Ukraine war has its bearing on Indian MSMEs

Steel prices have risen $200-250 per tonne globally relative to Indian prices, and MSMEs are worried as they are not in a position to compete with global buyers. “We are forced to squeeze our overheads and production costs, and it is badly impacting our bottom line. The situation is such that the buyers, both in B2B and B2C, are unable to absorb these prices and there is a sharp month-on-month in prices of raw materials such as steel, polyester raw material and even in textile,” said Federation of Indian Micro and Small and Medium Enterprises (FISME) president Animesh Saxena.

Last week, fuel prices began rising after a long gap, thanks to the assembly elections.

Petrol and diesel prices were revised upwards for the fifth time in six days on Sunday, taking the overall hike to ₹3.70-3.75 per litre on auto fuel.

“We have had a number of consultations with the government, and they are sensitive to our problems. But unfortunately, we don’t have a price regulatory mechanism in place, and hence nothing has been done as yet. The government says it is a free economy and that they cannot intervene,” Saxena added.

Queries sent to the spokespeople for the ministries of micro, small and medium enterprises and commerce and industry on Saturday remained unanswered till press time.

While engineering exports remain robust, exporters remain concerned over the rising cost, said Engineering Exports Promotion Council (EEPC) chairman Mahesh Desai. Desai said EEPC has approached the government to address concerns of MSMEs facing a sharp increase in raw material and shipping prices, severely impacting their operating cost and margins.

“All our exports are booked at old rates, and now, the steel prices and shipping costs have gone up due to the Russia-Ukraine crisis. We have asked the government to help exporters, especially MSMEs, with additional finances and special rates to fulfil orders amid rising costs,” Desai said.

Mint earlier reported that several European ports are not allowing Russian vessels to berth and ships have been stuck due to blockade in the Black Sea and Sea of Azov amid a growing container and ship shortage that has driven up freight rates. Also, most major shipping lines are European, which are not accepting Russian containers, impacting several India-bound Russian containers.

EEPC’s Desai added that they would also renegotiate prices with buyers, as the old prices are no longer sustainable and new orders are taking time to finalize due to the high input costs.

A.S Firoz, a former chief economist at the steel ministry, said the crisis presented opportunities for steelmakers to enter markets such as Europe and North Africa. He said the domestic steel market had not fully recovered from the covid-19 related disruption, but the export opportunity could help them expand and enhance margins.

India’s apex exporters’ body, the Federation of Indian Export Organisations (FIEO), has identified sectors where Russian exports to the EU exceed $500 million. The EU buys iron and steel products worth $3.8 billion from Russia.

“Higher demand for steel would likely continue as the demand from the West is good. It could remain this way for six to seven months because even if the war ends in Ukraine, the country will likely take longer to rebuild the domestic industry,” said Jindal Steel and Power Ltd (JSPL) managing director V.R. Sharma.

The EU accounts for 15% of Indian exports, and shipments to the region grew 59% to $50.7 billion in the 10 months to January 2022.

“There is a sharp surge in exports currently, but they are indirect exports. India is exporting raw materials such as cotton, iron ore and steel and the high commodity prices are boosting the value of these exports. But the government is not focusing on exporting finished products manufactured by MSMEs,” said India SME Forum president Vinod Kumar.

“We MSMEs are dependent on a few suppliers, and our negotiation power is also so, and if input costs keep moving in this fashion, we will not be able to protect our margins. This has created a huge danger on the sector and also the jobs that the sector creates,” Kumar added.