MSME headwinds in India, Sweet Success for Farmers, Pharma Challenges, & Exciting Potato Imports Await! - Exportify Pulse Edition - July 07, 2023

India permits potato imports from Bhutan without any license till Jun 2024

NEW DELHI: India on Monday permitted imports of potatoes from Bhutan without any license for one more year till June 2024. Earlier, it was allowed till June 30 this year.

"Import of potatoes...is allowed from Bhutan without any import license, up to June 30, 2024," the directorate general of foreign trade (DGFT) said in a notification.

Imports of fresh or chilled potatoes stood at $1.02 million in 2022-23.

In a separate notification, the DGFT said that the import of 17,000 metric tonnes of fresh (green) areca nut without a minimum import price (MIP) condition from Bhutan will also be allowed through LCS (land customs station) Chamurchi (INCHMB).

Chamurchi is a small village in the Jalpaiguri district. It is close to the Bhutan border. INCHMB is a location code.

Further, in a trade notice, the directorate laid out a procedure for the allocation of quota for the export of broken rice on humanitarian and food security grounds, based on requests received from governments of other countries.

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India raises sugarcane floor price to woo farmers, boost planting

NEW DELHI: India's cabinet on Wednesday approved an increase in the floor price that sugar mills must pay for cane in the season beginning October 1 to 315 Indian rupees ($3.84) per 100 kg, from 305 rupees a year earlier, the country's information minister said.

"By raising the Fair And Remunerative Price to 315 rupees, the government has ensured that farmers get good returns for their produce," Anurag Thakur told a media conference.

The federal government raises the floor price for cane, also known as the Fair And Remunerative Price, almost every year.

Higher prices could encourage farmers to boost cane planting and help India, the world's second biggest sugar exporter, allow overseas shipments.

Reuters last month reported Prime Minister Narendra Modi's administration was not considering allowing sugar exports until at least the first half of the next 2023-24 season as the El Nino weather pattern could reduce rainfall and dent production.

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Pharma supply shortages drive calls for more integrated supply chains

Drug maker Pfizer sounded the alarm on 11 June that it would be running out of a drug to treat bacterial infections in children by the end of the month, owing to a need to prioritise versions of the drug for adults. In a letter to the US health regulator Pfizer wrote that it expected supply of the pediatric drug to be exhausted by the end of the quarter.

Another penicillin product, used to treat respiratory infections, may run out of supply in the third quarter, Pfizer reported. The company’s penicillin products have reportedly faced issues with shortages since April.

Drug shortages, notably lack of supplies of pain and fever relief for children that left drug store shelves empty and saw anxious parents rush to hospitals’ emergency wards, have sparked lawmakers into action. A report from the US Senate’s homeland security committee released in late March concluded that drug shortages pose a national security risk as well as a danger to public health.

The report’s authors counted 295 drug shortages last year, a five-year high. More than 15 critical products have been in short supply for over a decade.

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Engineering goods sector to benefit from PM Modi's US visit: EEPC India Chairman

New Delhi: The US is India's biggest trade partner and the historic state visit of Prime Minister Narendra Modi has ensured that bilateral cooperation between the two nations would reach greater heights in times to come, said Engineering Export Promotion Council (EEPC) Chairman Arun Kumar Garodia.

Hailing the landmark agreements signed during the visit, especially in the fields of defence and technology, Garodia said that they would give a huge boost to bilateral trade and investment going forward.

He said that investment commitments made by some of the American tech giants such as Micron, Google, and Amazon clearly point to India becoming an important part of the global supply chain.

"The decision by General Electric (GE) to co-produce fighter jet engines with Hindustan Aeronautics through technology transfer is a big deal. It will help India position itself as a major defence production hub. The move would help bring hundreds of defence MSMEs up in the production value chain. It will bring fresh investment in the sector and create more jobs," he said.

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Editor's Note

Export headwinds to stretch MSME working capital requirements: Report

Micro, small and medium enterprises (MSMEs), accounting ~40% of India’s exports, will face headwinds from the imminent economic slowdown in advanced countries, particularly the US and Eurozone. These two geographies account for a third of India’s overall exports.

An analysis by CRISIL MI&A Research, captured in its biannual MSME Report, shows a fifth of the micro, small and medium enterprise (MSME) sector by value is expected to witness an increase in working capital requirement this fiscal, compared with the pre-pandemic (fiscal 2020) level.

These MSMEs are in sectors already grappling with high working capital requirements. On the other hand, sectors such as dyes and pigments, construction, gems and jewellery will see a material stretch in their working capital days.

Pushan Sharma, Director – Research, CRISIL Market Intelligence & Analytics, said in a statement, “In the Gujarat cluster, export-oriented MSMEs in Ahmedabad and Surat are expected to see their working capital days swell this fiscal compared with the pre-pandemic levels. The Ahmedabad cluster will see an increase of 20-25 days, driven by a rise in the working capital requirement of the dyes and pigments sector, and the Surat cluster by ~35 days, driven by higher working capital requirement of the diamond exports sector.”

The Ahmedabad cluster has a major presence of MSMEs into dyes and pigments, pesticides, and pharmaceuticals. The working capital stretch here will be because of a rise in working capital days for the dyes and pigments sector for three reasons: inventory pile-up following dumping by Chinese producers; the recent earthquake in Turkey; and slowdown in the US. These three account for 20-25% of the total exports of dyes and pigments, pesticides and pharmaceuticals.

As for Surat, ~90% of India’s diamond exports emanate from there. Diamonds constitute more than half of India’s gems and jewellery exports and a substantial decline in demand from the US, the largest export market, is having a significant impact. That, in turn, is having a bearing on receivable days, leading to an increase in working capital days from ~140 before the pandemic to more than 200 this fiscal.

In the construction-roads sector, underachievement of budgeted capex last fiscal — to rein in fiscal deficit — has added to the challenges of developers in meeting working capital demand amid high commodity prices. This has led to an increase of more than 100 days in their working capital cycle this fiscal, compared with pre-pandemic levels.

Says Elizabeth Master, Associate Director – Research, CRISIL Market Intelligence & Analytics, “Liquidity benefits, such as payments on the achievement of small milestones, that MSMEs in the construction-roads sector have been receiving from the central government for the past few years as a part of the Atmanirbhar package will not be available from this fiscal. That will further increase working capital days.”

The debt requirement for the MSME sector is estimated at over Rs 100 lakh crore, the MSME Report said. Of this, ~70% is for working capital requirement. A fourth of the debt is sourced formally. The cost of capital from the informal segment is extremely high. Thus, understanding the working capital needs across sectors and clusters is critical, the report said.

Assessing their working capital requirement is a challenge also because of information asymmetry and lack of high frequency data points.