MSME in distress as raw material prices shoot up again

CHENNAI: Even as the MSME sector is struggling to find their path to recovery from the impact of COVID-19 pandemic, power tariff hike and global economic downturn due to the ongoing Russia-Ukraine war, they were dealt with another deadly blow, as prices of raw materials have begun to skyrocket once again after temporarily easing a bit.

Despite repeatedly urging the Union government, the Budget has not addressed their main demand of controlling rising raw material prices, which has left the MSME sector in Coimbatore in despair. There are around one lakh MSME units in Coimbatore providing employment opportunities to thousands of people.

Prices of raw materials, which had stabilised last year, have begun to increase since January.

For instance, the price of pig iron, which stood at Rs 47,040 per tonne in November has reached around Rs 50,000. It was at its peak at 65,150 last March. Similarly, prices of all raw materials, including casting, steel, aluminium and copper, have been increasing sharply.

“Prices are gradually rising to their peak as it happened during the months of March and April last year soon after the Russia-Ukraine war broke out. Already, most of the pump manufacturing units are operating in their 50 per cent capacity due to lack of orders. Last year, many MSMEs closed down unable to do operations and another increase in raw material price will cripple the sector entirely,” said D Vignesh, president of Southern India Engineering Manufacturers Association (SIEMA).

After widespread protests by MSMEs, the government waived import duty on some raw materials for steel industry and raised export duty on iron ore last May to bring down raw materials prices. However, a few months later, the government cut export duty on steel and iron ore, and hiked import duty on some of the raw materials, resulting in rapid cost escalation for these units.

V Ramesh Babu, former president of CODISSIA, said despite representing the issue for over the last two years, no effective control measures were taken so far.

“The economy will grow and generate employment if value-added products are exported rather than as mere raw materials. A majority of raw materials from India are procured by China, which they then deliver as value-added products at a competitive price, lesser than ours.

Prices of raw materials, which remained under control and reduced by 20 per cent, have once again spiralled to reach the previous rate. On an average, around 20 per cent of MSMEs put up shutters over the last three years due to the impact of demonetisation, GST, COVID-19, power hike and other factors,” he said.

Echoing a similar view, C Siva Kumar from Coimbatore & Tirupur District Micro and Cottage Entrepreneurs’ Association (COTMA) said MSMEs were incurring heavy loss due to frequent variations in raw material prices.

“It takes a few months for job working units to give quotations, deliver samples, grab an order and commence production. But frequent change in prices of raw materials makes it an unviable business for them. From working 16 hours a day till a few years ago, they are now struggling to function even for eight hours,” he said.