The ongoing conflict in West Asia is posing severe challenges for Micro, Small, and Medium Enterprises (MSMEs) in Uttar Pradesh due to disruption of global trade dynamics impacting operations, finances and raw material supply.
The MSME units across various sectors have reported sharp increases in raw material prices across multiple commodities. With more than 9.6 million (96 lakh) MSME units in the state, the impact of the war is widespread.
“Recent hikes in prices of aluminium, ferrous and non-ferrous metals need to be regulated. It is affecting the machinery and building material manufacturing industries and increasing overall project and production costs,” said Dinesh Goyal, national president of the Indian Industries Association (IIA).
“Another major cause of concern for the MSMEs in the state is high international logistics costs, primarily due to the non-availability of marine insurance,” he added. Scarcity of LPG, PNG and commercial gas for MSMEs is also a worrisome factor.
The IIA has requested the state government to allocate commercial gas fairly and equitably, keeping MSMEs in due consideration. Due to their limited resources and higher dependency on continuous supplies, MSMEs should ensure adequate and proportionate access, says IIA.
Problems that MSMEs face
Sharp increase in raw material prices across multiple commodities, disruption of international supply chains, leading to irregular availability of inputs and scarcity of essential raw materials in several sectors.
Import delays and shipment uncertainties due to affected shipping routes, export-related challenges, including cancellation/postponement of orders by global buyers and production slowdown or partial shutdown in many units.
Substantial increase in logistics and transportation costs, lower international sales conversions due to market uncertainty abroad and acute shortage of LPG and other industrial gases affecting continuous manufacturing processes.
Increase in overall production cost due to higher input costs and freight, non-availability of essential inputs, especially petroleum-based ones, cancellation of supply orders by domestic buyers and imposition of penalties for delayed supplies.
Heavy financial losses for units committed to pre-crisis pricing or long-term contracts, idling of the workforce and related labour management issues due to production disruptions.
Black marketing, hoarding and speculative pricing by dealers, stockists, and certain manufacturers in key raw materials, short supply of sulphur-based elements for manufacturing sulphuric acid which is widely used in manufacturing almost all industrial chemicals, fertiliser, and processing industries.
Prices of polyester, polymer, polypropylene, HDPE (high-density polyethylene) and LDPE (low-density polyethylene) have risen sharply. MSMEs use these raw materials for automotive and defence parts. Availability of essential chemicals and derivatives of petroleum products used as fuel/input by MSMEs is disturbed. Pharma industry is also facing issues.
Suggestions by MSMEs
Regulate and stabilise raw material prices through appropriate interventions. Reduction or removal of import duties, especially on critical inputs (e.g., aluminium), to counter monopolistic domestic pricing.
Strict monitoring and action against black marketing and hoarding of industrial raw materials besides ensuring adequate and uninterrupted supply of LPG and other industrial gases to MSME sectors.
Temporary relaxation in compliances across departments, including financial institutions, until the crisis subsides has also been suggested. Besides, the announcement of special financial relief measures like those provided during the Covid-19 period and waiver of export obligations under EPCG (Export Promotion Capital Goods) licences due to global supply chain disruptions have been suggested by the MSMEs.
The suggestions also include relaxation of anti-dumping duties on essential raw materials wherever feasible to ease input prices and favourable legislation in the Sale of Goods Act to support escalation in supplies during such emergencies.
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