Battered by pandemic, MSME sector now hit by payment defaults

Delayed payment has become one of the biggest hurdles for the micro small and medium enterprise (MSME) sector, which is trying to recover from the adverse impact of COVID-19.

As per the delayed payment monitoring platform of the Ministry of Micro, Small and Medium Enterprises, MSME-Samadhan, a whopping 1,10,345 applications involving Rs 28,401.01 crore have been filed regarding delayed payment since October 2017.

The Micro and Small Enterprises Facilitation Council (MSEFC), which acts as an arbitrator for the final settlement of outstanding dues, has disposed of only 28,942 applications in over four years, facilitating the payment of Rs 2,681.91 crore.

Industry sources said the biggest defaulters are central ministries, state government departments and public sector undertakings.

A total of 7,763 applications have been filed against state governments for clearance of approx. Rs 4,100 crore. So far, only 1,074 payment requests have been settled, clearing outstanding dues amounting to Rs 279.37 crore.

The MSMEs moved the arbitrators against the central PSUs in 4,846 cases, to recover outstanding dues of Rs 4,026.08 crore. Of them, only 985 cases involving Rs 544.29 crore have been settled so far.

Sources said the actual number of cases of delayed payment would be much more as the MSMEs dither filing cases against their buyers, fearing it would affect future orders.

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As per the ministry data, pending payments to MSMEs by various state governments stood at 16,196.31 crore as on March 30. But only in a fraction of cases, the MSMEs moved the MSEFC seeking settlement of payment, as has been evident from the above figures.

Industry sources said despite taking up the matter repeatedly with the Central and state governments, the issue remains unresolved and a stumbling block in the sector’s growth.

The industry raised its concern about the delayed payments with the Union MSME minister Narayan Rane, who met industry associations and MSME experts on Wednesday (April 27) to discuss the upcoming policy decisions as well as various issues crippling the sector post-pandemic.

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“The minister, as usual, assured us to look into the matter. In February, we drew the attention of development commissioner of MSME Shailesh Kumar Singh. Most MSMEs are facing severe fund crunch due delayed payment,” said a member of the Federation of Indian Micro and Small & Medium Enterprises (FISME).

The MSME was one of the worst affected sectors during the pandemic with industry sources saying 95 per cent units were affected during the national lockdown imposed on April 2020.

An overview of the pandemic impact on the MSME sector can be found from the spike in closure of units in states registered on the Union government’s Udyam portal alone.

In 2021-22 (till March 9), 5,577 units closed in various states as against 175 in the 2020-21 fiscal.

About 67 per cent of the MSME units were temporarily closed for at least three months during the pandemic, says a survey by the Small Industries Development Bank of India (SIDBI), conducted on the advice of the ministry.

Meanwhile, the MSME ministry has decided to conduct an ‘MSME expedition’ in rural areas of 12 states from May 1 to create awareness about government schemes and initiatives in the rural areas.

The states to be covered during the expedition are Delhi, Haryana, Punjab, Uttar Pradesh, Madhya Pradesh, Bihar, Jharkhand, Chhattisgarh, Rajasthan, Odisha, Maharashtra, and West Bengal.