Even good government polices face resistance from large businesses: Nageswaran

Chief Economic Adviser discusses challenges faced by MSMEs and resistance from large corporations in India.

Even a good government policy requiring timely payments to the key MSME sector faces resistance from large business entities, Chief Economic Adviser (CEA) V. Anantha Nageswaran said on Monday (January 20, 2025).

Speaking at an event organised by India Exim Bank of India, he said the government came up with a very thoughtful behavioural nudge to alleviate the working capital issue of micro, small and medium enterprises (MSMEs).

“The amended law gives enough leeway to make the payment within a given financial year and claim the deduction, but yet, even for this kind of a small nudge, there is resistance from the large corporate entities in this country, and the association that represents them are asking for doing away with 45-day payment ceiling for MSMEs,” Mr. Nageswaran said.

"Look at some of the political economy and behavioural resistance that continues to prevail in this country, where large enterprises still look at micro and small enterprises as sources of working capital for them, rather than them being sources of working capital for micro and small enterprises," he said.

According to Section 43B (h) of the Income Tax Act, introduced through Finance Act 2023, if a larger company does not pay an MSME on time - within 45 days in case of written agreements - it cannot deduct that expense from its taxable income, leading to potentially higher taxes.

Mr. Nageswaran also spoke on the importance of agriculture, saying it is the sector of the future.

He further said that manufacturing and services are going to face global headwinds.