Innovate, break into markets through quality: CEA Nageswaran to MSMEs

Delayed payments to MSMEs fell 7% to Rs 8.14 lakh crore in FY24, as per a new report released on Tuesday.

Nageswaran was speaking at the launch of a report on MSMEs’ access to finance and timely payments. (File Photo)

At a time when India’s small businesses are under pressure from the US’ 50 per cent tariffs, Chief Economic Advisor V Anantha Nageswaran has called on them to be instilled with a culture of innovation, competitiveness, and quality, with greater ambition another key behavioural aspect that needs strengthening.

“Just as we speak about the culture of treating MSME suppliers on par with large suppliers, we need to continuously engage with them (MSMEs) in instilling a culture of innovation, competitiveness, and breaking through into markets through quality,” Nageswaran said on Tuesday. He went on to add that while there was nothing wrong with Micro, Small, and Medium Enterprises (MSMEs) being content with their condition, it was an issue if the “lack of ambition is partly an acknowledgement of the underlying hurdles” they faced.

“If we remove them (the underlying hurdles), maybe the ambition factor, maybe some of it is just an acceptance of the difficult operating conditions. So, I think we need to work on the ambition part as well,” the government’s top economist added.

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Nageswaran was speaking at the launch of a report on MSMEs’ access to finance and timely payments, jointly released by Federation of Indian Micro and Small & Medium Enterprises (FISME), Global Alliance for Mass Entrepreneurship, and C2FO, an online platform that provides working capital. As per the report, delayed payments to India’s MSMEs declined 7 per cent to Rs 8.14 lakh crore in 2023-24. They had stood at Rs 10.76 lakh crore in 2021-22.

Low access to formal credit and delayed payments are among the key challenges MSMEs face, with the report launched on Tuesday estimating that the unmet credit needs of these small businesses was around Rs 25 lakh crore. According to latest data from the Reserve Bank of India (RBI), outstanding bank loans to MSMEs stood at Rs 12.99 lakh crore as on September 19, up 20 per cent year-on-year.

“Government initiatives like TReDS (Trade Receivables Discounting System), Section 43B(h) of the Income Tax Act, the MSME-1 disclosure form, and the Samadhaan portal have created useful platforms, but weak enforcement, low uptake, and institutional bottlenecks dilute their impact. Credit policies such Priority Sector Lending and Mudra loans have widened coverage but fall short of closing the gap due to rigid bank practices, information asymmetry, and punitive SMA/NPA classification norms,” the report added.

As per Section 43B(h) of the Income Tax Act, payments to MSMEs must be made in a time-bound manner to claim tax deductions. Meanwhile, form MSME-1 must be filed by companies whose payments to registered MSME suppliers exceed 45 days. SMA and NPA refers to the RBI’s Special Mention Account and Non-Performing Asset norms, which are used to monitor the repayment of loans.

Siddharth Upasani

Siddharth Upasani is a Deputy Associate Editor with The Indian Express. He reports primarily on data and the economy, looking for trends and changes in the former which paint a picture of the latter. Before The Indian Express, he worked at Moneycontrol and financial newswire Informist (previously called Cogencis). Outside of work, sports, fantasy football, and graphic novels keep him busy. ... Read More