Up to US$346 million of Indian SME payments stuck with the government

Indian SMEs have US$346 million of payments stuck in the government for up to a year, and although they have been assured that payment will be released to them, no timeline has been specified by the government.

Finance Minister Nirmala Sitharaman chose not to commit to the 45-day timeline that the SMEs had requested, although she assured that payments will be made.

The government has so far released Rs 30,000 crore (about US$216.7 million) of payments withheld by the government bodies.

The FISME (The Federation of Indian Micro and Small & Medium Enterprises) told Money Control India that a timeframe would have been better since it would allow MSMEs to get a bank discount or guarantee against the payment. The delay in payments has led to working capital issues for the small companies.

The SMEs owed the most money are the ones supplying the government in the railways, electricity and aeronautics industries. The Ministry of Railways in particular owes a large amount of money to SMEs as it buys carpets, fabrics and consumables. It has been paying its suppliers late by four to five months. The electricity board acquires transformers and cables in huge quantities from SMEs, but it has become the norm for it to take a staggering six months to a year to pay them.

In 2012, the government started buying more from SMEs as part of the Public Procurement Policy to encourage SME growth. Under this policy, it is mandatory for government bodies to give a certain percentage of their business directly to SMEs. But if the result is delayed payments it might mean negative effects or even result in some small companies going bankrupt as cash flow is the lifeblood of small companies.

In perhaps a minor concession to the SMEs for not supplying a timeline for paying them back, the government announced that all their pending GST (Goods and Services Tax) refunds will be paid within 30 days. And in the future the government will pay GST refunds to SMEs within 60 days.