MSMEs Struggle To Stay Alive
Outlook Money|November 2020
The backbone of India’s economy employing over 100 million faces trying times
Lola Nayar

Revival in global trade and export orders does bring hope for India’s Micro, Small, and Medium Enterprises (MSMEs) that account for 48 per cent of the country’s exports and happen to be the largest employers after agriculture. However, anxiety looms large on their ability to carry on with severe liquidity crunch, as many overseas buyers are delaying payment and some have filed for bankruptcy.

According to the National Sample Survey 2015-16, there are 6.34 crore MSMEs—6.30 crore micro, 3.31 lakh small, and 5,000 medium enterprises— employing 11.10 crore people. The government has been taking various incentives and measures to promote the sector considered the economy’s backbone. However, unless addressed, the current problem holds the risk of closure of many units, leading to huge job losses—something India can barely afford.

Animesh Saxena, President of Federation of Indian Micro and Small & Medium Enterprises (FISME), says delayed payments would hit almost 90 per cent of the MSMEs. International buyers, who were earlier paying within 30 days, are now seeking 90 days for the same. “Though most big companies have been paying on agreed terms, some are refusing to honor agreements. Many are delaying payments citing various reasons including poor sales,” says Saxena, who is also the Managing Director of Neetee Clothings, an apparel exports company.

The slowdown triggered by COVID-19 forced many overseas buyers to delay payments as goods were not moving off shelves. In some cases, payments for goods delivered were delayed up to six months. Neetee is among the few fortunate that have received payments within 60 days.

With around ₹10 crore worth of payment stuck, Prit Mohinder Uppal, Managing Director of Faridabad-based Pee Empro Exports, is among those hit hard by the pandemic. “Delay in payments has led to financial problems for us with over ₹10 crore locked in companies that have declared bankruptcy,” says Uppal. “What worries us is that bankrupt companies in the US and EU will not pay us. These companies will go through a restructuring process to turn profitable again.”

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