V Anantha Nageswaran, the Chief Economic Advisor to the Government of India, on Saturday, stressed the critical need for large enterprises to ensure timely payments to small and medium enterprises (SMEs), highlighting that such payments are essential for the financial health and growth of these smaller businesses. He made these remarks while addressing the inaugural session of the Laghu Udyog Bharati MSME Sangamam 2024 via video conference.

While financial institutions have made significant progress in offering uncollateralised loans to SMEs, leveraging technology and FinTech tools to assess creditworthiness, Nageswaran pointed out that large companies must do their part by ensuring prompt payments to smaller units.

He noted that many large firms have not registered on trade receivables exchange discounting platforms, and even when they do, they fail to initiate payments or submit bills for discounting. This delay prevents SME suppliers from accessing quicker funds, which are critical for their operations.

Nageswaran also highlighted a concerning trend based on data for Nifty 50 companies, with 25-30 per cent of them operating with negative working capital. This means these large companies rely on credit from their suppliers, often SMEs, rather than extending credit to their customers. Essentially, they are benefiting from the working capital provided by the MSME sector, which is not the ideal scenario.

India’s SME sector

He stressed that this situation must change for India’s SME sector to make a more significant contribution to GDP and to support the country’s efforts to become a “China plus one” alternative in global manufacturing.

While recognising the importance of government policy interventions, Nageswaran cautioned against focusing solely on government actions. He pointed to a 2016 incident where a US retailer cancelled a $90 million order from an Indian exporter over mislabelling inferior bedsheets as premium Egyptian cotton, asking if such practices of cutting corners still persist in the industry. “Are we still satisfied with staying small because growth requires more effort, competition, and compliance?” he questioned.

He also proposed higher thresholds for SMEs in India to foster growth and global competitiveness. He suggested that SMEs should include companies with up to 1,000 employees, while micro-enterprises should have fewer than 50 employees. This shift in mindset, he said, is crucial for helping SMEs scale up and compete effectively in the global economy.”

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