Daily Editorial Analysis 8 May

Editorial Analysis based on “MSMEs are not paid on time. They need to be” published in The Indian Express.

Introduction

• Micro, small, and medium enterprises are a key part of the Indian economy. Not only do they account for a significant share of the country’s manufacturing output and exports, but they also employ a sizable section of the labor force. However, the lack of access to credit and the issue of delayed payments are particularly serious.

Issues of delayed payments
Micro and small enterprises account for a majority of the annual delayed payments.

• The typical payment cycle of MSMEs ranges from 90 to 120 days. This large window tends to create mismatches between an entity’s cash inflows and outflows, thereby increasing its working capital requirements.
• Larger companies try to circumvent the provision of budget 2022-24 by canceling orders to registered MSMEs as they prefer longer payment cycles. They instead are now placing orders with unregistered MSMEs, because they give them greater flexibility in operations.
• The inability to deduct payments immediately, as provided in new budget provisions, places financial strain on MSMEs. Larger companies are reportedly pressuring MSME suppliers to cancel their MSME registration.
• Larger companies hold significant negotiating power over MSME suppliers. This power asymmetry has led to a concerning trend of MSMEs deregistering to avoid losing orders.
• Despite existing regulations mandating timely payments to MSMEs, enforcement mechanisms have often been inadequate.

Impact of delayed payments on MSMEs:

Impact on Cash Flow:

• Delayed payments severely affect the cash flow of MSMEs, which are often reliant on timely payments to meet their operational expenses.

Business Operations Disruption:

• Delayed payments disrupt the day-to-day operations of MSMEs, hampering their ability to pay suppliers, employees, and creditors on time.

Impact on Growth and Expansion:

• The inability to access timely payments constrains the growth and expansion opportunities for MSMEs.

What is MSME?

MSME stands for Micro, Small, and Medium Enterprises. In accordance with the Micro, Small, and Medium Enterprises Development (MSMED) Act in 2006, the enterprises are classified into two divisions.

1. Manufacturing enterprises – engaged in the manufacturing or production of goods in any industry
2. Service enterprises – engaged in providing or rendering services

New MSME Definition & Classification (2020)

• In 2020, the Government of India revised the definition and criteria for classifying Micro, Small, and Medium Enterprises (MSMEs) under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006. The new classification for MSME Registration is based on a composite criterion of investment and turnover instead of the previous investment criterion only.

Criteria for MSMEs:

Types	Investment	Turnover
Micro	Upto Rs. 1 crore	Upto Rs. 5 crores
Small	Rs. 1- 10 Crores	5-50 Crores
Medium	Rs. 10-50 Crores	50- 250 Crores

Recent Government Initiatives Related to MSMEs:

• Raising and Accelerating MSME Performance (RAMP) Scheme
• Credit Guarantee Trust Fund for Micro & Small Enterprises (CGTMSE)
• Interest Subsidy Eligibility Certificate (ISEC)
• A Scheme for Promoting Innovation, Rural Industry & Entrepreneurship (ASPIRE)
• Credit Linked Capital Subsidy for Technology Upgradation (CLCSS)
• Zero Defect & Zero Effect (ZED)

Steps taken by the government to address the issue of delayed payments:

Over the years, the government has taken steps to make matters easy for these enterprises.

• Samadhan Portal: The government has launched the Samadhaan portal to monitor the outstanding dues to MSMEs.
• Budget provisions: In the Union budget 2023-24, the government also introduced a provision to ensure timely payments to MSMEs. Larger companies are now allowed to deduct payments to MSMEs only after they are paid. This provision prevents larger companies from making deductions in their tax returns, increasing their tax liability. The new provision aims to reduce the payment cycle of MSMEs from 90-120 days to 45 days of the supply of goods and/or services.
• The government is engaging with stakeholders to address the issues faced by MSMEs and suggestions are being sought to ensure timely clearance of MSME bills, as delayed payments have long hindered their operations.

Conclusion:

• MSMEs encounter difficulties accessing low-cost credit and resolving the issue related to delayed payments is crucial for the sustenance of MSMEs. Timely resolution of delayed payment issues is crucial for the financial health and sustainability of MSMEs.
• Advocacy groups and industry associations continue to push for stricter enforcement of payment regulations and the implementation of measures to expedite payment clearance processes.

Editorial Analysis based on “Plastic Solution: Beyond the Global Plastics Treaty” which appeared in The Hindu.

Introduction:

• The Global Plastics Treaty, an ambitious initiative involving at least 175 United Nations member nations to eliminate the use of plastics, concluded its fourth round of negotiations

Overview of the Global Plastics Treaty:

• Involves 175 UN member nations aiming to eliminate plastic use.
• Aims to finalize a legal document by the end of 2024 with timelines for reducing plastic production, banning certain chemicals, and setting recycling targets.

Status of Negotiations:

• The fourth round of negotiations recently concluded without an agreement.
• Another round is scheduled in Busan, South Korea, in November due to unresolved issues.

Plastic Waste Management in India:

• Implemented Plastic Waste Management Amendment Rules (2021), banning 19 categories of single-use plastics.
• However, there is an exclusion of plastic bottles and multi-layered packaging boxes in the rules.
• Many outlets still selling banned items means the national ban on single-use plastics has not been implemented in letter and spirit.

Global Distribution of Plastic Pollution: ●Brazil, China, India, and the U.S. account for 60% of plastic waste, highlighting global inequality in pollution responsibility.

Challenges in the negotiations:

• Reluctance on Deadlines:
  • Oil-producing countries like Saudi Arabia, the United States, and Russia, along with India and Iran, resist firm deadlines to cut plastic production.
• Divergent Timelines:
  • African countries, backed by some European nations, prefer a reduction timeline around 2040, differing from those pushing for earlier deadlines.
• Disagreement on Decision-Making:
  • There's disagreement on whether contentious treaty aspects should be decided by vote or consensus, with consensus implying each country holds veto power.
• India's Concerns:
  • India stresses the need for any binding measure to consider accessibility, affordability, and alternatives to plastic.
  • It emphasizes addressing cost implications and arrangements for capacity building, technical assistance, and financial aid.
• Principle of Shared Responsibility:
  • India's stance aligns with the principle of 'common but differentiated responsibility' seen in climate talks.
  • This principle suggests that while all nations share a common goal, wealthier countries should support others and adopt stricter targets themselves.

Conclusion:

• Transitioning away from plastic requires investment in alternative products and affordability improvements before setting realistic targets.