Rise in raw material price hits struggling MSMEs hard

‘Those placing orders want consignments at older rates’

December 07, 2020 02:14 am | Updated 09:12 am IST - CHENNAI/COIMBATORE

Staying afloat:  With the hike in raw material prices, MSMEs are finding it hard to supply components.

Staying afloat: With the hike in raw material prices, MSMEs are finding it hard to supply components.

Paralysed during the pandemic, the Micro, Small and Medium Enterprises (MSME) sector in Tamil Nadu is facing a new challenge — the rising raw material costs.

Several MSME unit owners have said that those who place orders are not willing to shell out more and want the consignments at pre-pandemic rates. For instance, one of the units in Coimbatore had supplied machinery to a textile unit last year. It got a repeat order, recently, at the same price. When the MSME unit owner asked for a price revision, the textile unit was not willing to pay a higher amount.

“With the steep hike in raw material prices, how will MSME units supply machinery or components at the earlier prices? This is a difficult situation,” said M.V. Ramesh Babu, president, Coimbatore District Small Industries’ Association.

“Those who get government orders take three to six months to execute them. If they are unable to honour the commitment, they face the risk of being black-listed. But the units will suffer a loss if they execute the orders at the agreed price,” he noted.

According to various trade associations, in the last five months, the price of stainless steel increased by 32%, to ₹200 a kg, aluminium by 26%, to ₹210 a kg, and natural rubber by 52%, to ₹156 a kg. Copper, a key component for many in the MSME sector, has touched ₹600 a kg, an increase of nearly 77%.

R.G. Chakrapani, secretary, Thirumazhisai Industrial Estate, said there was a shortage of raw material.

Though the prices of certain raw materials have gone up, industries giving orders are not able to match the prices, said K. Baskaran, secretary of the Kakkalur Industrial Estate Manufacturers’ Association. “We are forced to shrink our margins to stay afloat,” he said.

While many MSMEs argue that increasing the product price will not help, pumpset and wet grinder manufacturing industries in the Coimbatore region have already revised the product price. “We [pump manufacturers] went in for a 5% revision last month. However, to survive, pump manufacturers will have to increase the end product price by at least 10%,” said K.V. Karthik, president of the Southern India Engineering Manufacturers’ Association.

“The price of electrical steel, the main raw material used by pump makers, was increased by ₹12,000 a tonne on Saturday. If there are such huge spikes in raw material prices, units will slow down or even stop production,” he rued.

K.E. Raghunathan, convener of the Consortium of Indian Associations, explained that companies will not be able meet their overhead costs, which will result in defaults and non-payment of benefits and salaries to employees.

“Consumers will have to bear the higher price, if passed on, and that will shrink the demand further. Both situations are dangerous now,” he said.

R. Selvam, secretary of the Thirumudivakkam Industrial Estate Manufacturers’ Association, wanted the government to help by forming separate MSME clusters or a special-purpose vehicle to consolidate requirements and negotiate with raw material suppliers for better pricing.

He also wanted the government to reduce import duty, and, immediately, ban the export of certain commodities, based on inland demand.

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