In a crucial pre-Budget consultation chaired by Finance Minister Nirmala Sitharaman on Wednesday, representatives from India's Micro, Small and Medium Enterprises (MSMEs) presented a series of urgent demands to address the severe challenges posed by recent US tariffs and domestic regulatory changes.
Key Demands: Loan Moratorium and Faster Payments
MSME representatives have sought a loan moratorium similar to COVID-era measures, specifically for units affected by US tariffs, to remain in effect until a trade deal with the United States is finalized. This comes as India's exports to the US slipped by 12% in September, disproportionately impacting labor-intensive sectors.
Another critical issue raised was the implementation of Section 43B(h) of the Income-Tax Act, introduced in the 2023-24 Budget. This provision mandates that larger companies must pay MSME suppliers within 45 days of goods or services delivery to claim tax deductions. However, MSMEs reported that while some companies are making timely payments to avoid penalties, others are asking MSMEs to de-register from the Udyam portal or shifting business to unregistered MSMEs to bypass the rule and maintain longer payment cycles of 90-120 days.
Sector-Specific Impact and Government Response
MSMEs informed the Finance Ministry that labor-intensive sectors are the hardest hit, particularly textiles, gems and jewellery, and fisheries. The representatives highlighted that medium-scale companies face fewer payment challenges from large corporations but encounter significant difficulties when dealing with smaller firms.
In response to mounting pressure on goods exports due to US tariffs, the Union Cabinet approved the much-awaited Export Promotion Mission (EPM) with an outlay of ₹25,060 crore for six years. Additionally, the government extended additional credit facilities of up to ₹20,000 crore to exporters.
Unintended Consequences of Tax Clause
As balance sheets for the financial year 2023-24 were audited in the assessment year 2024-25, larger companies began flagging concerns about ballooning tax liability due to the new clause in Section 43B. Simultaneously, many MSME owners reported cancellation of orders as a direct consequence of this tax provision.
MSME representatives also pitched for measures to assist in machinery upgradation and easier access to credit to boost the competitiveness of Indian manufacturers. The issue of timely payments emerged as one of the most prominently discussed topics, with some segments seeking better implementation while others argued the existing provision needed no changes.
The ongoing challenges highlight the delicate balance between protecting MSME interests through regulatory measures and ensuring these policies don't inadvertently harm the very sectors they aim to support.
