Large companies must ensure timely working capital release of MSMEs: Nageswaran

At the CII Annual Business Summit (May 12, 2026), the Chief Economic Adviser called on large companies to accept invoices from MSMEs promptly and ensure time...

What Happened

At the CII Annual Business Summit (May 12, 2026), the Chief Economic Adviser called on large companies to accept invoices from MSMEs promptly and ensure timely payment of dues to ease the working capital stress faced by small enterprises.
The CEA highlighted a structural anomaly: MSMEs — which have a significantly higher cost of capital than large corporates — effectively end up financing large enterprises through delayed payments, reversing the natural direction of capital flow.
The remarks stressed that prompt invoice acceptance and payment, combined with better access to formal credit, would improve MSME innovation capacity, support their scaling, and enable deeper integration into global value chains.
The statement aligns with existing statutory provisions under the MSMED Act, 2006, which mandate payment within 45 days but face widespread non-compliance.

Static Topic Bridges

MSMED Act, 2006 — Delayed Payment Provisions

The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 contains specific provisions (Sections 15–17) obligating buyers to pay MSME suppliers within agreed timelines, subject to a statutory maximum of 45 days from the date of acceptance (or deemed acceptance) of goods/services. Where no written agreement exists, payment must be made within 15 days. Non-compliance attracts compound interest at three times the RBI bank rate with monthly rests — one of the highest penal interest rates in Indian commercial law.

Section 15: Payment obligation — within agreed period, maximum 45 days from acceptance
Section 16: Compound interest at 3× RBI bank rate (monthly rests) on delayed amounts
MSME-1: Half-yearly return mandatory for companies with outstanding payments beyond 45 days; penalty ₹20,000 for non-filing
MSME Samadhaan portal: Delayed payment monitoring and online complaint mechanism
MSEFC (Micro and Small Enterprises Facilitation Council): Dispute resolution body; must decide within 90 days

Connection to this news: Despite the legal framework, delayed payments remain pervasive. The CEA's public call reflects the gap between statutory obligation and actual business practice, and signals that policy focus is shifting towards enforcement and cultural change rather than further legislating.

Working Capital and MSMEs — Why It Matters

Working capital is the difference between current assets (receivables, inventory, cash) and current liabilities. For MSMEs, delayed receivables directly translate into higher working capital borrowing needs. Since MSMEs access formal credit at higher rates than large corporates (often 12–18% vs 7–9%), every rupee of delayed payment effectively becomes a high-cost loan forced upon the MSME. This creates a vicious cycle: delayed payments → higher borrowing → higher costs → lower competitiveness.

MSMEs contribute ~30% of India's GDP and ~45% of total exports
Over 6.3 crore MSMEs provide employment to approximately 11 crore workers (Economic Survey estimates)
MSME credit gap estimated at ₹20–25 lakh crore (IFC estimates)
TReDS (Trade Receivables Discounting System) launched to help MSMEs discount invoices against large buyer guarantees

Connection to this news: The CEA's statement directly targets this capital-cost asymmetry. When large companies delay payment, they effectively access short-term finance at zero cost while their MSME suppliers bear the cost at market rates.

MSME Integration into Global Value Chains

India's MSMEs remain significantly under-represented in global value chains (GVCs) compared to peers in East and Southeast Asia. The CEA specifically cited trade skills integration as a pathway to scaling MSMEs into GVCs. Key enablers include formalisation (Udyam registration), digital adoption, quality certification (ZED scheme), and reliable working capital access.

Udyam Registration Portal: Single-window registration for MSMEs (replaced Udyog Aadhaar)
ZED (Zero Defect Zero Effect) scheme: Quality and environment certification for MSME products
ODOP (One District One Product): Promotes local specialisation for export competitiveness
PM Vishwakarma scheme (2023): Skill and credit support for traditional artisans/craftsmen

Connection to this news: Delayed working capital is a structural bottleneck preventing MSME upgrading and GVC integration. Timely payment directly improves the capacity of MSMEs to invest in quality, technology, and export compliance.

Key Facts & Data

MSMEs: ~6.3 crore enterprises; ~11 crore workers employed; ~30% of GDP; ~45% of exports
MSMED Act, Section 15: Maximum 45-day payment window (15 days without written agreement)
Section 16 penalty interest: 3× RBI bank rate, compounded monthly
MSME-1 filing: half-yearly; non-filing penalty ₹20,000
MSME credit gap: ₹20–25 lakh crore
TReDS: Invoice discounting platform to convert receivables to working capital
Statement made at CII Annual Business Summit, May 12, 2026
CEA noted MSMEs' higher cost of capital (~12–18%) vs large corporates (~7–9%)