Credit and Finance for MSMEs: Pankaj Kumar Gupta ran a small enterprise manufacturing and repairing distribution transformers in Tier-II city of Meerut in Uttar Pradesh. Distribution transformers were essentially service transformers that reduced the high voltage in an electric power distribution system to an appropriate level consumed by customers. 70 per cent of the business was into repairing transformers and the rest was into manufacturing for Gupta’s A Powertech Electricals that worked largely with public sector units (PSUs) of Uttar Pradesh via tendering.
While delayed payment has been the perennial problem for Gupta and many other MSME entrepreneurs, working capital wasn’t a jarring issue for him until towards the end of 2020 when state PSUs gradually stopped clearing dues citing lack of funds. The cumulative amount stuck for Gupta had crossed Rs 3 crores by then. Operations were dragged for some time before he almost went broke. As a result, Gupta stopped manufacturing and repairing business and tried to stay afloat with the transformer accessories or parts manufacturing business that he ran alongside but never scaled up.
“Around 14 months back, my entire money of over Rs 3 crore got stuck and my business came to a standstill. Getting into manufacturing a new product wasn’t possible because I had no liquidity. I was told by PSUs that they don’t have money. It was surprising to hear the reason,” Gupta told Financial Express Online.
To allegedly save costs, PSUs had stopped outsourcing repair work and instead set up their own workshops, which were run by their own agencies, for repairing transformers. “They used our labour and accessories like rods, fittings, wires, aluminium parts to repair transformers on their own citing reason that it would save them money,” added Gupta. Whatever payment he could recover earlier from PSUs was invested back into the accessories or parts business.
In hindsight, now agencies repairing transformers for PSUs, instead of A Powertech Electricals, were responsible for timely work. In fact, this worked for Gupta in gradually recovering his unpaid dues. “What it did in the past around four months was that whenever there was a long delay in payment from the agencies to us, we used to restrict the supply of parts that impacted their repair work. As a result, they started paying us without any inordinate delays. In fact, the amount that was pending for a year was reduced to six months and currently, I’m back to 60 per cent of my capacity utilisation,” said Gupta.
Reporting the issue of delayed payment to Micro and Small Enterprises Facilitation Councils (MSEFCs), which have been set up by the government in different states to help MSMEs recover their dues, wasn’t the option for Gupta.
“It is a lengthy and time-taking process for an SME entrepreneur. However, I never wanted to get into litigation for delayed payments. That’s because filing cases against PSUs mean losing business. I had written to them in a letter citing the government rules of payment within 45 days but I was blatantly told that the rule was meant for government departments and not PSUs. They don’t care about what the rules are. If you go against them, they won’t entertain you, forget about clearing dues,” said Gupta.
Even as the government has been urging central and state PSUs, departments, and ministries to pay MSMEs on time, they can’t be forced. “The Ministry has taken up the subject vigorously with the Central Ministries, Central Public Sector Enterprises (CPSEs) and State Governments and the Corporate entities. But, it is to be noted that the Central Government cannot issue any directions to, or force, State Governments or State PSEs to pay the dues,” former Minister of State for Finance Anurag Singh Thakur had said in a written reply to a question in the Lok Sabha in February last year.
Over 1 lakh delayed applications have been filed by micro and small units against government buyers since the launch of the delayed payment monitoring portal MSME Samadhaan on October 30, 2017. Of the 1 lakh applications, only 12 per cent applications have been disposed by MSEFCs, as of January 20, 2022, as per data from the Samadhaan portal.