MSMEs Seek Centre’s Help as Raw Material Prices Soar

Micro, Small and Medium Enterprises seek Central and State governments’ help to tide over the steep hike in raw material prices recently even as industry representatives expect the prices to soften in early 2021.

The key suggestion from the MSMEs is that they want the government to set up fair price raw material outlets at every industrial estate across the country, administered through NSIC to supply materials at reasonable cost / smaller quantity and on credit.

Several MSME industry associations have highlighted that the sudden steep increase in raw material prices dealt a blow to their recovery process.

“One of the reasons is that raw material manufacturers themselves are working under constrained conditions with higher cost of production. Actually, the raw material makers were caught by surprise as the economy recovered quicker than they expected. In sectors such as auto and a few others, factories reached peak capacity quickly in the post-lockdown period due to a spike in demand. Shutdown of plants for maintenance also caused some reduced availability. So, everyone has been caught in shortage of raw material issue," K Srikanth, Convenor, MSME Panel (Tamil Nadu), CII told.

Imports hit

Many raw materials are also imported and due to their earlier moderate forecast, driven by Covid-19 and its impact, the materials arriving at our ports are lower than required levels.

"There is also a shortage of containers, we heard and it has affected the shipments of raw materials to India and everywhere else is affected. We hear from some verified reports that shipping containers are getting piled up in and around China and there is a difficulty in getting containers for shipments. So, this logistics issue is affecting both our import and export of materials, said Srikanth.

Srikanth said MSMEs were at the receiving end as they were being squeezed by both their material suppliers and customers.

No bargaining power

Since we don’t buy in bulk, we don’t enjoy better pricing. So material suppliers rule the roost. On the selling side, we have locked-in price contracts with the customers and it will take a long time to renegotiate and take an increase. Even if they give, it will not be a timely increase, he added.

KE Raghunathan, Convenor of Consortium of Indian Associations said factors such as lower availability, sudden anti-import sentiments, unscrupulous elements taking advantage of the situation, non-availability of alternative mechanism and decentralised unlock process led to steep hike in prices.

Also, micro and small enterprises normally procure materials in small quantities and after receipt of orders. They are facing a very tough situation and hence request the Centre to take necessary steps to control the prices, said Raghunathan.

However, industry representatives indicated that during September and October there were some course corrections in many areas where manufacturing of raw materials have improved and hence, they expect the prices to come down in January or February in some sectors.