₹7.34 Lakh Crore Is Owed Late to India’s MSMEs

Late payment is not an occasional failure in Indian B2B trade. It is the normal operating condition, and it is large enough to be measured at the level of the national economy.

The scale of the problem

The Economic Survey 2025-26 put the amount locked in delayed payments to MSMEs at roughly ₹8.1 trillion. An independent study by GAME, FISME and C2FO, the Delayed Payments Report 3.0, measured ₹7.34 lakh crore outstanding as at March 2024, down from an earlier estimate of around ₹10 lakh crore. The two figures use different methods and different reference dates, so they should not be read as a contradiction. What they agree on is the order of magnitude, and that it runs into lakhs of crores.

Set against India's roughly 6.4 crore MSMEs, that is capital which has been earned, invoiced and recognised as revenue, but which cannot be spent on the next order.

What the law already requires

The position under the Micro, Small and Medium Enterprises Development Act, 2006 is not ambiguous. Section 15 requires a buyer to pay a micro or small supplier on the agreed date, and where no date is agreed in writing, within 15 days of acceptance. In no case may the agreed period exceed 45 days from acceptance of the goods or services.

Section 16 provides that a buyer who misses that date is liable for compound interest, with monthly rests, at three times the bank rate notified by the Reserve Bank of India. That is a deliberately punitive rate. At recent bank rates it works out at roughly 20 per cent a year.

Since 2024, a tax consequence as well

Section 43B(h) of the Income Tax Act, effective from the 2024-25 financial year, added a consequence that lands on the buyer rather than the supplier. Where a payment to a registered micro or small enterprise is not made within the Section 15 period, the buyer cannot claim the expense as a deduction in the year it was incurred. The deduction moves to the year the payment is actually made, which raises taxable income in the meantime.

This changed buyer behaviour in a way that decades of interest liability had not, because it is enforced through the tax return rather than through a claim the supplier has to bring.

So why does it persist

The statutory remedy exists and is rarely used. The reason is commercial rather than legal.

• The relationship is worth more than the invoice. A supplier dependent on a large counterparty for a significant share of turnover will not risk that relationship to recover one payment, however clear the entitlement.
• Terms are set by the stronger party. Where a buyer can choose between several suppliers, payment terms are part of the price, and the supplier absorbs them.
• Delay is cheap for the buyer. Interest under Section 16 only becomes payable if the supplier pursues it, and most do not.
• Process, not intent. A material share of delay is neither strategic nor malicious. It is invoices stuck in approval, mismatched documentation, or goods receipt notes that were never closed out.

What this means for a growing business

Indian SMEs take an average of around 73 days to pay an invoice, well beyond the 45-day statutory ceiling. If you sell on credit, you should plan your working capital against observed settlement behaviour rather than against contractual terms. The gap between the two is the part you have to fund yourself.

General information only, not legal, tax or financial advice. Figures are drawn from published sources as cited and were current at the time of writing. Statutory positions change; verify the current provisions before acting on them.