MSMEs seek government intervention amidst rise in raw material prices

All India Council of Association of MSMEs has request the central government to intervene as the rise in prices across the board has led to an increase in input cost leading to huge problems like sustenance, raw material availability among other things.

Photo by Pasha Chusovitin on Unsplash

Micro, Small and Medium Enterprises are seeking the government’s direct intervention as the rise in input cost due to rise in prices of raw materials are leading to problems like sustenance, higher prices, non-availability of key raw materials.

All India Council of Association of MSMEs (AICA) which is created by 170 associations across India covering more than 2,00,000 MSMEs has submitted their representation on Sustenance of Indian MSMEs – Immediate Intervention Requested due to the huge increase in raw material prices to the Prime Minister, Narendra Modi.

AICA said it understands the situation in front of central government considering the socio-economic impact of Covid-19 pandemic but has highlighted that the steep hike in price of raw materials across all sectors, despite low consumption of raw materials and subsequent drop in the production (Quantity) by MSMEs – directly leading to loss of employment, and depreciating value of rupee – due to Raw Material price increase.

The council said that there are problems like

  • Sustenance at stake due to erosion of Working Capital on account of huge rise in prices of Raw Materials like steel, iron ore, Aluminum, copper, plastics, PVC, paper, chemicals etc.
  • No price escalation clause for public sector projects.
  • Appears that cartel working together at the cost of country
  • Open market reluctant to accept full effect of raw material price increase
  • Non-availability of basic raw material
  • Blocking and stocking of raw material in the entire supply chain

AICA said, “We understand this volatile situation is temporary in nature, however can cause permanent damage to the MSME sector. In spite of drop in demand due to lock down, prices are in upswing, particularly Steel, Pig Iron and other Raw Materials too. It is obvious there is cartel created by steel manufacturers, which include both Private and Public Sector Undertakings. Steel is an essential commodity for overall development of the country and exports should be as per availability of surplus. Steel and other base material manufacturers are declaring 10 to 20 times higher profit whereas all the MSMEs are on the verge of extinction. This clearly shows that the Corporate and PSU Commodity companies are profiting at the expense of MSMEs”

The council has also highlighted the status of MSMEs as follows;

  • MSMEs are not able to execute orders taken at a much lower price
  • They face the uncertainty of getting black listed by the PSUs and large corporate if they don’t honour contracts.
  • Project contractors and engineering exporters with firm price contracts are very badly affected.
  • In the current scenario, the bench mark for the steel industry pricing is not the demand and supply situation in India, but it is driven by the international market prices.
  • Indian market steel volumes have come down by more than 21% in April 2021.

The council has also provided a list of solutions which the government can look into which would provide relief to these MSMEs.

It expects the NSIC to act as consolidation agency for protection against escalation for some period. It said, “They should be in a position to consolidate and hedge overall steel quantity in the market place. This kind of hedging should be possible for a period of one-year (as rate contract extends for a year) NSIC should make bulk bookings of steel at a price with the option of taking deliveries within 12 months as fixed.”

Other suggestions include PSU accepting cancellation of orders without penalty and blacklisting, deriving formula for price escalation, PSUs to revisit all orders to MSMEs, Quota for MSMEs at concessional price, PSUs to accept fresh quote and GST based funding and lastly allowing import based on quality and cost.

The council also said that no response was received from respective ministries till date. It added, “We therefore urge the Government to take concrete steps to reign in Raw Material prices at once and SAVE THE MSMEs before they get extinct. We hope and believe that the intervention of Hon’ble Prime Minister and Ministers will help MSMEs to sustain themselves and also move forward to achieve more than 40% of GDP – paving the way for increased entrepreneurship and employment generation.”