Delayed payment is impacting the MSME sector post-pandemic
Covid-19, or Coronavirus as we commonly are aware is the most bizarre event in the 21 century. It has been the most unbelievable event of the 21st century thus far. The effects of this event have been felt across the globe creating a profound wound within the collective psyche of modern day man. The sudden appearance of the pandemic has brought the world to a halt. MSME sector, which was affected by the pandemic, faced delays in payment. This is only a distant memory and all of us are still bearing the burden from the pandemic.
The effect that Covid 19's effects on the MSME industry in India has provided an interesting side of the story. In the aftermath of the epidemic that was sweeping the globe, there were lockdowns in place throughout the world, which led to the destruction of companies in a matter of hours. It was at this time that the MSME sector gained growth in India. MSMEs operating in different parts of the country were faced with extreme shortages of raw materials and access to workers because of lockdown imposed on them and delays in payment . This was the perfect time to be creative to manage and sustain the operations. Recent developments within the MSME sector has shown that small-sized businesses have been able to survive the pandemic by taking careful and measured strategies.
The services that are paid for that MSMEs provide have a completely different story to be told. The majority of the small and micro businesses of the MSMEs have been severely affected because of the delayed payments by public and private buyers, bringing their operations to a stop during the post-pandemic time. The total amount waiting for the delayed payment of MSMEs has risen up to the amount of Rs. 11, Lakh crore. The sum reflected is almost 80percent of the total pending sum to the MSME sector till 2021.
Recent developments of the MSME sector is responsible for 33.5 percent of India's net value-added (GVA) as well as the most tiniest of them - micro businesses comprise 97% of the people employed by MSMEs and approximately 23% of India's overall workforce. When large buyers defer their payments to MSMEs and MSMEs, it is not just a problem for their viability and prospects for growth as well as the overall efficiency of Indian economy. A total of 10.7 Lakh Crore ie, 5.9 percent of the total value of added (GVA) for Indian businesses is locked each year due to delayed payments from suppliers to buyers. MSME suppliers.
The present state for MSME across India is severely affected by poor financial management. Cash flow is vital to any company. A positive cash flow can allow MSMEs to make investments in their production cycles, pay the deadlines for statutory payments and also access credit. To address cash flow imbalances MSMEs take loans from local or financial institutions as well as money lenders, an expense which ultimately raises the cost of the products or services offered. Due to this, customers who normally are reluctant to purchase products or services from MSMEs and must take on the additional burden. This causes frequent or deferred payments to banks on behalf of the MSMEs and their credit scores gradually decrease with time. A lower credit rating increases the likelihood that they will be charged higher rates on future loans. To address this problem, MSMEs also increase the price of their goods and services, and the buyer is hesitant to pay a higher price for the same product , leading to a negative effect on the GDP of the country. The current situation for MSMEs across India is affected by this, and many have to close their operations, which is slowing the number of employees employed and reducing exports from the sector, and resulting in very minimal outputs.
In India, the Goods and Services Tax (GST) and non-performing (NPA classification) regimes are not able to take into account delayed payments, further aggravating the cash shortage of MSMEs. Cash flows are further stretched due to because GST is required to be paid regardless of whether the payments go for MSMEs as well or otherwise. A "one size fits all" NPA regime does not reflect the fact that a large portion of receivables made to micro-enterprises is delayed and delayed for a longer period than large enterprises across the country.
The effect that Covid 19's announcement on MSME segment of India is devastating. If delays in payment are to be resolved as a concern then it must first be recognized and sounded out by the people who are most affected. Reforms to legislation and recourse mechanisms will only be effective in the absence of violations being identified, reported and enforced by the suppliers within the country. However, this does not mean that the change will be made by the actions of individual suppliers. It isn't possible. But the process of change must start by raising the global standards of fairness, and then be coupled with the determination to pursue justice by the affected parties in this dilemma. The process of empowering those who are not empowered begins with educating them to their rights and also the creation and distribution of evidence that demonstrates that action could net benefit them, and not punishive. To keep this issue in check there are a few solutions suggested :
1.) Establishing a public discussion around delayed payments. Publicize estimations of delays in payments in conjunction with monthly estimates within the monthly Economic Review'. Make use of platforms such as 'Mann Ki Baat' to debate delay payments.
2.) Making it more difficult for late buyers through the entrance to Online Dispute Resolution (ODR ) service providers in order to provide speedier and more efficient resolution of payment-related disputes that are delayed.
3.) 3.) Ensure the GST is due on an extended grace time for MSMEs.
4.) Transfer NPA norms (NPA rules) to allow MSMEs to up to 120 days, to reflect specific cash flow problems.
The MSME sector that was hit by the pandemic in India is facing a variety of economic difficulties, yet it has was able to overcome it. It is believed that the MSME segment in India gained momentum thanks to the numerous MSME initiatives put in place by the Government which helped the sector to grow to the present.
