On September 1, 2021, the Ministry of Micro, Small and Medium Enterprises (MSME) in India issued an important clarification regarding the benefits of provisions of delayed payments as stipulated under the MSMED Act, 2006. This clarification, rooted in the Office Memorandum (OM) No. 1/4(1)/2021-P&G/Policy, specifically addresses the eligibility of retail and wholesale trades classified as MSMEs for certain benefits.
Policy Background: The original Office Memorandum dated July 2, 2021, expanded the definition of MSMEs to include retail and wholesale trades, allowing these businesses to register on the Udyam Registration Portal. This inclusion was a significant step, aimed primarily at facilitating these businesses’ access to Priority Sector Lending, thereby enhancing their financial support and growth prospects.
Clarification on Delayed Payment Provisions: However, ambiguities arose concerning whether these retail and wholesale trade MSMEs would also be eligible for the benefits related to delayed payments as provided under the MSMED Act, 2006. Delayed payment provisions are crucial for protecting MSMEs against the financial strain caused by late payments for goods and services provided.
The September 1 clarification makes it explicit that while retail and wholesale trades classified as MSMEs can avail themselves of Priority Sector Lending benefits, they are not entitled to the delayed payment benefits under the MSMED Act, 2006. This distinction is critical for traders and MSMEs alike, ensuring clear boundaries regarding the extent of benefits accessible to different categories of enterprises.
Implications for MSMEs and Traders: This clarification has significant implications for the operational and financial strategies of retail and wholesale trade MSMEs. While these businesses can leverage Priority Sector Lending to bolster their financial health and expansion efforts, they must seek alternative mechanisms for managing and mitigating the risks associated with delayed payments.
For MSMEs outside the retail and wholesale trade sectors, the continued access to delayed payment provisions under the MSMED Act, 2006, provides a safeguard against cash flow disruptions, reinforcing their financial resilience.
Conclusion: The government’s clarification delineates the scope of benefits under the MSMED Act, 2006, for retail and wholesale trade MSMEs, emphasizing Priority Sector Lending while excluding delayed payment advantages. This policy update underscores the need for these businesses to adopt robust financial planning and risk management practices. As the landscape for MSMEs evolves, staying informed and adaptable to regulatory changes remains paramount for sustainable growth and stability.
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1/4(1)/2021-P&G/Policy
Government of India
Office of Development Commissioner (MSME)
Ministry of Micro, Small and Medium Enterprises
MSME Policy Division
Nirman Bhavan, New Delhi
E-19630
Office Memorandum (OM) No. 1/4(1)/2021-P&G/Policy, Dated: 01.09.2021
Subject: – Benefits of provisions of delayed payments as per MSMED Act, 2006 available to MSMEs viz-a-viz Traders related
Vide OM No. 5/2(2)/2021-E/P&G/Policy dated 2.7.2021 issued by this office, Retail and Wholesale Trades have been included as MSMEs, allowing them to be registered on Udyam Registration Portal and benefits to Retail and Wholesale trade MSMEs are to be restricted to Priority Sector Lending only.
2. In this context, some MSEFCs have been approached by Traders to get the benefits of provisions of delayed payments as per MSMED Act, 2006 available to MSEs. It is clarified that as mentioned in the aforesaid OM, the benefits to Retail and Wholesale trade MSMEs are restricted upto Priority Sector Lending only, and any other benefits, including provisions of delayed payments as per MSMED Act, 2006, are excluded.
3. This issues with the approval of the competent authority.
(Amit K. Tamaria)
Deputy Director(Policy)
To,
Shri Shubhendu Kumar,
Sr. Technic Director,
NIC Unit,
0/o DC( SME)-
(For uploading on website for information of general public)
