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<keyword id="20190045" type="General" weightage="20" keywordseo="Industry-body" source="keywords">Industry body</keyword> <keyword id="21568150" type="General" weightage="20" keywordseo="SME-Chamber-of-India" source="keywords" meta.keywordsubtype="org" meta.entityname="SME Chamber of India" meta.hostid="261" meta.entityid="SME Chamber of India">SME Chamber of India</keyword> has urged <keyword id="19956758" type="General" weightage="20" keywordseo="Finance-Minister" source="keywords">Finance Minister</keyword> <keyword id="19916618" type="General" weightage="20" keywordseo="Nirmala-Sitharaman" source="keywords">Nirmala Sitharaman</keyword> to continue the 45-day <keyword id="21233021" type="General" weightage="100" keywordseo="MSME-payment-rule" source="keywords">MSME payment rule</keyword> for <keyword id="20008810" type="General" weightage="20" keywordseo="corporates" source="keywords">corporates</keyword> and other buyers. According to Section 43B(h) of the <keyword id="19936187" type="General" weightage="20" keywordseo="Income-Tax-Act" source="keywords">Income Tax Act</keyword>, introduced through the <keyword id="19955404" type="General" weightage="20" keywordseo="finance" source="keywords">Finance</keyword> Act 2023, if a larger company does not pay an MSME on time -- within 45 days in case of written agreements -- it cannot deduct that expense from its taxable income, leading to potentially higher taxes. The government in last year's Budget added a new clause under Section 43B of the Income Tax Act to address the challenge of delayed payments faced by MSMEs in the country. "We are pursuing not to change the 45-day MSME payment rules imposed by the Department under the pressure of corporates or multinational companies to save the life span of the MSME sector. Section 43B(h) of the Income Tax Act reinforces the importance of timely payments by mandating that companies settle payments to MSME vendors within 45 days to qualify for deductions," SME Chamber said in a statement addressed to Sitharaman. The industry body argued that this provision serves as a powerful incentive for companies to adhere to payment timelines, thereby supporting the financial health of MSMEs. "Many MSMEs are NPA victims of corporates, who are buying from them and not dealing through the TReDs platform. Most of the corporates and multinational companies are forcefully insisting to deregister from the Udyam Portal and insisting not to deal through the TReDs platform," SME Chamber stated. The industry body also urged the finance minister to consider providing Rs 5 crore loans under the "Differential Rate of Interest" scheme for micro and <keyword id="20569966" type="General" weightage="20" keywordseo="small-enterprises" source="keywords">small enterprises</keyword>. It suggested changing the NPA definition from 90 days to 180 days for the MSME sector. The chamber also sought the setting up of a task force to review various issues, hurdles, grievances and difficulties faced by MSMEs for availing credit facilities and the lack of approach by the financial institutions towards enhancement of credit flow to the MSME sector.

Continue 45-day MSME payment rule: Industry body to Finance Minister Nirmala Sitharaman

The <keyword id="19900449" type="General" weightage="20" keywordseo="government" source="keywords">government</keyword> may relax the requirement of making payments to <keyword id="19910977" type="General" weightage="100" keywordseo="MSMEs" source="keywords">MSMEs</keyword> within 45 days of buying goods and services, to prevent large corporates from looking at other sourcing avenues, sources have noted. An announcement to this effect could be made in the Budget likely to be presented on July 23. The government is considering suggestions regarding changes to Section 43B(h) of the <keyword id="19936187" type="General" weightage="20" keywordseo="Income-Tax-Act" source="keywords">Income Tax Act</keyword> made by MSMEs during pre-budget consultations, sources said. The government, in last year's budget added a new clause under Section 43B of the Income Tax Act to address the challenge of delayed payments faced by MSMEs in the country. According to Section 43B(h) of the Income Tax Act, introduced through the Finance Act 2023, if a larger company does not pay an <keyword id="19990810" type="General" weightage="20" keywordseo="MSME" source="keywords" meta.keywordsubtype="org" meta.entityname="MSME" meta.hostid="261" meta.entityid="MSME">MSME</keyword> on time -- within 45 days in case of written agreement -- it cannot deduct that expense from its taxable income, leading to potentially higher taxes. MSMEs fear that due to this provision, large buyers could cold-shoulder MSME suppliers and start buying either from those MSMEs that are not registered with Udyam or from non-MSMEs. The amendment was brought in for MSMEs to get timely payment, but a lot of concerns were raised by them, sources said, adding that they feared that large corporate, in bid to safeguard their interest, can shift their sourcing requirement to bigger firms or ask their vendors to give up their MSME registration to do business with them. Earlier in May, Finance Minister <keyword id="19916618" type="General" weightage="20" keywordseo="nirmala-sitharaman" source="keywords">Nirmala Sitharaman</keyword> had said the changes, if any, to the rule will have to be done in the full Budget in July under the new government as per the representations submitted by MSMEs. The MSME sector accounts for 30% of the country's gross domestic product (GDP) and the second largest employer after agriculture. The share of <keyword id="35090" type="General" weightage="20" keywordseo="Exports" source="Orion">exports</keyword> from products specified for MSMEs constituted 45.56 % of the country's total exports.

Govt may relax 45-day payment rule for MSMEs in Budget 2024

New Delhi, Apr 17 () Finance Minister Nirmala Sitharaman on Friday said the RBI has taken a slew of steps to maintain adequate liquidity in the system, incentivise bank credit flows, ease financial stress and enable normal functioning of markets, following difficulties being faced due to COVID-19.Announcing a second stimulus in less than a month, the RBI eased bad-loan rules, froze dividend payment by lenders and pushed banks to lend more by cutting the reverse repo rate by 25 basis points to help mitigate risk to the economy posed by the pandemic."In view of the difficulties being faced due to #COVID19, the @RBI has taken a slew of steps aimed at maintaining adequate liquidity in the system, incentivising bank credit flows, easing financial stress, and enabling the normal functioning of markets," Sitharaman said in a tweet.In order to increase credit to farmers, MSMEs and housing sector, RBI announced a special refinance facility totalling Rs 50,000 crore for NABARD, SIDBI and the National Housing Bank, she said.Of this, Rs 25,000 crore goes to NABARD, Rs 15,000 crore to SIDBI, and Rs 10,000 crore to NHB for improving long-term funding requirements of agriculture and the rural sector, small industries, housing finance companies, NBFCs and MFIs, the minister said."To increase MSME liquidity, @RBI announced a targeted long-term repo operation totalling Rs 50,000 crore aimed at mid and small NBFCs and MFIs. This amount can be revised upwards if needed in the future. RBI also cut the reverse repo rate by 25 bps to 3.75%," Sitharaman said.The reverse repo rate is the rate banks earn by parking deposits with the Reserve Bank of India."In order to encourage banks to deploy these surplus funds in nvestments and loans in productive sectors of the economy, it has been decided to reduce the fixed rate reverse repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 4 per cent to 3.75 per cent with immediate effect," the RBI said.However, the RBI retained the policy repo rate at 4.40 per cent, and the marginal standing facility rate and the Bank Rate at 4.65 per cent.She further said that to ease the worries of MSMEs that are in danger of becoming NPA accounts, it has now been decided that the NPA classification norms will exclude the 3-month moratorium window that banks are allowed to give on loan repayments.This effectively means that bad loans or non-performing asset (NPA) classification will now happen after 180 days instead of the current policy of 90 days of payment default.This would cover the borrowers of both banks and NBFCs but lenders will have to make an additional provision of 10 per cent for those exposures under moratorium."The @RBI has increased the ways and means advance limit for states to 60 per cent over and above the level as on March 31 to help state governments tide over cash flow problems due to a temporary dip in revenue collections," she said.The RBI earlier this month had announced an increase in the ways and means advances (WMA) limit of states by 30 per cent.It has now been decided to increase the WMA limit of states by 60 per cent over and above the level as on March 31, 2020 to provide greater comfort to the states for undertaking COVID-19 containment and mitigation efforts, and to plan their market borrowing programmes better. The increased limit will be available till September 30, 2020.The RBI had announced its first stimulus on March 27 to help the economy deal with the impact of COVID-19 pandemic. DP BALBAL

RBI measures to boost liquidity, incentivise banks to lend more to boost economy: FM

New Delhi, May 19 () The government's Rs 20.97 lakh crore COVID-19 package lacks in addressing immediate concerns of the economy as the actual fiscal impact of the additional stimulus is only about 1 per cent of GDP as opposed to the claim of 10 per cent, Fitch Solutions said on Tuesday. Prime Minister Narendra Modi on May 12 announced a stimulus package of Rs 20 lakh crore, or nearly 10 per cent of GDP, to deal with the economic fallout of COVID-19. The contents of the package were broad-based and announced in five tranches. "About half of the package amount covers fiscal measures that had previously been announced and also include the estimated economic impact of monetary stimulus from the Reserve Bank of India (RBI)," Fitch Solutions said in a note. The rating agency said a seeming reluctance for fiscal expansion by the central government amid the COVID-19 crisis in India also poses a significant downside risk to its 1.8 per cent growth forecast for 2020-21 fiscal. "India's economic crisis is growing increasingly dire due to surging COVID-19 infections and weak demand both domestically and externally. We believe that every delay to effective government stimulus will only deepen the downturn, which will eventually require even more spending to lift the economy out of the doldrums, which could see the deficit come in wider," it said. The new fiscal stimulus announced between May 13 and May 17 is "made up of the government loan guarantees, credit extensions to be led by banks, and regulatory amendments," it said. The new spending will only amount to about 1 per cent of GDP, which would take India's total central government COVID-19 fiscal response to-date to only 1.8 per cent of GDP, it said. "We see the package as being lacking in addressing the immediate concerns of the economy and have revised our central and combined deficit forecasts for FY2020/21 (April–March) to 7 per cent and 11 per cent of GDP respectively, from 6.2 per cent and 9 per cent previously," the rating agency said. The package, it said, will not have a major fiscal and economic impact, despite the government's claim of its '10 per cent of GDP' size. Of the host of new stimulus measures, only about six -- pension fund support, temporary tax cuts, farm infrastructure upgrades (if funds are quickly disbursed and projects rapidly executed), free food provision for migrant workers, funds to safeguard rural employment and an emergency fund for post-harvest activities -- can be quantified as a fiscal stimulus with a near-term impact. "Loan guarantees have been excluded as they will not have an immediate fiscal impact and will depend on other factors such as loan demand and bank propensity to lend," it said. Stating that it is skeptical of the efficacy of the announced measures despite the broad-based package, Fitch Solutions said the Government loan guarantees should technically aid credit flow to MSMEs through non-bank lenders. However, this will only aid to stem business closures in the economy rather than support an expansion at this point. Moreover, confounding new rules on MSME definition which have both an investment and a newly introduced turnover limit will also hamper credit flow as businesses may fail to meet one or the other, rendering them ineligible for the MSME stimulus credit. "Many of the announced schemes such as regulatory changes and vague reform plans also only target medium-term supply-side issues but fail to address immediate demand-side issues. As such, we expect further fiscal spending to be announced over the coming months, especially after India extended its nationwide lockdown by another two weeks to May 31, which would further impact economic activity," it said. The rating agency said central government revenues are likely to contract by 18.1 per cent in FY2020/21 due to repeated extensions to nationwide lockdowns amid a worsening COVID-19 outbreak domestically, and weak appetite for fiscal stimulus by the central government to lift the economic activity. With the unemployment rate at over 20 per cent and a weak economic outlook both domestically and externally, both personal income and corporate income tax revenues will remain under severe stress over the coming quarters, it said. While India is pushing to reopen its economy, Fitch said this is motivated by an urgent need to limit further economic hardship rather than an easing outbreak situation and infections could well accelerate after lockdowns are lifted, which would hamper the pace of economic recovery going forward. Also, India's debt-to-GDP will almost certainly surge as a result of this crisis as the government will have to fund its expenditures with increased domestic borrowing amid a revenue shortfall. India's combined government debt stands at about 70 per cent of GDP as of December 2019, of which central government debt is at 47 per cent of GDP. An increased debt load will entail higher interest payments and this would divert even more resources away from more productive economic spending, and thus constrain India's long-term growth potential, Fitch said. "As opposed to other fiscal stimulus packages in the region, India's package includes previously announced measures and also monetary stimulus, making the actual fiscal impact of the additional stimulus only about 1 per cent of GDP," according to Fitch estimates. The stimulus includes positive reform efforts, loan guarantees, and other measures that will be somewhat supportive of the Indian economy during the crisis and over the medium term. "The frugal fiscal crisis intervention will likely impede a rapid economic recovery and accordingly, tax revenues, and we are revising our FY2020/21 (April-March) central fiscal deficit forecast to 7.0 per cent of GDP and overall fiscal deficit forecast to 11.0 per cent of GDP," it added. ANZ ANU BAL

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Continue 45-day MSME payment rule: Industry body to Finance Minister Nirmala Sitharaman

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Govt may relax 45-day payment rule for MSMEs in Budget 2024

PTI

RBI measures to boost liquidity, incentivise banks to lend more to boost economy: FM

PTI

India's 'mammoth' COVID-19 package much smaller than it seems, says Fitch Solutions

PTI

Full text of President Ram Nath Kovind's first address to the Parliament as the 17th Lok Sabha gets underway

BI India Bureau

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