Resistance from Large Businesses Challenges Good Government Policies for MSME Support, Says Nageswaran

Chief Economic Adviser V Anantha Nageswaran highlighted challenges faced by government policies aimed at supporting the MSME sector. During an event by India Exim Bank, he noted resistance from large businesses to timely payments. He explained that the government introduced a behavioural nudge to ease MSMEs' working capital issues, yet large corporations resist this initiative.

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The amended law allows payments within a financial year for tax deductions. However, large companies are pushing against the 45-day payment rule for MSMEs. Nageswaran pointed out that these enterprises view small businesses as sources of working capital, rather than supporting them financially.

Income Tax Act and Payment Regulations

Section 43B(h) of the Income Tax Act, introduced through the Finance Act 2023, addresses this issue. It mandates that if larger companies fail to pay MSMEs within 45 days under written agreements, they cannot deduct these expenses from their taxable income. This could result in higher taxes for non-compliant companies.

Nageswaran also discussed agriculture's significance, describing it as a future-oriented sector. He warned that manufacturing and services might encounter global challenges. Manufacturing could face issues due to one dominant country, while services might struggle with technological changes and trade barriers.

Land Use and Corporate Challenges

The CEA mentioned potential topics for the Economic Survey, including corporate land use. He emphasised land scarcity in India and its regulatory constraints. Companies often cannot utilise available land fully for productive activities due to these limitations.

In summary, while government efforts aim to support MSMEs through timely payments, resistance from larger enterprises persists. The introduction of tax penalties for delayed payments seeks to address this issue. Meanwhile, agriculture emerges as a promising sector amid challenges in manufacturing and services.