Fearing PSUs could encash their performance guarantee during Covid-19 lockdown for disrupted supplies, the MSMEs (micro, small and medium enterprises) have urged the government to direct state-owned entities to put any such move on hold.
The industry body of MSMEs has appealed to ensure they have cash in hand as they are facing a major liquidity crisis.
In case of public procurement at central and state levels, bank guarantees are given by the suppliers. Generally, the performance guarantee is 10 per cent of the contract value to ensure agreed terms of the contracts are fulfilled. The performance guarantee can also vary and could be lower than 10 per cent.
"Bank guarantees which are expiring during the lockdown should not be encashed by the departments or PSUs for the next three months," Federation of Indian Micro and Small & Medium Enterprises (FISME) Secretary Anil Bhardwaj said.
VK Aggarwal, Managing Director, Shashi Cables said that it would not be possible for firms to complete promised works during the lockdown period as per the schedule and hence performance guarantees should not be encashed.
The industry body has also sought government help in getting their outstanding dues from PSUs and other state agencies. The Centre had in September last year directed all PSUs to clear overdue payment to vendors and contractors as part of measures to boost the economy.
The timely payment to vendors was aimed at spurring investment cycle which had witnessed downward trend for the past few years. India's GDP grew 4.7 per cent in the December quarter, its slowest pace in nearly seven years. With Coronavirus playing havoc on the economy bringing economic activities to a complete halt, the growth is set to plummet further. Economists have already predicted that the world economy could slip into recession and recovery may take longer than expected.
The MSMEs have been one of the worst-affected sectors as bulk of them survive on daily cash collections. With most of their revenue streams drying up in the wake of lockdown, they are finding it difficult to even pay the salaries of their employees and have asked for financial support from the government.