inflation danger: SPJIMR examine highlights disproportionate danger of inflation on small and medium household enterprises

The examine, undertaken by SPJIMR’s Centre for Household Enterprise & Entrepreneurship discovered {that a} overwhelming majority of small and medium household enterprises have skilled vital working price will increase and are responding with worth will increase – a technique that will not be sustainable. The examine additionally recommends coverage prescriptions to mitigate the disproportionate danger being borne by the small and medium enterprises (SMEs) sector of the financial system.

The typical enhance in working prices reported by small and medium household enterprises is nineteen.5% which is much above the present retail and wholesale inflation charges of 6.07% and 13.11% respectively estimated by the federal government. Manufacturing enterprises appear to be bearing the brunt of the fee will increase, reporting a mean price enhance of 24%, whereas service enterprises reported a mean price enhance of 14.4%. This may impose a pressure on an financial technique that depends on a manufacturing-led industrial restoration. Furthermore, companies positioned in North and Western India appear to have had price will increase greater than these in the remainder of India, the examine discovered.

The small and medium enterprises (SMEs) surveyed for the examine attribute their rising working prices to will increase within the costs of uncooked supplies, gas, and labour. Whereas uncooked materials worth will increase are affecting each the manufacturing and repair sectors, the rise in gas and labour prices is having a better impression on the SME service sector than on the SME manufacturing sector.

83% of the respondents have responded to such price will increase by growing their costs. Enterprises have additionally improved their receivable collections and money movement cycles via renegotiating contracts. They’ve, nonetheless, not pursued grammage reductions or high quality reductions as responses to rising prices. The examine additionally discovered that the SMEs count on prices to proceed rising over the following three to 12 months, with a majority of the enterprises planning to extend costs within the subsequent three months.

“Our survey reveals the big and unsustainable impression of uncooked materials price inflation on Indian household enterprises. Whereas most household SMEs are mimicking massive firms by elevating costs and passing on price will increase to their clients, we query whether or not SMEs have the required branding and pricing energy to maintain this strategy over the medium time period,” mentioned Dr. Tulsi Jayakumar, Government Director, CFBE and creator of the report.

Dr. Jayakumar added: “The Reserve Financial institution of India might want to prolong particular credit score strains to the SME sector. Within the short-term, the federal government ought to take into account inserting a worth cap and/or offering subsidies on the vitality and gas consumed by the SME sector. Over a long term, SME advocacy and capability-building teams might want to work with SMEs to assist them enhance their branding and pricing energy and enhance resilience within the face of worldwide uncertainties”.

The examine was carried out from March 18-25, 2022, and concerned 170 respondent household enterprises positioned throughout 65 Indian cities, from the micro, small and medium enterprises.