Payment cycle disruption comes as blow to MSMEs
Less than a week into lock-down, micro, small and medium enterprises (MSMEs) have started witnessing payment cycle disruption, which can be a severe blow to their existence.
While some of the large companies have openly expressed their inability to make payments to their suppliers and component manufacturers, delayed payments by public sector undertakings (PSUs) and government departments have already put MSMEs into pressure.
"In the past couple of days we are hearing that even regular payments from large companies are getting delayed. Some of the auto companies have said that they would not be able to make payment to their component manufacturers. But the trend has started in several sectors, including automotive, textiles and garments. The payment cycles of thousands of MSMEs are getting affected," said Rajiv Chawla, chairman of IamSMEof India.
Public sector undertakings and government departments like the Railways usually make their payments with a lag of three to four months.
But this delay is now hitting MSMEs hard. In the case of PSUs, government has mandated that 26 per cent of their procurement should be from MSMEs. In the current fiscal itself central PSUs have procured goods and services worth over Rs 33,000 crore from MSMEs.
"The government should take steps to expedite payment from these PSUs and government departments, and this could be a major help for the MSMEs," said Chawla.
Prime Minister Narendra Modi had earlier urged all private sector companies to honour payment commitment to employees. However, without receiving payments from buyers, MSMEs are finding it tough to honour salary commitments.
"The government has to hear both sides of the story. MSMEs do not have enough surpluses to pay salaries to their employees without receiving payments from their clients. Banks may also not be forthcoming as they too are stuck in the uncertainty. MSMEs do not have sufficient collateral for raising funds in such situations. The government will have to come out with some solution,' said Pawan Gupta, founder of Connect2India.
According to industry insiders, MSMEs are staring at massive closure of businesses, salary defaults and retrenchment if the lock-down continues for more time. MSMEs account for 29 per cent of the country's GDP and provide more than 11 crore jobs.