New Delhi: As India’s economy begins to slow after expanding by at least 9% for the past three years, some large companies are delaying payments to suppliers, resulting in some of these suppliers going out of business or laying off jobs, according to associations that represent so-called small and medium enterprises, or SMEs.
Such defaults also highlight the violation of a law passed in 2006 to protect small enterprises. According to the Micro, Small and Medium Enterprises Development Act, large companies that source products or services from small enterprises have to pay them within 45 days. While the law says SMEs can complain to centres in their respective states in case of non-payment and that such complaints will be addressed within 90 days of being filed, the associations claim that this is rarely the case.
And that’s when the state has a complaints body.
The complaints body in Tamil Nadu received 500-600 complaints in the past year, mostly against companies in the automobile, heavy equipment and power equipment businesses. Thus far, only 42-45 complaints have been addressed, said Gandhi Kumar, president, Tamil Nadu Small and Tiny Industries Association.
Maharashtra, which has at least 1,400 industrial estates out of which SMEs operate, is yet to set up a complaints body. Such bodies exist in Uttar Pradesh, Andhra Pradesh, Gujarat and the north-eastern states but they’re barely functional, say the associations. Only SMEs in Punjab do not face payment issues, said Joginder Kumar, president, Federation of Tiny and Small Industries of India, and a first-generation entrepreneur, who runs hand tools production units in Ludhiana.
Last week, representatives of SMEs met Prime Minister Manmohan Singh and urged him to intervene. Anil Bhardwaj, secretary general of Federation of Micro and Small and Medium Enterprises, said around 20% of India’s 13 million SMEs supply goods and services to bigger companies.
The associations say that in most cases payments are made after six months, and sometimes after a year, exceeding the 45-day credit period stipulated by law. Large companies are also required to mention payments to small enterprises according to the Companies Act. A random survey of seven large companies based out of Uttar Pradesh showed that this wasn’t being done, said Praveen Saldana, president of Indian Industries Association, which has 45,000 direct and indirect members with representations from handicraft, leather and glass manufacturers.
Such buyers conveniently blame quality, he added. “After receiving their material, many big companies withhold payment saying the material is under inspection.”
“If you want to delay payment, you can have many reasons,” said Prithvi Raj, who runs a small packaging firm, Bharat Printing and Packaging in Bangalore. “(Big) companies have always delayed payments by 90-180 days. The economic slowdown has now put them in a tighter spot as the priorities of this sector are pushed too far below the ladder.”