A critical problem faced by the Micro, Small and Medium Enterprises (MSME) sector is delayed payments. It’s the smallest establishments — the micro and small units — which have been hit the hardest post-Covid with their pending dues touching Rs 8.73 lakh crore, almost 80 per cent of the total pending for the entire MSME sector until 2021.
Delayed payments, as percentage of sales, has seen a sharp spike from 46.16 per cent in 2020 to 65.73 per cent in 2021 for the “micro” segment and from 28.85 per cent to 31.10 per cent for “small” units, according to a report by the Bengaluru-based Global Alliance for Mass Entrepreneurship shared with the Union MSME Ministry.
However, the rise in delayed payments as a percentage of sales has been much lower for “medium” segment units, up from 24.02 per cent in 2020 to 25.20 per cent in 2021.
Micro units are those with investments up to Rs 1 crore and turnover of less than Rs 5 crore. For small units, the investment limit is at Rs 10 crore and a turnover is pegged at less than 50 crore. A unit is termed medium if it has investments of up to Rs 20 crore with a turnover of less than Rs 100 crore.
Delayed payments — from customers in the private sector, government departments and public sector undertakings — are an impediment to the revival of smaller units.
A Crisil report showed that more than a quarter of India’s MSMEs lost market share of over 3 per cent due to the pandemic. And half of them suffered a contraction in their earning margins because of a sharp rise in commodity prices during 2021 fiscal, compared with 2020. This is exacerbated by delayed payments.
“It is easy to ascertain the payment owed to the government sector but not to the private sector and there are reasons. One, we cannot ask the private sector to share a list and, second, the MSME units, too, would not want to complain about their clients to avoid hurting their working relationship,” said a senior government official.
The government, in 2020, had asked both PSUs and the top 500 companies to clear their dues to units in the sector. This was done as part of the government’s plan to ensure enough liquidity for MSME units along with a credit facility for the sector under the Emergency Credit Line Guarantee Scheme (ECLGS) scheme.
Despite various diktats from the Centre, the value of delayed payments to the MSME sector has increased to Rs 10.7 lakh crore until the end of calendar year 2021, according to the report.
About 81 per cent of the total amount is owed to small and micro enterprises: Rs 4.29 lakh crore to small enterprises and Rs 4.44 lakh crore to micro enterprises.
Highlighting the severity of the problem, the report says, median debtor days beyond the legally recommended 45-day period for micro enterprises in 2020-21 was 6.5 months (195 days), compared to two months (68 days) for small enterprises; and 1.5 months (47 days) for medium enterprises.
Nitin Gadkari, then minister for MSME, had flagged way back in mid-2020 that state and Central governments, their ministries and PSUs, and major industries combined owed an estimated Rs 5 lakh crore to MSMEs.
According to information from the Ministry of Statistics and Programme Implementation, the share of MSME in India’s manufacturing output during FY’20 was 36.9 per cent and the share of export of specified MSME-related products to all-India exports during FY21 was 49.5 per cent, as per information from Directorate General of Commercial Intelligence and Statistics.