The federal government has imposed a new rule forcing buyers to repay payments for goods purchased from Micro, Small, and Medium Enterprises (MSMEs) within 45 days of delivery, which is a significant development for the assessment year 2024–2025. Furthermore, by March 31, 2024, all outstanding debts to MSMEs must be settled. If these deadlines are not met, the outstanding payment will be considered income and will be liable to taxes.
Although the goal of this regulation is to protect MSMEs’ interests, the market is now unsettled as a result of it. Notably, order cancellations are increasing in Ahmedabad’s textile marketplaces, and the new restriction is also having an impact on chemical traders. In order to make sure that their payment deadlines fall beyond March 31, some consumers are deliberately choosing not to make any purchases before February 16.
The textile value chain is especially impacted by this rule because it is recognized for functioning on a credit term of up to 120 days. Concerns over the viability of 45-day payments are being voiced by industry professionals, considering that a longer credit period is the standard. A flood of cancellations and a drop in new sales in the immediate aftermath have forced several businesses to reevaluate how they source goods.
The previous chairman of the Powerloom Development and Export Promotion Council (PDEXCIL) responded to the situation by saying, “The move intends to help MSME units, but the immediate reaction is totally different.” He drew attention to the typical 120-day credit period in the textile industry, which makes it challenging for businesses to adhere to the new payment deadlines. Many dealers have reportedly canceled prior purchases, and some are delaying buying goods from MSME producers until at least February 16 in order to align payment dates with the upcoming fiscal year.
Industry insiders are urging clarification on the problems raised by the new regulation and stressing the importance of having an extensive conversation. Various associations are organizing meetings to discuss the difficulties caused by the strict payment deadlines.
Clarifying the viewpoint of the chemical sector, a spokesman from the Gujarat Dyestuffs Manufacturers’ Association (GDMA) said, “In the chemical industry, the credit period offered is about 60 days, but as demand is low, this period is often extended.” Following the legislative changes, buyers are allegedly asking sellers about their MSME registration status, a move that reflects the cautious stance taken in the wake of the new law.
As companies struggle with the new rule’s immediate effects, there is increasing agreement that there should be explicit rules and room for future revisions to account for the various credit durations used by various industries.