Retail

Why MSME Samadhaan scheme is not working, and how to fix It


Four years after the Indian government set up a dedicated portal named MSME Samadhaan to help enable faster payments and improved cash flows to India’s MSMEs, the number of applications filed for relief on the portal are piling up closer to one lakh. The total amount of delayed payments under these applications is nearing a whopping Rs 25,000 crore.

Despite the lofty promises made at the launch of Samadhaan portal, the actual case disposal rates remain poor. Only about 20% of all applications filed have either been disposed of, or mutually settled with buyers, while nearly 39% applications were yet to be seen by the government officials. Another 27% of total applications are currently under consideration.

Our calculations show that it could take several years before each of these pending applications could be disposed of. All applicants on Samadhaan portal are required to upload copies of several documents to support their claim, including signed contracts, work orders, invoices and proof of delivery of products or services to the buyer.

This paperwork for each case is so extensive that it would need a minimum of four hours for a highly skilled official to go through and vet each document and make a decision on the case. This means a total of 400,000 man hours needed to dispose of the 100,000 cases. A typical official can only spend 100 man hours at work in total. The 40,000 man-months thus needed would require an army of 10,000 dedicated officials working non-stop on Samadhaan cases for four months to wipe the plate clean; even as new applications will still keep on adding. However, if a more realistic number of 1,000 officials are put to work non-stop; they would need well over three years to clear the workload.

Under the Samadhaan scheme, MSME facilitation councils in all states have been given the mandate to adjudicate these cases. These councils are manned by officials and other staff working part-time. There is simply not enough manpower allocated to review and adjudicate the Samadhaan cases.

Even if it is clear that the Samadhaan scheme is far from achieving its core objectives, still, the portal’s aggregation of tens of thousands of cases of delayed payments to MSMEs has delivered an unexpected benefit in putting the scale of the problem of delayed payments out in full public view.

Our conversations with MSMEs who have either filed applications on Samadhaan, or are actively considering to do so, revealed that that perhaps the single biggest solution to reducing the number of Samadhaan cases is creating more awareness among the MSMEs – about both the working of the Samadhaan portal as well as of the best practices in documenting business deals and transactions.

The MSMEs told us that in most cases, they did not have proper documentation to begin with. They had entered into agreements and supplied goods or services to their buyers without clearly defining the deliverables, or often without even signing a proper written contract. In other cases, other important proofs like purchase orders or invoices were either missing or not legally valid.

Notably, these were all MSMEs with annual turnover in several tens of crores often supplying their goods or services to large companies, and yet they chose to do business based on trust and are now stuck with delayed or disputed payments. One can only imagine how poor such documentation is for smaller businesses with even less formal processes.

With these insights, our recommendation to the Union ministry of MSMEs is to reorient Samadhaan’s focus from post-facto problem solving – attempting to resolve payment delays and disputes after they have arisen – to proactively mitigating such issues from arising in the first place. To begin with, the ministry can create and upload on the portal a large number of standardized contract templates that can serve all types of business deals and transactions – from one-time sales of capital goods or machinery to regular supplies of consumables, and from one-time, ad-hoc services to regular and continuing monthly fee or retainer-based services.

In our opinion, about 50 such standardized templates could cover almost all types of business transactions. All MSMEs could then be encouraged to locate the most appropriate template as applicable to their business and the transaction, download it, fill in the details and then sign it jointly with the buyer. Given that these standardized contracts would have paid special attention to precisely defining the deliverables and the payment terms and conditions, they would help pre-empt a sizeable number of disputes from arising in the first place.

Further, the standardization of contracts will help the MSME councils speed up the disposal of all cases of delays and disputes that would still arise. Even with a manual information retrieval process, the officials would find it easier and faster to go through the relevant details in the standardized contracts – they would know precisely where to look. On the other hand, modern technologies like computer vision and OCR could be employed to automate the information retrieval from the contracts, further shrinking the time needed for the officials to decide on a case from a few hours to a matter of minutes.

The digitalisation and automation of the entire Samadhaan system, from the time an application is filed until such time it is disposed, could in fact go a long way in ensuring timely and rapid relief to all aggrieved MSMEs. Fully implemented, such a system could make Samadhaan as one of the biggest success stories of our ‘

’ vision.

Prime Minister Narendra Modi had rightly called Samadhaan scheme as a critical initiative to help ensure faster payments to MSME suppliers that would keep their business and cash cycles rotating. A few adjustments in strategic focus and judicious use of modern technologies could make Samadhaan much more effective in realising its objectives, further paving the path for continuing growth for crores of Indian MSMEs.

(The writer is Founder and CEO of MSMEx)



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