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MSMEs can be educated on good financial practices, invoicing, and dispute resolution to reduce the occurrence of delayed payments, says Dinesh Agarwal
In an interview with BW Businessworld, Dinesh Agarwal, Founder and CEO, IndiaMART has said that the access to finance, lack of infrastructure leading to increased operational costs, market, technology, availability of raw materials, skilled labour and information has always remained a big hurdle for Micro, Small and Medium Enterprises (MSMEs).
He said that many things need to be done to educate and assist small business owners especially from emerging markets, around the use of digital means for running and growing their businesses.
“If MSMEs could leverage the technology to its full potential, many of the challenges being faced by MSMEs currently can be solved and can contribute to sustainable economic development,” added Agarwal.
Edited excerpts:
Tell us about how your company is empowering small businesses in India.
When it comes to small businesses, we provide them with an open marketplace where they can connect with buyers and sellers from anywhere in the world and grow their business online. While on one hand, we provide them assistance and handholding in building their web presence, on the other hand, we use innovative and state-of-the-art digital solutions to create a larger, quicker and safer marketplace.
Thus, we believe in a holistic approach and in providing assistance to small businesses at every stage of their growth journey.
What are your views on Union Budget 2023-24 as far as the MSME sector is concerned?
The Union Budget 2023-24 showcases a forward-looking and comprehensive approach to elevate the country’s economic growth and it prioritises the utilisation of India’s vast working-age population by focusing on developing digital infrastructure and establishing International skill centres. The push on infrastructure, manufacturing and capital investments would further enable the growth of MSMEs and will lead to job creation.
The budget also focussed on empowering the MSMEs by addressing their financial needs which were most affected during Covid-19. The government has announced a credit guarantee scheme for the MSME sector and an additional 2 lakh crore collateral-free credit scheme which is very crucial for the infusion of cash in businesses.
Besides, the announcement of MSMEs to get 95 per cent of the forfeited amount for contract failure during Covid-19 and Income tax deduction only on payment of MSME dues will definitely have a huge impact on the businesses. The combination of all these initiatives presents a promising outlook for the growth of MSMEs in this Budget.
What are the things that are missing in the budget for MSMEs and what are the things the government could have added?
The government has covered many aspects of MSMEs such as credit enablement, digital payments, working capital and the simplification of tax regime for ease of doing business. But still, there are a few areas which need simplification. For instance, one place that the budget could address and set right is eliminating the separation of central goods and services tax (CGST) and state GST in bills and filings.
Similar to the direct tax filing approach, GST compliance can also be made easier by pre-filling details, especially with the thrust on e-invoicing, it should be possible. Advance tax payments can be aligned with quarter ends rather than 15 days before quarter end.
Perhaps the government will incorporate these aspects in future budgets as these moves will go a long way to simplify business processes further and help small businesses.
Do you think this budget will change anything for Indian MSMEs or is it just another regular budget?
The government has been focusing on the formalisation of the Indian economy and MSMEs for some time now. Budget 2023-24 also reflects the government’s commitment to boost economic growth by investing in infrastructure development and increasing capital expenditure. Apart from that, this budget further encourages the use of technology and digital mediums which is reflected in the push of digital payments, Make AI for India, ONDC, GeM and Digital Skill centres.
The budget also focussed on improving access to finance by revamping the CGTMSE and on lowering the burden of MSMEs who suffered during the pandemic.
While all the initiatives seem to be in a positive direction, the success of these obviously depends on the execution of the schemes and the collective effort of the businesses.
What is the current state of Indian MSMEs and what are the major challenges they are currently facing?
Well, as we know the MSMEs contribute nearly 30 per cent to the Indian GDP, when it comes to the retail sector it is the MSME which meets 70 per cent of the total demand. And MSMEs’ contribution to the gross export is 45 per cent yet, this industry suffers from the problem of long working capital and slim profit margins.
On top of it, access to finance, lack of infrastructure leading to increased operational costs, market, technology, availability of raw materials, skilled labour and information has always remained a big hurdle for MSMEs.
A lot needs to be done to educate and assist small business owners especially from emerging markets, around the use of digital means for running and growing their businesses. If MSMEs could leverage the technology to its full potential, many of the challenges being faced by MSMEs currently can be solved and can contribute to sustainable economic development.
How can we solve MSMEs delayed payment issue according to you?
The government has proposed to include payments made to MSMEs within the ambit of section 43B of the income tax act for deduction will be allowed only if the payment is made within the time mandated under the MSME act which is 45 days after the supply of goods and services. This will surely help in easing the liquidity pressures faced by MSMEs in a big way.
Alongside this, the adoption of digital invoicing and payment platforms can help streamline payment processes, reduce errors, and enable quicker payment processing. Which the UPI is doing slowly and gradually.
Government and industry bodies can promote and encourage companies to sign up for the prompt payment code, which requires them to pay suppliers promptly and fairly.
When it comes to the MSMEs, they can use supply chain finance techniques such as factoring, invoice discounting or reverse factoring to get early access to funds based on their outstanding invoices.
Lastly, we need awareness and education. MSMEs can be educated on good financial practices, invoicing, and dispute resolution to reduce the occurrence of delayed payments.
What can we expect from your company this year?
We are building a one-stop solution for businesses to facilitate online commerce in the long term. Therefore, we have been taking initiatives to augment technology and product suite for further ease of our customers, which were also manifested in our various strategic investments across sectors last year.
This year as well, we would continue to enhance our value proposition, move further towards building an ecosystem and expand our reach across emerging markets of India.