Prolonged war to hit India's micro, small and medium enterprises hard: FISME chief

A large number of small businesses will be severely affected if the war in Europe continues for another week, an Indian small business lobby said on Wednesday. In an interview, the president of the Indian Federation of Small and Medium Enterprises (FISME), Animesh Saxena, said freight rates had increased by 10% to 15% in the last week of Russia's invasion of Ukraine, and raw material costs. It is expected to skyrocket as well.

According to data from the Ministry of Commerce, bilateral trade between India and Russia reached $8.1 billion in FY21, with Indian exports worth $2.6 billion and imports worth $5.5 billion.

About 40% of India's exports come from micro, small and medium enterprises. We're already starting to see an increase in shipping, by sea and air, which has already been nearly four times since the days before the pandemic.

?As the war intensifies and more cargo flights avoid conflict areas, transit and delivery times will increase and freight rates will rise, the president of the International Federation of Combat Aircraft (FISME) said.

Saxena said the export sectors that will be affected the most include textiles, apparel, electronic products, plastics, and metal components. Other important exports to Russia include medicine and machinery.

In terms of raw materials, small businesses may face disruptions in the supply of polyester and chemicals, which will lead to their prices rising. This comes on the back that input costs for products from steel to cotton threads remain high, and the geopolitical crisis is likely to make matters worse for SMEs.

?Regarding payment problems due to some Russian banks cutting off Swift, the world's most used international payment network, Saxena said: "The payments crisis has already begun. We are in contact with the government, especially regarding the payments crisis and other security issues."

“We are seeing how things develop. If things get fixed soon, that's okay; otherwise (prices) may go up.”

MSMEs have been a major focus of the government in the midst of the pandemic. Besides various measures to ease the regulatory framework and business environment for small businesses, the 2020 government has implemented the Emergency Credit Line Guarantee Scheme (ECLGS) to support businesses affected by the pandemic with a major focus on MSMEs. The scheme was launched with an initial batch of ? 3 billion but has now been expanded to ? 5 billion.

Saxena said that while these initiatives have supported MSMEs, the government should develop a policy approach to formalizing small, largely unregulated enterprises, with little or no institutional funding.

Saxena said small businesses are also concerned about any possibility of sanctions or embargoes by the United States and the European Union as a result of their continued trade with Russia.

Regarding the broader situation of micro, small and medium enterprises in the country, he said that the sector has so far witnessed a recovery and expected a faster pace of growth with the revitalization of the economy, but he pointed to the alarming increase in raw material costs.

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Calling for controls on the prices of raw materials used in industries, he said that in the past year cotton prices rose by 80%, forcing many companies to close. He added that the budget announcement of a capital expenditure increase of 35.4% would serve the sector well in the long run. The Union Budget for FY23 set a capital expenditure of 7.5 trillion rupees for the following fiscal year, up from 5.54 trillion rupees in FY22.