Around Rs 10.7 Lakh Cr Stuck In Delayed Payments From Buyers To MSME Suppliers: Report

An estimated 5.9 per cent of the gross value added (GVA) in the Indian economy— Rs 10.7 lakh crore is locked up in delayed payments from buyers to Micro, Small and Medium Enterprise (MSME) suppliers, as per a report.

A report by Global Alliance for Mass Entrepreneurship (GAME) with Dun & Bradstreet and Omidyar Network India highlighted that payment delays to MSME suppliers have remained endemic and an intractable problem in India for more than 15 years.

The report stated, "The issue is not new or the result of the pandemic. The proportion of MSME sales stuck as delayed account receivables have been consistent and steady for years prior to the pandemic."

Although the economic lockdowns during this period did intensify the problem, the numbers in the preceding five years were no less alarming, it mentioned.

The report added that this is 16 years after the passing of a leading piece of legislation designed to curtail the problem— the MSMED Act of 2006— meaning the law in itself has not achieved its intended purpose of rectifying this problem. 

"Part of this reason is the acknowledged embeddedness— or normalisation— of delayed payments by those on the receiving end of the problem, a pattern revealed in 3 out of 4 of all our interviews with MSMEs in early 2022," it said.

Small and micro enterprises which collectively constitute the backbone of the nation’s economy – shoulder most of the weight of the problem of delayed payments Rs 4.29 lakh crore and Rs 4.44 lakh crore respectively. 

In addition, these enterprises both have a larger part of their total sales locked up in delayed account receivables and are also owed money for much longer periods than their larger counterparts. 

Delayed payments constitute a whopping 65.7 per cent of all sales of microenterprises, 31.09 per cent of small enterprises and 25.19 per cent of medium enterprises in 2020-21. 

"Median debtor days beyond the legally recommended 45-day period for micro enterprises in 2020-21 was 195 days, compared to 68 days) for small enterprises and 47 days for medium enterprises," it mentioned.

While talking about the causes of Payments delay, the report stated that fundamentally, payments are delayed because of a power asymmetry between smaller suppliers and large buyers.