Exporters unhappy with new regulation on MSME payments
In a move that could disrupt global competitiveness, Indian exporters are appealing for an exemption from a new regulation mandating faster payments to micro and small businesses (MSMEs).
The regulation, Section 43B(h) of the Income Tax Act, requires businesses to settle dues with UDYAM-registered micro and small entities within 45 days of the invoice date. This has caused alarm among exporters, who argue their average payment cycle is significantly longer – around 120 days – due to international trade practices.
The Federation of Indian Export Organisations (FIEO), along with 14 other export promotion councils, represents roughly 150,000 exporters. They warn that the 45-day deadline will create a liquidity crisis for exporters, potentially leading to lost business and higher costs.
“This regulation puts us at a disadvantage compared to our competitors in other countries,” said a spokesperson for FIEO. “Many foreign firms offer more lenient credit terms, and if we can’t match those terms, we risk losing valuable export deals.”
Exporters further highlight the complexity of international trade by pointing out that the Reserve Bank of India allows up to nine months to realize export proceeds. This extended timeframe makes it difficult, if not impossible, for exporters to adhere to the 45-day deadline for MSME payments.
While acknowledging the importance of supporting MSMEs, exporters propose alternative solutions. They advocate for a phased reduction in the payment timeframe for their sector, allowing them to adjust to the new regulation without jeopardizing their global competitiveness. Additionally, they propose exempting export-related transactions from Section 43B(h) altogether.
The clash between the government's objective of aiding MSMEs and the exporters' need for international competitiveness presents a significant challenge. It remains to be seen if the government will consider the exporters' pleas or implement the regulation as planned on April 1st.