Inflation pressures are looming ominously on the Indian business horizon. While the margins of large domestic and multinational corporations have come under pressure, they still have the balance sheet heft to absorb raw material price shocks and the elbow room to pass on the cost to consumers. However, medium small and micro enterprises (MSMEs), especially mom and pop stores, across India are not in the same boat as the large companies and are far more vulnerable to the onslaught of raw material cost hikes and inflationary commodity cycles.
Challenges
- Operating from a small asset base, MSMEs’ primarily lack abundant access to formal banking capital and often find their working capital locked up with large organisations which have longer payment cycles.
- Rising cost of raw materials reduces the competitiveness of the sectors.
- As higher input costs loom, there is talk that Indian banks are in for a fresh spell of new MSME NPAs.
- The shortages of raw materials are impacting production possibilities and anticipated sales volumes and posing a challenge to the small businesses to operate.
Way out
- Better provision of loan for MSME sectors.
- The cost competitiveness of MSMEs exporters should be improved and a level playing field should be created. Reduced costs of doing business and a level playing field in the country will not only increase the competitiveness of our exporters but also reduce imports of the items where India has domestic capabilities.
- Delay in the availability of finance and credit, timely payment of dues and adjudication of pending dues are some of the sensitive issues for MSMEs.
- At this juncture, the focus should be on ensuring the provision of hassle-free disbursement of loans vis-à-vis enhanced liquidity for MSMEs, especially in rural sectors.
