Raising Concerns
Despite sops, cos still resisting clearing dues to smaller firms on time, says CEA Nageswaran
This story was originally published at 22:33 IST on 20 January 2025
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NEW DELHI – Raising concerns over working capital availability to micro and small enterprises, Chief Economic Adviser V. Anantha Nageswaran said large companies were insisting the government rolls back measures to clear payments for goods supplied by smaller enterprises. He said this also hinders the scope of getting earning-based cheaper credit for micro and small enterprises.
Nageswaran was referring to the tweaks made in Finance Act 2023 by inserting subclause H under Section 43B of Income Tax Act, thereby allowing payments made to micro and small enterprises to be eligible for deduction from business income only if the payment is actually made and not on accrual basis.
"There is resistance from the large entities in this country and the association representing them are asking for this kind of nudge to be rolled back. So, micro small enterprises have this kind of uncertainty hanging over their heads with respect to their earning receipts that banks will also be loath to lend on earnings-based credit decisions will be difficult to make," he said at an event organised by Export Import Bank of India.
He said there is a need to look at some of the political economy and behavioural resistance that continues to prevail in the country where large enterprises still look at micro and small enterprises as sources of working capital rather than them being sources of working capital for micro and small enterprises.
Nageswaran said another issue that the micro and small enterprises face is the scarcity of land for manufacturing activity, which, in turn, affects their capability to contribute in global value chain. "The land that we have, which is already a scarce resource in India, is subject to so many regulations that enterprises don't get to use the full land that is available to them for productive purposes."
"Some rules that we have...the overall built-up land area you are allowed on a given land those requirements are so extensive and onerous that extremely law abiding enterprise, if it is a micro, small enterprise will not be able to use even 20-30% of the land that is available at ground floor. In which case you will have to build everything from the first floor. So we have made manufacturing more complicated," he said.
"Our rank as a manufacturing exporter in the world is only 10th. So we have a huge gap to catch up with our rank as merchandise exporter," Nagesh Kumar, director and chief executive of the Institute for Studies in Industrial Development said. Kumar is also one of the three external members on the Reserve Bank of India's Monetary Policy Committee. End
Reported by Sagar Sen
Edited by Deepshikha Bhardwaj
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