Amid Covid-19 crisis, Indian firms hope for quick payments of dues by govt

A consolidated amount of what the government owes companies, large and small, isn’t readily available, but HT learns that it could run into a few lakh crores.
The amount owed by the Centre to fertiliser companies had touched Rs 60,000 crore, according to KS Raju, the chairman of industry body Fertiliser Association of India.(Sunil Ghosh / Hindustan Times)
The amount owed by the Centre to fertiliser companies had touched Rs 60,000 crore, according to KS Raju, the chairman of industry body Fertiliser Association of India.(Sunil Ghosh / Hindustan Times)
Updated on Apr 04, 2020 05:45 AM IST
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Hindustan Times, New Delhi | ByHT Correspondent

India’s businesses are expecting the government to roll out a fiscal relief and stimulus package of the same magnitude as the one unveiled by the US -- equivalent to around 10% of GDP -- but are also hoping the Centre and states, various administrative departments, state-owned companies and utilities will accelerate payments owed to them as they battle an economic crisis of never-seen-before proportions.

A consolidated amount of what the government owes companies, large and small, isn’t readily available, but HT learns that it could run into a few lakh crore with the big-ticket ones being the money owed by the Centre to fertiliser companies towards subsidies and that owed by state power distribution companies to power producers.

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For instance, by last month, the amount owed by the Centre to fertiliser companies had touched Rs 60,000 crore, according to KS Raju, the chairman of industry body Fertiliser Association of India. This, after payment of Rs 10,000 crore last month. The money owed is on account of a fertiliser subsidy. Raju explains that for every tonne of urea made at a cost of around Rs 20,000, the selling price, fixed by the government, is just Rs 5,000. The government compensates the companies for the rest -- including a fixed rate of return -- but the payments are usually late.

Also Read: Government may borrow Rs 40k crore as cash-strapped states seek funds

Fertiliser minister Sadanand Gowda was unavailable for comment and his office said he is busy overseeing the lockdown in the states he has been assigned. The 21-day lockdown (ending April 14) was instituted to prevent the spread of the Covid-19 pandemic and ministers given the task of overseeing the situation in specific states. Gowda has the responsibility for Kerala and Lakshadweep

Power companies say they have it worse.

The amount owed by state-run power distribution companies (discoms) to power generating companies (gencos) stood as high as Rs 88,426 crore until February . It is likely to have increased since, although the latest data is yet to be compiled.

The ministry of power’s payment ratification and analysis portal Praapti shows the discoms, so far, have only paid Rs 10, 259 crore of the total dues pending.

Power producers give 60 days to discoms for paying bills for the supply of electricity. After that, outstanding dues become overdue and generators charge penal interest in most cases.

Experts have said gencos too are in need of a fiscal stimulus. “Government may have to facilitate interest-free working capital loans for gencos. Else, this contagion will spread to fuel suppliers and sustainability of all sector entities will come under question,“ said Debashish Mishra, a partner at Deloitte India.

Also Read: As states struggle to distribute ration, demand for work surges

Among the worst affected are micro, small and medium enterprises, or MSMEs. The government in October 2017 launched a portal to facilitate payments due to small businesses by government departments and ministries. In the Union Budget 2020-21, an app-based invoice financing loans product was launched to obviate the problem of delayed payments and consequential cash flow mismatches for MSMEs.

According to the ministry of micro, small and medium enterprises’ Samadhaan portal, approximately Rs 4,000 crore of payment requests had been filed by MSMEs as of April 2, ready for consideration by the MSME Facilitation Council (MSEFC) for settlement.

Also Read: Centre releases Rs 17,287 crore to states

DK Aggarwal, president, PHD Chamber of Commerce and Industry, said many state-owned companies that are loss-making had not been able to make timely payments to their vendors/MSMEs. “Further, some payments get held up due to procedural delays,” he said.

“As a result of payment delays, businesses, especially MSMEs, face financial hardships and liquidity constraints which lead to severe pressure on their working capital management. This severely affects sustainability of their operations,” he added.

He proposed that the central government “speed up the process of payment clearances, especially in this difficult time when the businesses, especially MSMEs, are facing problem of liquidity.”

The office of Nitin Gadkari, the minister in charge of MSMEs, said the ministry was looking at the finance minister’s task force, set up to ensure the economy doesn’t suffer during this crisis, for direction.

Officials in the finance ministry said there was absolutely no question of delay in making payments to vendors and contractual workers because of paucity of funds. All government expenditure is in line with the approved budget, two officials working in two different departments of the finance ministry added, requesting anonymity.

“There could be two possibilities for delay in payments [to vendors]; inability of some vendors to provide bills and invoices in a particular format, and lack of manpower in certain departments to process pending bills of vendors. While vendors must follow rules, the department of expenditure has told all ministries to ensure timely payment without resorting to any excuse such as the 21-day lockdown,” one of the officials said.

The department of expenditure, an arm of the finance ministry, has advised all ministries and government departments to ensure there are no procedural issues regarding government expenditure, which is necessary to keep the economy healthy, the second official said.

“The instructions clearly said the expenditure system must function more quickly than normal in certain sectors to cope with emerging situations due to the Covid-19 pandemic,” he added.

Delayed payments are likely to hit companies across sectors that work with the government or which provide products or services to it -- especially at a time when business-as-usual has been disrupted by the lockdown in place to combat Covid-19.

Also Read: SC seeks Centre’s reply on minimum wage to migrants

The pandemic itself has also roiled the economy, with credit rater Fitch estimating on Friday that the Indian economy would grow at a 30-year low of 2% in 2020-21.

For instance, the Association of Radio Operators For India, an industry body , has sought relief from the government to cope with the crisis, and also wanted the government’s advertising arm, the Directorate of Advertising and Visual Publicity (DAVP), to clear its dues. A member of the Indian Newspaper Society (INS), who spoke on condition of anonymity, said the DAVP also owed some money to newspapers.

An official at the information and broadcasting ministry, under which DAVP falls, said that the department has “paid most of the bills. I am not saying all of them but most have been cleared by us by the end of March”. The official requested anonymity.

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Tuesday, May 17, 2022