companies to MSMEs. Currently, a delayed payment monitoring system called MSME Samadhaan is in place which was launched in October 2017 for MSMEs to file cases with respect to delayed payments. So far, 32,385 applications have been filed by micro and small enterprises out of which 2,031 applications have been disposed of. The complaints filed are examined by the Micro and Small Enterprise Facilitation Council and accordingly directs the buyer for payment of dues along with interest as per the provisions under the MSMED Act 2006.
“As ‘payment’ is not considered the essence of Contract while the ‘delivery of goods or services within the time agreed upon’ is, delay in payment to suppliers by Govt and by large corporates to MSMEs is endemic,” industry body FISME said in its representation on pre-budget before the Finance Minister recently. Most western countries have plugged the loophole by enacting Payment Acts. India can also have its own Payment Act to ensure agreed terms of payment, FISME said.
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Among other suggestions made by the industry body reflects on the concern of growth of micro-enterprises that are unable to graduate to small and medium level. For instance, Out of close to 98 per cent of all Indian exporters, which are MSMEs, 83 per cent are micro-enterprises, according to research by the trade finance company for Indian exporters — Drip Capital. This huge imbalance between the ratio of micro and small and mid-size businesses has been defined as the Missing Middle. This is primarily due to lack of access to capital apart from infrastructure, skilled labour and power supply issue.
Among the key reasons, according to FISME, for small businesses to remain small is that they need more funds as they grow but cannot produce matching collateral securities in the ratios of increased funds needed. “Initial collateral security should suffice for accessing more funds if a unit is in the growth phase. In other words requirement of collaterals in percentage terms should be lowered gradually and as the experience of the lender with the firms increases and conduct found satisfactory,” FISME said.