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The Micro, Small & Medium Enterprises (MSMEs) representatives at the pre-Budget meeting, chaired by Finance Minister Nirmala Sitharaman on Wednesday, asked for a loan moratorium till the time the trade deal with the US is signed, people aware of the development said.
MSMEs also informed the Finance Ministry that labour-intensive sectors are the hardest hit, particularly textiles, gems and jewellery and the fishery sector. The representatives sought a loan moratorium that resembles measures announced during COVID. India’s exports to the US slipped 12 per cent in September, particularly hurting labour-intensive exports.
The Union Cabinet, on Wednesday, after the pre-Budget meeting earlier during the day, approved the much-awaited Export Promotion Mission (EPM) that was announced in the Union Budget 2025-26 with an outlay of Rs 25,060 cr for 6 years and extended additional credit facilities up to Rs 20,000 crore to exporters amid pressure on goods exports due to US tariffs.
The issue of timely payments to MSMEs was one of the most prominently discussed issues as a segment of representatives sought better implementation of measures to ensure timely payments, but for others, the I-T provision in Budget 2023-24, which aimed to secure payments to micro, small and medium enterprises (MSMEs) within 45 days of supply, needed no changes.
“The issue is that in certain types of industry, the cycles for payments are very long. These are sectors typically for garment manufacturers which see high season demand. So some MSMEs have said that new rules have not served its purpose and instead have created more problems. Companies either make payments on time to avoid being noticed for breaching the norms or are asking MMSE to get de-registered from Udyam,” a person aware of the development said.
MSME representatives said that the medium-scale companies are not facing payment-related challenges from large companies, which typically do not face working capital-related challenges, as the banking system is ready to cater to their needs. “The challenges for MSMEs are catering to smaller firms,” the executive said.
Another executive said that MSME has asked the government to take the 45-repayment norm further. “More work is needed for this to be implemented in the states. Currently, the challenge is that not every bill an MSME generates is being paid in 45 days. Buyers typically make payments by March-end to keep their book clean,” the person said.
The Indian Express had reported last year that some MSME associations had approached the Supreme Court against the new norm on the new clause in Section 43B of the I-T Act introduced in 2023-24 that aimed to secure timely payments for smaller units. A new clause (h) in Section 43B allowed for a deduction for larger companies against payments made to MSMEs only after they were actually paid. Larger companies were otherwise not allowed to make deductions in their tax returns, resulting in the prospect of increased tax liability.
As balance sheets got audited in the assessment year 2024-25 for transactions in the financial year 2023-24, bigger companies started flagging concerns about ballooning tax liability, and many MSME owners too reported cancellation of orders due to the new tax clause. MSMEs also pointed to big companies shifting business to unregistered MSMEs, as it lends them the flexibility to not meet the mandatory provision and continue with a longer payment cycle of 90-120 days, people aware of the developments said.
MSME representatives said that the medium-scale companies are not facing payment-related challenges from large companies, which typically do not face working capital-related challenges, as the banking system is ready to cater to their needs. “The challenges for MSMEs are catering to smaller firms,” the executive said.
Another executive said that MSME sector has asked the government to take the 45-day repayment norm further. “More work is needed for this to be implemented in the states. Currently, the challenge is that not every bill an MSME generates is being paid in 45 days. Buyers typically make payments by March-end to keep their book clean,” the person said.
The Indian Express had reported last year that some MSME associations had approached the Supreme Court against the new norm on the new clause in Section 43B of the I-T Act introduced in 2023-24 that aimed to secure timely payments for smaller units. A new clause (h) in Section 43B allowed for a deduction for larger companies against payments made to MSMEs only after they were actually paid. Larger companies were otherwise not allowed to make deductions in their tax returns, resulting in the prospect of increased tax liability.
As balance sheets got audited in the assessment year 2024-25 for transactions in the financial year 2023-24, bigger companies started flagging concerns about ballooning tax liability, and many MSME owners too reported cancellation of orders due to the new tax clause. MSMEs also pointed to big companies shifting business to unregistered MSMEs, as it lends them the flexibility to not meet the mandatory provision and continue with a longer payment cycle of 90-120 days, people aware of the developments said.
