New Government Rule on MSME Payments Causes Uncertainty in Ahmedabad’s Textile Markets

A new rule implemented by the central government for the assessment year 2024-25 has caused uncertainty in Ahmedabad’s textile markets. Under the rule, buyers must pay for goods purchased from Micro, Small and Medium Enterprises (MSMEs) within 45 days of delivery, and clear all pending dues before March 31, 2024. Failure to do so will result in the pending payment being deemed as income, subject to taxation.

The government’s intention behind this rule is to protect MSMEs, but the market is feeling the repercussions. Textile markets in Ahmedabad are witnessing order cancellations, and some chemical traders are also being affected. In an effort to avoid pending payments falling in the next financial year, some buyers have decided not to make any purchases until February 16.

The textile value chain operates on a credit period of up to 120 days, so this new rule has had a significant impact on the industry. Many businesses have resorted to canceling recent orders, while others have stopped buying goods from MSME manufacturers for the time being. Clarity is needed regarding the practicality of making payments within 45 days for industries operating on longer credit periods.

The situation arising from this rule has prompted various associations to schedule a meeting and discuss its implications on the market. The immediate reaction has been different from the government’s intent, with cancellations and a decline in new purchases being observed. Customers are now shifting their purchases towards larger and medium-scale units.

In the chemical industry, the credit period offered is typically around 60 days, but it can often be extended due to low demand. As the new rule comes into effect, many buyers are now inquiring with sellers about their registration as MSMEs.

It is clear that while the rule aims to assist MSMEs, further clarification and consideration for businesses operating on longer credit periods are necessary to address the challenges presented by the new regulations.