MSMEs bat for opening payment dispute councils to medium enterprises

KEY HIGHLIGHTS

• Ministry of Micro, Small and Medium Enterprises (MSMEs) is considering a proposal to allow medium enterprises to access MSEFCs, an institutional mechanism for settling payment disputes
• The industry has argued that allowing medium enterprises to access MSEFCs does not have any financial implications for the government and hence there should not be any problem in it
• Out of total 6.4 crore MSMEs in the country, 99.45% are micro enterprises. The small enterprises account for 0.50% and medium firms a measly 0.007%
• With the change in definition of MSMEs that substantially raised turnover criteria as basis for classification, a large number of firms now fall in the 'medium' category

Seeing merit in industry demand, the government is considering a proposal to allow medium enterprises to access Micro and Small Enterprises Facilitation Councils (MSEFCs) to settle payment disputes.

The institutional payment settlement mechanism is currently available for micro and small enterprises and not medium enterprises.

"The proposal is worth considering but it may require change in law. This could be a long-drawn process," a senior official told BusinessToday.In.

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The industry has argued that allowing medium enterprises to access MSEFCs does not have any financial implications for the government and hence there should not be any problem in it.

Claiming that medium enterprises were excluded from most support programmes for the sector, Federation of Indian Micro and Small & Medium Enterprises (FISME) Secretary General Anil Bhardwaj pitched for extending at least the non-financial benefit to them.

"The medium enterprises should not be penalised for growing in size over the years. They should get access to MSEFCs and also preference in government tenders where small enterprises are not reaching the 25 per cent quota mandated for them," he said.

While concurring with the views of fellow industry mates, VK Aggarwal, Managing Director of Shashi Cables noted that medium enterprises hardly got any considerable support from the government but had to compete with large corporates which have not only easy access to credit but also better expertise.

With the change in definition of MSMEs that substantially raised turnover criteria as basis for classification, a large number of firms now fall in the 'medium' category. They were earlier counted as 'small' enterprises and hence eligible to register payment related cases with facilitation councils.

Before the change in definition, the total MSME count was 6.4 crore with 99.45 per cent being micro entities. The small enterprises accounted for 0.50 per cent and medium firms a measly 0.007 per cent.

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MSEFCs, established under the provisions of Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 are quasi-judicial bodies empowered to take decisions as per the rules framed by the respective states and union territories (UTs).

As per real time data available on government portal Samadhaan (September 24, 2020), 13,603 cases involving claims of Rs 5,168 crore are pending with the MSEFCs. In FY20, a total of Rs 391 crore had been resolved or awarded.

Delayed payment has been one of the key issues hurting the MSME sector. It has worsened in the last five months due to economic crisis triggered by pandemic with suppliers claiming of payments getting delayed by as many as 180 days from the usual delay of 90 days.

"Medium enterprises need funds as much as micro and small enterprises. Everyone needs funds badly as all are stressed today. Why should medium enterprises be deprived of help," asks Ashutosh Jatia, Managing Director, Emerys Holding.

The law provides for clearing dues to micro and small enterprises within 45 days but compliance rate has been rather poor. The MSME Ministry this month appealed India Inc to not delay the payments to their suppliers as this could make their survival difficult.

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