‘Fuel price hike pushing MSME operational cost up by 30%’

Trade bodies say it comes at a time when MSMEs are still on the path of slow recovery

The operating cost of over 60 lakh medium, small and micro enterprises (MSMEs) in Karnataka will go up at least 30% due to the recent hike in petrol and diesel prices, say trade bodies.

They said the fuel hike came at a time when MSMEs were still on their way to slow recovery after the pandemic brought the entire sector to a standstill between April and October 2020. The hike would certainly put additional burden on the MSME ecosystem as it was like being pulled down again when it was trying to climb out of the pandemic-brought crisis.

FKCCI president Perikal M. Sundar told

The Hindu: “Operational cost overall has gone up for MSMEs because of the fuel hike and consequently overheads will be up easily by 30%. In addition, to reach units and factories, most MSME workers use their own vehicles or public transport. Under this situation, companies will have no option but to increase salaries, although business activities are yet to become normal.”

Manufacturing, engineering, machine tool, and automotive space parts firms etc. would be the most hit as they run their machines on diesel gen-sets during hours of daily power cuts.

D.R. Subramanyam, CII Karnataka State Council member ( MSME) also Managing Director of SLN Technologies, said: “The hike in fuel price will put the entire MSME sector, especially the small and micro enterprises, under severe pressure. Most companies are still struggling to climb back to normalcy.” Mr, Subramanyam added that costs were only going up for MSMEs even before revenues started picking up.

Transport and logistics

MSME operations are heavily dependent on transport and logistics.

They, on a daily basis, deliver products to OEMs and also buy raw materials. MSMEs in the State despatch autoparts, electrical items and machine tools meant for automotive industries across Pune, Chennai and Hyderabad. Also, most raw materials, be it steel, copper, aluminium, plastic or rubber, come from Kolkata, Mumbai or Delhi on trucks.

“The entire life cycle of MSMEs is dependent on transportation. Now, with another hike in fuel prices, the local transportation, inter-State despatches, employee commuting cost of production, and input cost all are on the rise,” said KASSIA general secretary N.R. Jagadish.

‘Why only in India?’

The Union government should call for an immediate meeting of all stakeholders comprising of the petroleum ministry, oil companies and others to discuss and decide on a comfortable and common landing point as far as petrol/diesel prices are concerned, suggested T.R. Parasuraman, president BCIC and president and whole time director of Toyota Industries Engines.

The actual fuel cost is approximately 1/3 of what we pay. Oil marketing companies add some 10% margins to the cost, plus logistics charges. However, the major chunk of the cost is levied towards Excise Duty and Value Added Tax by the Centre and the State. Eventually, the retail price is compounding to an astronomical 250 to 260% high, he pointed out.

“There is great scope for rationalisation of this tax structure around fuel and the government should call a stakeholder meeting on a priority basis,” he insisted.

Mr. Sundar, this kind of fuel hikes is not seen anywhere else in the world.

“Such hikes are happening especially when crude oil prices are low. We don’t understand why the government should tax fuel so heavily and burden the common man and the industry,” he added.