With the Union Budget likely to relax the rule mandating corporates to pay small and medium enterprises (SMEs) within 45 days, the SME Chamber of India feels this would be a retrograde step, even as it pitched for easier access to credit, reduction of import duties and freedom from GST notices for MSMEs.
"Impose these terms to everyone – companies, PSUs, suppliers. In India 6.33 crore MSMEs (micro, small and medium enterprises) are facing problems in growing further because they are not given receivables on time. The need of the hour is that the 45-day payment should be maintained and not be scrapped or expanded under the pressure of corporates,” Chandrakant Salunkhe, President, SME Chamber of India, said.
This rule has raised a debate on its effectiveness. Moneycontrol had reported that the government is mulling options to relax the 45-day MSME payment deadline to 60 days or revoke it as the rule may disrupt business practices due to its severity and lack of clarity.
The rule mandates settling the payments to SMEs within 45 days, failure of which would result in denial or delay of tax deduction on overdue amounts. The rule came into effect from April 1, 2023.
Credit availability
The MSME sector which contributes 27 percent to India’s GDP growth is still struggling to stage a comeback after Covid. The industry says that the government should create a level playing field for MSMEs to grow faster, Salunkhe told Moneycontrol that the availability of credit and reduction of import duties are major asks from the Union Budget that would be presented on July 23.
Salunkhe suggested that the Small Industries Development Bank of India (SIDBI) should be made a special or full-fledged SME bank. This would enable smooth credit flows to the ecosystem.
State-owned SIDBI is the principal financial institution for MSMEs in India and mostly provides refinancing to banks that lend to MSMEs. “The bank should also provide Rs 1 lakh to Rs 50 crore guarantees so that enterprises are given proper support for loans from other banks,” he added.
As the availability of finance is a major challenge for MSMEs, another demand of the SME Chamber is to enhance collateral-free loans to Rs 15 crore to SMEs and Rs 35 crore to mid-sized companies.
“Relief of interest, priority lending and non-performing assets (NPAs) should be extended from 90 days to 180 days,” are other areas where things need to be brought to motion, as per Salunkhe. Banking services charges need to be reduced as there are hidden charges implications, he added.
He said that MSMEs should be provided 90 percent loan for buying industrial premises and special subsidies to those buying their own premises from private or government land.
“All capital goods imported should attract zero import duty and a special package should be given for setting up R&D units to the SME sector,” the president said listing the Budget expectations.
GST woes
“All enterprises in Mumbai are getting GST notices, each and every company, for any clarifications (big or small),” said Salunkhe.
The waiver of interest and penalties of the GST demand notice proposed in the 53rd GST Council meeting would bring a big relief to the SMEs. It would take some pressure off and ease their burden, Salunkhe said.
The unhappiness of small entrepreneurs emerges from the fact that they are looked at as defaulters, he said, adding that the industry should be seen as contributors to the economy and not cheaters.
With the completion of seven years of GST in July 2024, he said the government should consider relief of GST to micro companies with Rs 1 crore to Rs 2 crore turnover.
He said the government should take serious note of the profit and loss and income of the MSME sector. Ultimately, the highest share of profit is going to the government through taxes and SMEs are making five to six percent profit on any business, he said.
“A tiny manufacturer starting their business, spends 30-40 years to become an emerging enterprise of Rs 100 to Rs 400 crores mid-sized company, putting efforts to come from micro to small and to mid-corporate. The government should create a level playing field for them to grow faster, contribute more to the economy and generate employment, he said.
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