Exporters across sectors have sought exemption from a new rule that requires them to pay any pending bills to micro and small units within 45 days.
Around 150,000 exporters, represented by as many as 15 export promotion councils, including the Federation of Indian Export Organisations, have raised concerns over the provision, saying it will impact their liquidity as payments for exports are received with an average time lag of 120 days, although the Reserve Bank of India allows a nine-month period to realise export proceeds as sometimes it takes even longer.
“Our exporters provide such credit terms to remain competitive internationally as countries, having much lower credit rates, offer more generous terms of payment with longer tenure,” the exporters’ bodies said in a representation to the finance ministry.
Section 43B(h) of the Income Tax Act, which comes into effect on April 1, mandates payments to UDYAM-registered micro and small entities within 45 days, a move aimed at addressing the issue of delayed payments faced by such units.
Exporters have sought this to be extended to 120 days and supplies to micro, small and medium enterprises (MSMEs) to be kept outside the scope of this provision.
Micro manufacturing and services units are defined as businesses with ₹ 1 crore of investment and ₹5 crore of turnover, while small enterprises have investment worth ₹10 crore and turnover of₹50 crore.
According to the new rule, if payment is delayed to an MSME registered unit, the buyer will have to pay interest on the amount due.
As per the representation, exporters who receive supplies from micro and small units have been affected as it has impacted their liquidity. The additional liquidity, which comes at a cost, blunt their competitiveness. “The fallout of this is that small businesses will lose business and face return of goods. They are giving up on MSME certificates and benefits, which come with the registration,” said Sanjay Jain, managing director, TT Textiles, which has 10-15% dependence on micro and small enterprises for goods inputs. “Other countries don’t have such laws and such a move will encourage imports and discourage buying from micro and small enterprises. Exporters may instead buy from medium enterprises,” said an industry representative.
Exporters maintain larger inventories due to economic and demand factors in the destination market. “While exporters agree to such a move aiming to enhance liquidity of micro and small companies, they feel a longer time frame with phase-wise reduction in time would address the concerns of both the sides,” said Ajay Sahai, director general, FIEO. Exporters said that recently this has increased further due to geopolitical uncertainties. Overall, exporters face more cash flow challenges compared to domestic companies.
Stressing that to provide a level playing field to Indian exporters compared to exporters from other countries, this provision should not apply to exports, the councils said that the supply of goods from the micro and small units to exporting units, either for manufacturing of export products or for further exports , should be exempt from this provision.
“A supplier declaration to this effect should suffice for this purpose,” they said, adding that these exemptions may be provided only for a few years to help exporters adjust to the new provision.
“Making payments to MSMEs within 45 days is challenging for the handicrafts industry, wherein the credit periods often last 180 days,” said Rakesh Kumar, chief mentor, Export Promotion Council for Handicrafts.
Kumar added that handicrafts export shipment usually takes 90 days to arrive at the destination port and further 90 days for payment realisation. Buyers generally pay after receiving the goods, which, with an additional 30 days, makes it 120 days for exports.
