Covid-19 or Coronavirus as we all commonly know has been the most unbelievable event of the 21st century so far. Its implications have been felt far and wide making a deep wound in the collective psyche of the modern man. This sudden occurrence of the pandemic led the world to a standstill. MSME sector post-pandemic faced delayed payment, This is all just a recent past and everyone is still bearing the heavy brunt of the pandemic.
The impact of Covid 19 on the MSME sector in India has shown an interesting side to the story. During the pandemic, there were lockdowns imposed all around the world leading to the crippling of businesses overnight. This was precisely the time when the MSME industry picked up its momentum in India. MSMEs operating from different corners of the country had to face severe shortages of raw materials and access to labor due to lockdown impositions and delayed payment . This was the time to become creative in order to handle and maintain the businesses. Recent development in the MSME sector shows that small businesses were able to overcome the pandemic period with careful and calculated measures.
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The payments for the services offered by the MSMEs have an altogether different story to tell. Most of the micro and small units of the MSMEs were severely impacted due to the delayed payments from both private and government buyers bringing their operations to a standstill in the post-pandemic time period. The total amount that is pending towards the delayed payment of the MSMEs has gone as high as Rs. 11 Lakh crore. The amount reflected represents almost 80% of the total pending amount for the MSME sector until the fiscal year 2021.
Recent development in the MSME sector accounts for 33.5% of India’s annual gross value added (GVA) and the smallest of them – micro enterprises – employ 97% of all people employed by the MSMEs, as well as an estimated 23% of India’s total workforce. When the large buyers delay their payments to the MSMEs, it not only hinders their viability and growth prospects, but also the overall level of competitiveness of the Indian economy. An estimated INR 10.7 Lakh Crore ie, 5.9% of the gross value added (GVA) of Indian businesses is locked up annually as delayed payments from buyers to MSME suppliers.
The current status of MSME in India is impacted heavily due to financial mismanagement. Cash flow is the lifeblood of any business. Positive cash flow allows MSMEs to invest in more production cycles, meet statutory payments on time, and even access credit. To manage cash flow mismatches, MSMEs borrow from financial institutions or local money lenders, a cost that ultimately increases the price of goods sold or services provided. As a result of this, the normal customers choose to refrain to buy the products from the MSMEs and they have to bear the further brunt. This leads to infrequent or delayed payments to the banks on the Msme’s behalf and their credit ratings eventually reduce with time. Lower credit ratings increase the possibility of higher interest rates for future loans. In order to sort this issue, the MSMEs further increase the cost of their products and services, and once again the end buyer is reluctant to pay the higher premium for the same product leading to a negative impact on the country’s GDP. The current status of MSMEs in India is hampered due to this and many of them are also forced to shut down their operations slowing down the rate of employment, decreasing exports from the sector, and very marginal outputs.
India’s Goods and Services Tax (GST) and non-performing (NPA classification) regime fail to account for delayed payments, further exacerbating MSMEs’ cash crunch. Cash flows are further stretched by the fact that GST must be paid irrespective of whether payments are made to MSMEs or not. A ‘one size fits all NPA regime fails to account for the fact that a majority of receivables to micro-enterprises are delayed and they are delayed for much longer than larger enterprises in the country.
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The impact of Covid 19 on the MSME sector in India was devastating. If delayed payment are to be solved as a problem, it has to first be acknowledged and voiced out by those who are most affected by it. Improvements in legislation and institutional recourse mechanisms can only go so far if violations are not prioritized, reported, and followed through by suppliers in the country. This is not to say that change can happen through the individual action of suppliers – it cannot. But that change has to begin with the universal raising of standards of fairness and be accompanied by the collective pursuit of justice by the aggrieved parties in this equation. The process of empowerment of the disempowered begins with sensitization about their rights, and the generation and dissemination of evidence that action can be net beneficial for them, not punitive. In order to bring this issue under control, some solutions have been put forth :
1.) Building a public conversation around delayed payments. Publish the estimates of delayed payments with quarterly estimates in the ‘Monthly Economic Review’. Leverage the use of platforms such as ‘Mann ki Baat’ to discuss the issue of delayed payment.
2.) Raising the stakes on tardy buyers by enabling the entry of Online Dispute Resolution (ODR ) service providers to ensure faster and thereby effective resolution of delayed payment-related disputes.
3.) Ensure that GST is due with a greater grace period for MSMEs.
4.) Shift the Non-Performing Asset (NPA norms) for MSMEs to go up to 120 days to account for their unique cash flow challenges.
The MSME sector post-pandemic in India has to face many economic challenges, but still emerged successfully it. The MSME sector in India received a boost due to the various MSME schemes implemented by the Government which further helped the sector in moving forward till now.