Government’s measures to resolve the Delayed Payment issues of MSMEs

The 2019-20 Budget had proposed a latest payment platform for India’s micro, small and medium enterprises (MSMEs), defined as organisations whose investments are beneath Rs 10 crore within the instances of manufacturing elements and beneath Rs 5 crore inside the case of Supplier elements — to permit submitting of payments and online tracking of bills from government companies, a main source of their coins drift. But to make the new platform effective, some troubles with the prevailing online systems must be addressed.

In 2015-16, India had 63.4 million MSMEs employing 111 million people, in keeping with National Sample Survey records stated inside the MSME Annual Report 2018-19. MSMEs represent 45% of India’s manufacturing output and 49% of its exports while using 30% of its staff.

However, the present platforms (MSME Samadhaan and Trade Receivables Discounting System (TReDS)) for MSEs (micro and small businesses) are riddled with issues that bring about behind schedule payments. Government bills to suppliers and contractors being a major source of cash float for MSMEs, getting cleared of fee delays would enable MSMEs to make appropriate investment selections while enhancing their access to finance and advertising and marketing.

To empower micro and small enterprises to without delay check-in instances referring to not on-time payments by using Government bodies, the MSME ministry released a not on-time payment portal, MSME Samadhaan, October 30, 2017.

So a long way, 27,693 programs concerning dues worth Rs 7,212.23 crore had been filed by micro and small enterprises (MSEs), according to the MSME Samadhaan portal. However, of these, only 1,532 applications have been disposed of by using micro and small enterprises’ facilitation council (MSEFC) whilst 4,474 applications have been rejected. Further, 2,241 instances had been at the same time settled with buyers whilst 7,447 cases are currently beneath consideration by way of MSEFC.

As we noted in advance, medium companies are not eligible to put up packages at Samadhaan. And handiest MSEs having Udyog Aadhaar Number (UAN), a unique identification variety obtained after registration for Udyog Aadhaar Memorandum (UAM), are eligible to apply at the portal.

MSMEs’ registration for UAM started in September 2015. But the simplest around 7.7 million MSEs have registered so far. Given that there are 63.3 million MSMEs, this indicates that only around 12% MSMEs are eligible to use to Samadhaan.

The RBI also brought digital platform, TReDS, in March 2014 to facilitate the discounting of payments and invoices of MSME suppliers. This is an economic association in which a dealer recovers an amount of the sales bill from a monetary mediator, after paying a discount/price, before it is due.

This system entails 3 events—MSME suppliers, company shoppers, and financiers. The financier reductions the bill after the corporate purchaser accepts the bill and payments uploaded with the aid of the MSME provider.

However, this is a particularly lengthy manner as it involves many degrees and interactions among the three parties. Further, the discounting and financing expenses are supported via the MSME suppliers, reducing their income. This discourages many MSMEs from the usage of the TReDS portal and forces them to method informal financers for invoice discounting that lets in on the spot price.

Further, as consistent with the November 2, 2018, notification through the MSMEs ministry, handiest companies registered below the Companies Act 2013 and reporting a turnover of over Rs 500 crore can board the TReDS platform. This ends up except many MSMEs.

Both State and Central governments have declared well-publicized schemes to encourage the development of MSMEs — for example, PMEGP which grants government subsidy for joining the project cost somewhat, MUDRA Yojana which strives to promote micro-enterprises by rendering several kinds of support compromising refinance and MSME59, an initiative for concocting credit applications of MSMEs and endorsing them in under 59 minutes, MSME Samadhaan which intends to approach the problem of delayed payment from government agencies, TReDS portals which render factoring services in case of delayed payment and so on.

Moreover, if there is any obstacle in payment as per legal guidelines, the problem should automatically transfer to Samadhaan for redressal with an alert to both the supplier and buyer. Several entrepreneurs unaware of the MSME online platforms, so there is additionally a requirement for awareness crusades.

This system would serve properly if all MSMEs are qualified for registration and its method is easy and quick.