PSUs must blacklist delinquents in MSMEs` payment
Public Sector Units (PSU) must blacklist all contractors and sub-contractors who are delinquent in timely payment to MSMEs. Socially responsible PSUs should own up the responsibility of payment to MSMEs even if such MSMEs happened to work in their sites on indirect sub-contracts. While signing a contract with a large company, PSUs must also reserve a right to make direct payment to MSMEs, in case the direct contractor fails to make timely payment to their sub-contractors
There are millions of small and medium enterprises operating in our country. One of the grievances most of them have is payment recovery of their dues from large players. Every government promise would only be superficial for most small companies if a stricter law for MSMEs’ recovery of dues is not enacted. However, the Central government seemingly ignored their issues and concerns, after facilitating credits, as a part of the lockdown package. The MSME borrowers need to return the credit one day to the lenders. If things are not good, the credit will spell further troubles even in the lenders’ book. Many of the MSMEs have much more to recover from large companies than their total borrowed fund size. If the recovery does not happen on time, the small borrowers will continue to have problems in repaying their dues. MSMEs play a crucial role in the socio-economic development of the nation. In the manufacturing sector, they contribute a quarter of the GDP, the services sector more than 30 per cent and exports more than 48 per cent. According to the Confederation of Indian Industry (CII), about 120 million people are employed in the MSME sector.
Project managers of PSUs work hand-in-gloves with large contractors, When large contractors refuse to make timely payment to MSMEs, the project owning PSUs disown the last mile project executors’ claims, saying, “we are not aware of such sub-contractors
The ban on ` 500 and ` 1000 notes four years ago and implementation of the Goods and Services Tax (GST) later had made many small companies stop their business. The Covid-19 lock down brought many of the survivors to the brink of death further. All these have seriously affected India’s employment sector. Still, there are small enterprises which do not get help from public sector banks for various reasons. The vast majority of large corporate companies rely on small companies for all their manufacturing operations and raw material needs. Small companies play a crucial role in the construction of the project to its full implementation and supply of goods to the market. They work in tough conditions, while direct contractors eat away the margin by acting as middlemen. Through the existing system, it is common for high-profile companies to take on large-scale contracts, which are then handed over to smaller companies. Powerful PSUs spend crores of rupees every year on contracts for development activities to medium-sized corporate entities and foreign companies. As such, small companies are responsible for repairs and day-to-day operations. But the vast majority of PSU contracts directly to medium-sized corporations or foreign companies. The same contract is then outsourced to several smaller companies, either on a wage basis or under some strict contract terms and conditions. Medium corporations actasintermediaries by imposing on workers the terms of the contract until the execution of the work. If the work is carried out on time, the contract amount will be given to the medium companies which have taken the contract directly from the bigcompanies. Still, subcontractors who have carried out the work do not receive money from the intermediaries. Exploitation like this is rampant in big cities.Under the MSMES Act 2006, small and medium enterprises (SMEs) are required to pay by the contractors within 45 days of the completion of the contract and submission of the tax invoice. Astudy by Ernst & Young (E&Y), a multinational consultancy firm, last year found that large corporations owed a staggering size of money to their MSME vendors. MSMEs follow up for their dues for several years, before they settle down for writing off. Small companies are unable to afford the cost of legal action. Moreover, it takes years for a final verdict. Delinquent companies know these challenges of MSMEs. Under the MSME Act, the MSME Council is in place to deal with payment delays. But many small companies are not satisfied with such a system. Besides, when a small company seeks the help of the MSME Council, the delinquent companies put pressure on the complainant MSMEs to withdraw the petition on condition that they would pay the dues.
