After an initial push towards clearance of dues for the micro, small and medium enterprises (MSMEs), overdue payments from states, Centre and corporates have again begun to pile up September onwards. Industry estimates peg the overdue payments to MSMEs at over Rs 4 lakh crore, with experts suggesting that less funds with governments and corporates could be behind the pile-up of dues.
As per government data on MSME Samadhaan portal, the online redressal system for MSMEs, total dues for MSMEs reported by 25 ministries and 79 central public sector enterprises (CPSEs) have nearly doubled in the last four-five months. Pending dues surged in July to Rs 969.19 crore, 72 per cent higher than Rs 561.64 crore of pending dues in May and continued to be elevated in August at Rs 830.36 crore. Total dues in August were reported at Rs 3,527.33 crore, lower than Rs 4,124.34 crore in July, but higher than Rs 2,349.53 crore reported for May.
This data, however, does not reflect actual government dues as there is reluctance among MSME unit owners to wrangle with the government over pending payments as this may have a negative impact on fresh order flows and dues of state governments and state PSUs will be over and above this amount. In addition, corporate sector’s payments to MSMEs are still weak, despite the government’s nudge to them to clear such payments.
The month-on-month declining trend in capital expenditure (capex) by governments after an initial markup in June could also be reflective of the delayed payments to MSMEs after the initial payment drive, which is adding to the already contractionary cycle, former Chief Statistician of India Pronab Sen said.
“The expenditure numbers are coming down month-on-month since July. Which means rather than stepping up public expenditure, the Centre is actually cutting it down. It could also be reflecting delayed payments to MSMEs after an initial markup. Almost every state in order to finance their Covid-related expenditure is cutting back on investment. So you are essentially substituting relatively low multiplier activities for high multiplier ones. So that’s an additional source of contraction. Both states and Centre are being pro-cyclical. More expenditure is needed to reverse the trend,” Sen said.
According to data from the Controller General of Accounts, capex of Centre rose to Rs 33,067 crore in June from Rs 26,900 crore in May and then reduced on a month-on-month basis in July (Rs s23,576 crore) and August (Rs 22,598 crore) before rising again to Rs 31,389 crore in September.
“In September and October, dues have gone up tremendously. About Rs 4-4.5 lakh crore would be the outstanding dues, out of which maybe Rs 70,000-80,000 crore would be normal, payable dues within the time limit of 45 days. For material supplies, state governments’ and state undertakings’ dues would be around Rs 2-2.5 lakh crore. Most of the localised contractors deal with states and municipalities. On the balance Rs 4.5 lakh crore, some portion of about Rs 40,000-47,000 crore could be in EMD (earnest money deposit) payments, which is generally 2 per cent of the contract amount and normally exempted for SMEs located within the state. Performance guarantee refunds would be about approximately Rs 70,000-75,000 crore,” KE Raghunathan, convenor of Consortium of Indian Associations, a representative body for MSMEs, said.
In May, as part of the Aatmanirbhar Bharat package for dealing with the pandemic, Finance Minister Nirmala Sitharaman had said steps were being taken to clear dues of MSMEs with only the litigated dues not being cleared and rest all accumulated dues and the incremental dues added for clearance.
MSMEs are under stress and many business owners are resorting to gold loans and property sales to meet the fund crunch. The MSMEs have made representations for removal of capital gains tax on such distress sales and a lower interest rate for gold loans, Raghunathan said.
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