MSME imports hit after rupee’s free fall against greenback

Import bills of micro, small and medium enterprises have gone up at least 20% to 25% in the last over six months, say trade bodies

October 02, 2022 09:39 pm | Updated October 03, 2022 10:06 am IST - Bengaluru

Karnataka has at least 5,000 MSMEs that regularly import various raw materials, such as metal sheets and metal wires, industrial paints, chemicals, engineering and electric items, machine tools and automotive items. 

Karnataka has at least 5,000 MSMEs that regularly import various raw materials, such as metal sheets and metal wires, industrial paints, chemicals, engineering and electric items, machine tools and automotive items.  | Photo Credit: RAGHUNATHAN SR

The Indian rupee hit a fresh record low against the dollar on Wednesday closing at 81.94, further impacting the import activities of the MSME community in Karnataka adversely.

The raw material import bills of micro, small and medium enterprises in Karnataka have gone up at least 20% to 25% in the last six months as the rupee continued to slide, as per trade body data.

What they import

Karnataka has at least 5,000 MSMEs who regularly import various raw materials, such as metal sheets and metal wires, industrial paints, chemicals, engineering and electric items, machine tools and automotive items from global markets to run their factories and small production units in the State.

“The import bills of these companies have gone up substantially with the fall of rupee. They are now paying at least ₹84 or even more per dollar value of imports. This is certainly not a viable scenario. Some firms have stopped imports and currently facing production issues,’‘ K.N. Narasimha Murthy, president, Kassia, told The Hindu.

Duty and transaction charges

Not just that, as import cost have gone up, the import duty component has also increased. As the quantum of money involved has increased, bank transaction charges have risen too. The logistics and landing costs have also increased, mostly paid in dollars, by 5% to 10%. In addition to all these, the finished products attract 18% GST in local markets.

“Small and medium manufacturers are caught in a cascade of issues with regard to the import, this is when they are already facing other existential crisis,’‘ said Mr. Murthy.

As production cost has gone up, MSMEs are forced to increase the market cost of their final products in the local markets and export markets.

“Under this scenario, our MSMEs are losing their competitive advantage, market share and margins especially when Taiwanese, Vietnamese and Chinese products are plentily available for a much attractive price,’‘ lamented Kassia president.

Slowing or shutting down

Some MSMEs, already facing a shortage of raw materials as they are not able to import at a higher cost, and have already slowed down or shut their units temporarily, as per trade body sources.

Small and medium electronics-based manufacturing industry also imports most of the raw materials including semiconductors and Integrated Circuits to support their production here. Industries working on aerospace, and defense with DPSUs, services, R&D labs etc., have long-term contracts where the prices are fixed, and they have no scope of increasing prices.

D.R. Subramanyam, MD, SLN Technologies and Chairman, Ease of Doing Business Taskforce, CII Karnataka, said, “Electronics industry is suffering due to global semiconductors shortage, long lead time, price hikes and stringent payment terms of suppliers demanding advance payments. At this time rupee weakening day by day is scary and the strategic electronics sector, particularly MSMEs, will get hit seriously and their margins will get wiped out,” he said.

City-based defence electronics manufacturing firm SLN Technologies said its raw material import cost has gone up at least by 20%: 12% due to the rupee fall and another 8% due to an overall inflation-driven increase in material cost.

Recession fears

Although the rupee has slightly improved in the last couple of days to 81.80 and to 81.55 on Saturday against the dollar as per RBI, industry analysts say INR is expected to depreciate further amid a strong dollar and might head towards 83/84 levels on the backdrop of recession fears.

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