SMEs struggle to make weekly payments after demonetisation

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SME Times News Bureau | 14 Nov, 2016
In wake of the government's move to demonetise Rs 500 and Rs 1,000 currency notes, small and medium enterprises (SMEs) faced "temporary difficulties" for making payments for weekly labour wages, industry sources said.

The enterprises have however hailed the move to tackle black money circulation in the economy and expect that it will provide benefits to the sector in the long run.

"There are some temporary difficulties to make weekly payments of labour wages. The problem is most with the workers who require urgent need of money. In a makeshift arrangement, the payments are being made in part, or workers are requested to take payments later," Federation of Small and Medium Industries' (Fosmi) President Biswanath Bhattacharya said on Saturday.

The workers are aware of the situation and in some companies, they are accepting old notes of Rs 500 in case of urgency, he said.

Usually, a small enterprise requires about Rs 50,000 a week for labour payments but it varies with the size of the units. The maximum weekly withdrawal is, however, restricted to Rs 20,000.

"Due to liquidity crisis, we are paying 50 percent of labour wages at a time," Fosmi's Vice President S.K. Kedia told agency.

The industry players expect the currency crisis will be resolved quickly, otherwise, the demonetisation move remains unsuccessful.

"Unless, the liquidity crisis is solved at the earliest, the success of the demonetisation would not be realised. If the situation prolongs, it may disrupt operations. There is a demand for low denominated currency which is not being supplied adequately. The challenge to the government is to resolve the disorder occurred due to the move," Bhattacharya said.

Many enterprises which buy raw materials on cash payments are feeling the pinch for not having liquid money to run the operations but those who procure input materials by paying through cheques or RTGS are not facing such problems.

"There are not much problems in making payments to suppliers because one can issue cheque and make payments through RTGS. But some tiny units which used to make payments to suppliers in cash have been facing the challenge," Bhattacharya said.

"In the micro sector, employers are also finding difficulties for labour payments but it is a temporary phenomenon. Micro enterprises usually pay labour wages in tranches. In such situation, where currency supply is not adequate, we have requested workers to take payments in more trenches than normal," Indian Council of Small Industries (ICSI) President P. Kumar said.

He further added that the sooner the black money circulation is removed from the economy, the better will be for small enterprises.