India’s MSME Crisis Shows a Ray of Hope: Delayed Payments Fall to Rs 8.14 Lakh Crore

On Tuesday, November 25, India’s Chief Economic Advisor V. Anantha Nageswaran released a landmark report on MSMEs’ access to finance and timely payments, a collaborative effort between the Federation of Indian Micro and Small & Medium Enterprises (FISME), Global Alliance for Mass Entrepreneurship (GAME), and C2FO—an online working capital platform. The findings paint a mixed picture: while there’s genuine progress on payment delays, a massive credit gap continues to strangle India’s small business ecosystem.​

The Numbers Tell a Hopeful Story (But Not the Whole One)

The most encouraging finding in the report is straightforward: delayed payments to India’s MSMEs have declined by 7 percent to Rs 8.14 lakh crore in 2023-24, down from Rs 10.76 lakh crore just two years earlier in 2021-22. This represents real momentum. When you’re dealing with businesses that often operate on thin margins, having Rs 2.62 lakh crore return to their accounts is transformational.​

But here’s what should concern policymakers and large businesses alike: despite this progress, Rs 8.14 lakh crore still represents money locked away from people who desperately need it. These are small business owners waiting for payments that should have arrived weeks or months earlier. They’re entrepreneurs who might otherwise invest in new equipment, hire more workers, or expand their operations. Instead, they’re stuck in a cash crunch.

The Reserve Bank of India’s latest data adds some context. As of September 2025, outstanding bank loans to MSMEs stood at Rs 12.99 lakh crore, up 20 percent year-on-year. The growth is encouraging, but it doesn’t solve the core problem.​

The Real Crisis: A Rs 25 Lakh Crore Credit Gap

This is where the report hits hard. The unmet credit needs of India’s MSMEs stand at approximately Rs 25 lakh crore. Think about that for a moment: for every rupee that MSMEs can borrow from banks, there’s nearly two rupees of legitimate credit demand going unfulfilled.​

Ateesh Kumar Singh, Joint Secretary at the Ministry of MSME, captured the complexity of the challenge during the report launch. He spoke about the need for “adequate credit, timely credit and affordable credit”—three distinct problems that each require different solutions. An MSME might have access to some credit, but if it comes with interest rates that make expansion impossible or approval processes that take months, it’s not really a solution.​

Low access to formal credit and chronic payment delays remain the twin pillars of the MSME crisis. The report acknowledges this directly: large government initiatives exist, but they’re not moving the needle fast enough.

Government Programs That Sound Good on Paper—But Fall Short

India’s government has launched several noteworthy initiatives to address MSME financing and payment challenges. However, the gap between intention and execution is where progress stumbles.

TReDS (Trade Receivables Discounting System) allows MSMEs to convert unpaid invoices into immediate cash through an auction mechanism where multiple financiers bid competitively. The platform has grown dramatically—from nothing just a few years ago to Rs 2.4 lakh crores in discounted invoices. The government now mandates that all companies with turnover exceeding Rs 250 crore must register on TReDS platforms by June 30, 2025, which should further accelerate adoption.​

Section 43B(h) of the Income Tax Act takes a different approach: it requires payments to MSMEs within 45 days of invoice acceptance (or 15 days if no written agreement exists) for companies to claim tax deductions. The logic is sound—create financial pain for companies that delay payments—but enforcement remains inconsistent.​

The MSME-1 form requires companies whose payments to registered MSME suppliers exceed 45 days to file half-yearly returns disclosing these delays. This transparency mechanism brings public scrutiny to payment practices.​

The Samadhaan portal allows MSMEs to lodge formal complaints about delayed payments directly with Micro and Small Enterprise Facilitation Councils (MSEFCs) for resolution within 90 days. Yet the report notes that despite these platforms existing, uptake remains low due to weak enforcement and institutional bottlenecks.​

Nageswaran was direct about the problem: “Government initiatives like TReDS, Section 43B(h), the MSME-1 disclosure form, and the Samadhaan portal have created useful platforms, but weak enforcement, low uptake, and institutional bottlenecks dilute their impact.”​

Why Credit Policies Keep Missing the Mark

The report identifies credit policies like Priority Sector Lending (which requires banks to lend a percentage of portfolio to priority sectors including MSMEs) and Mudra loans (government-backed loans for microenterprises) as well-intentioned but ultimately insufficient. Why? Because rigid bank practices, information asymmetry, and punitive Special Mention Account (SMA) and Non-Performing Asset (NPA) classification norms create barriers that cancel out their benefits.​

When an MSME falls behind on payments and gets classified as SMA, the intended goal is to “nurse it back to health,” according to Nageswaran. But in practice, banks often freeze the account and stop all normal operations—accelerating the very financial stress they wanted to prevent. The report recommends reconsidering the 30-day classification timeline, as it may not realistically reflect a business’s actual financial stability.​

Beyond Finance: The Innovation and Ambition Gap

During his keynote address, Nageswaran raised a point that went beyond balance sheets. He spoke about the need to “instill a culture of innovation, competitiveness, and breaking through into markets through quality” among MSMEs. The government can remove hurdles, but entrepreneurial ambition matters too.​

He acknowledged that some of the ambition gap among MSME entrepreneurs might reflect resignation to difficult conditions rather than actual lack of drive. “If we remove them (the underlying hurdles), maybe the ambition factor, maybe some of it is just an acceptance of the difficult operating conditions,” Nageswaran said. The implication: tackle the structural problems, and you’ll likely unlock more growth potential than the statistics alone suggest.​

The Smallest Bear the Heaviest Burden

An important detail buried in the broader numbers: micro units—the smallest enterprises—face payment delays up to three times higher than larger firms in the MSME category. These are the businesses with the least bargaining power, the fewest alternative customers, and the most fragile cash positions. They’re also the hardest hit when a customer delays payment.​

The report warns that unequal bargaining power and lengthy dispute resolution processes remain embedded in the ecosystem. Many MSMEs avoid using the Samadhaan portal or other recourse mechanisms because they fear losing future orders from the buyer—a rational calculation given their dependence on repeat customers.​

A Turning Point, Not a Victory

The 7 percent decline in delayed payments matters. The mandates for TReDS registration matter. The growing political focus on MSME payment practices matters. These represent real progress on a problem that has haunted Indian small businesses for decades.

But progress and completion are different things. With Rs 25 lakh crore in unmet credit needs and Rs 8.14 lakh crore still locked in delayed payments, India’s MSME ecosystem remains under strain. The report signals recognition of these challenges at the highest levels of government, which is itself significant. But recognition without sustained, enforcement-backed action will leave these entrepreneurs waiting—just as they have for years.​

The question for 2026 and beyond isn’t whether India’s government is aware of the problem. It clearly is. The question is whether the existing platforms and policies will finally gain the enforcement teeth and institutional efficiency they’ve lacked so far. For MSMEs, that’s not just an economic question. It’s a matter of survival.

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