On 27 June, marked as National MSME Day, a wave of lavish tributes canonised small businesses as the ‘backbone’ of employment, industrial production and exports. On 1 July, the nation marked GST Day, commemorating the ninth anniversary of its rollout.

Yet the sobering reality is that India’s small entrepreneurs still do not see a viable pathway to formalisation, trapped in a policy-induced pincer movement, where large corporate customers weaponise time and a rigid, accrual-based tax architecture weaponises compliance.

This structural contradiction has created a devastating double whammy for MSMEs. On one side, small units are forced to act as interest-free credit lines for big corporate buyers and public sector undertakings (PSUs) who delay payments for months. On the other side, the GST demands immediate, non-negotiable tax payments on money that the MSME has not yet received. This can choke small businesses to death.

Under Section 15 of the MSMED Act, 2006, buyers are legally obliged to settle vendor bills within 45 days if there is a written contract, or 15 days in its absence. The statute also mandates a hefty penalty and a compound interest liability.

Yet these timelines are unreal. Large private entities and government bodies routinely stretch payment cycles to 90/120/180 days.

Institutional interventions to reduce this gap have crashed into corporate non-cooperation. Take the Trade Receivables Discounting System (TReDS). This RBI-regulated electronic platform is meant to let MSMEs auction invoices to banks for instant liquidity. It is called bill discounting on an electronic platform.

But large corporates and central public sector enterprises refuse to onboard or approve invoices. Because TReDS binds buyers to an inflexible auto-debit system on maturity, any failure auto-reports them to credit bureaus. Rather than clean up their........

© National Herald