Exorbitant costs of fuel, commercial and household gas, edible oil, and numerous different products squeezed the pocket of shoppers and consumers this year in the midst of a pandemic causing disturbances. The inflationary strain in the manufacturing industry is expected to ease in the coming months, however hardly.
The inflationary pressures on the manufacturing industry and spiralling cost of raw materials disrupted the global economy and changed the government’s calculation of their country’s GDP and its impacts on jobs, growth, and development. The Russian – Ukraine war has affected the global energy price and food exports.
Effects Of Inflation
Inflation is defined as a sustained increase in the general level of prices of goods and services in an economy over a period, which persists despite all efforts to control it. As prices rise, each unit of currency buys fewer goods and services. Consequently, governments usually try to monitor inflation rates and keep them within a targeted range. Let’s see how Inflation has affected manufacturing sector
- Higher Cost
High input costs of many manufactured raw materials, transport, repo rate and marginal crop prospects has taken a toll on the manufacturing sector. SMEs in India have to allocate an increased budget towards procurement of raw materials than before. This disrupts the balance sheet of the firms.
Due to Inflation, companies try to reduce the number of employees. As a result, many companies are laying off people or giving work to outsourced companies paying fewer wages so that costs can be managed to meet their profit targets.
3. Rise of commodity prices
There is an increase in the price of almost every commodity. Retail inflation reached 6 per cent mark and Wholesale Price Index (WPI) based inflation hit 12.54 in mid 2021. Even though retail inflation reduced to 5 per cent in November 2021 the WPI hit a record high of 14.23 per cent.
4. Rise of transportation costs
Petrol and diesel prices are going high with many fuel taxes including central and state tax on them making them too expensive for the industries and people. This increased the transport cost of goods and services.
5. Inflation In Salary:
Salaries are also not enough because salaries have not been increased with rising inflation. Employees are desperate to get jobs that pay them better than. They demand more pay, if not are ready to consider leaving the job in search of a better one. Before. This reduces the chance of getting expert employees and small firms often lose the best ones as well as there is no chance to give them a high salary.
6. Rising taxes
Manufacturing industry is seen getting losses due to various taxes like increased tariffs on GST, property tax, electricity, rent, and many other services. When the government has to raise taxes to reduce the deficit and increase profits, it is called fiscal consolidation.
Manufacturing industry has hit a slump and many companies have lost export markets due to the slow economy and low demands of the goods, loss of income and fall in purchasing power.
There is hope for the manufacturing sector as gradual economic growth is visible due to adopting more digitally managed ecommerce SAAS platform or other ERP softwares. This makes it easier for procurement and delivery of the manufactured goods.
India Government Schemes for SMEs in Manufacturing
1. Pradhan Mantri Mudra Yojana
This scheme was launched by Narendra Modi, the Prime Minister of India, on April 8, 2015. A special Micro Units Development and Refinance Agency Bank (MUDRA) is founded to provide low-interest loans to micro and non-banking financial institutions. This scheme is solely focused on funding small entrepreneurs aspiring to become big in business. The promoters can apply for a loan under this scheme if they have a viable business idea and secure it with collateral securities and personal guarantors.
2. CGTSME (Credit Guarantee Trust Fund For Micro & Small Enterprises)
The CGTSME scheme is meant to provide Credit Guarantee Trust to micro and small enterprises. The Centre initiates the credit guarantee fund for the Promotion of Small and Medium Enterprises (CPSME) for three years. This scheme provides a credit guarantee in low-interest collateral-free loans of up to Rs 1 crore dispersed via special CGTSME. This scheme is powered by MSME and SIDBI (Small Industries Development Bank of India).