India’s micro and small enterprises (MSEs) are grappling with a persistent and growing challenge—delayed payments. Despite multiple government interventions and regulatory measures over the years, unpaid dues to MSEs have now crossed a staggering ₹50,000 crore, exposing significant cracks in enforcement and dispute resolution mechanisms.
Mounting Dues, Sluggish Resolution
According to official data, since the launch of the MSME Ministry’s Samadhaan portal in October 2017, over 2.31 lakh complaints have been filed by aggrieved MSEs against delayed payments. These complaints collectively amount to ₹50,359 crore. The situation has worsened significantly—just a year ago, the figure stood at ₹41,900 crore, reflecting a nearly 20% spike in dues within 12 months.
Yet, resolution has been painfully slow. Only 46,892 cases, amounting to ₹7,634 crore, have been resolved by facilitation councils—state-appointed dispute resolution bodies created under the MSMED Act, 2006. Over 57,000 cases worth ₹8,717 crore remain pending with these councils, highlighting a systemic backlog and an enforcement gap.
Legal Provisions, Limited Impact
The MSMED Act mandates that buyers clear payments to MSEs within 45 days. However, compliance remains weak. While some disputes—21,598 applications worth ₹2,640 crore—have been mutually settled, nearly 64,000 applications have been rejected by the councils, involving ₹12,638 crore in dues. This marks a notable increase from last year, when 46,000 applications amounting to ₹9,218 crore were turned down.
For MSEs that often operate on thin margins and limited credit access, delayed payments can be crippling. Working capital constraints directly affect their ability to pay employees, buy raw materials, or service loans. The situation is particularly dire for micro and small suppliers dependent on public sector contracts or large enterprises where negotiating leverage is minimal. Fear of losing future business often deters MSEs from pursuing legal recourse.
Policy Push: More Teeth, Less Bite?
The government has introduced several initiatives to address the crisis. In 2019, it mandated buyers to submit a biannual MSME-1 form disclosing unpaid dues beyond 45 days. Failure to comply invites penalties, with fines escalating up to ₹3 lakh for continued default.
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Additionally, a significant amendment to the Income Tax Act last year disallowed tax deductions on delayed payments to MSEs—aimed at nudging buyers to adhere to timelines. Under Section 43B(h), expenses on MSE invoices must be settled within 45 days (with agreement) or 15 days (without agreement) for them to be deductible.
The Road Ahead
Despite policy changes, the growing volume of complaints and slow dispute resolution point to the need for deeper structural reforms. Strengthening facilitation councils, introducing digital resolution mechanisms, and increasing buyer accountability are critical to protecting the financial health of India’s MSME backbone.
As India aspires to become a $5 trillion economy, ensuring timely payments to its smallest enterprises is not just a policy goal—it is a prerequisite for sustainable and inclusive growth.