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).
Inflationary Pressures on SMEs Manufacturers in India
Inflationary pressures on SMEs manufacturers in India have been on the rise in recent years. This has been driven by a number of factors, including rising input costs, increased competition from larger firms, and a weakening of the Indian rupee. As a result, many SMEs manufacturers are finding it difficult to maintain their profit margins and are struggling to stay afloat. The situation is particularly dire for those firms that export their products, as they are facing stiff competition from cheaper imports. The Indian government has taken some steps to try and mitigate the impact of inflation on SMEs manufacturers, but it remains to be seen whether these will be enough to prevent further deterioration in the sector.
Inflationary Pressures on SME Manufacturers in India
The cost of raw materials and other inputs used by small and medium enterprises (SMEs) manufacturers in India has been rising steadily in recent months, putting pressure on their margins and profitability. This is largely due to the inflationary pressures that have been building up in the economy, as a result of higher crude oil prices and other factors.
The Reserve Bank of India (RBI) has been trying to contain inflation by raising interest rates, which has led to an increase in the cost of borrowing for SMEs. This, in turn, has put further pressure on their margins. To add to their woes, the government has also been trying to control the fiscal deficit, which has led to cuts in subsidies and other benefits that SMEs used to enjoy.
All these factors together have made it difficult for SME manufacturers in India to compete with their larger counterparts. Many of them are now struggling to survive and are at risk of closing down. This is bad news for the economy as a whole, as SMEs play a vital role in job creation and economic growth.
Causes of Inflationary Pressure on SME Manufacturers
Over the past few years, inflationary pressures have been building up in the Indian economy, and this is especially true for small and medium enterprises (SMEs) manufacturers. A variety of factors have contributed to this, including the rise in crude oil prices, the depreciation of the rupee, and high food prices.
All of these factors have put pressure on SME manufacturers, who are struggling to cope with the rising costs of inputs. This has led to an increase in the prices of finished goods, and this in turn has put pressure on consumers. As a result, inflationary pressures are building up in the economy, and this is likely to continue in the near future.
Impact of Inflation on SME Manufacturers
The inflation has been a key concern for the small and medium enterprises (SMEs) manufacturers in India. The Reserve Bank of India’s (RBI) recent decision to increase the repo rate by 25 basis points has further added to the woes of the SME manufacturers. The inflationary pressures have been mounting on the SME manufacturers, who are already grappling with the challenges of the implementation of the Goods and Services Tax (GST). The increase in the repo rate is likely to make the cost of borrowing expensive for the SME manufacturers and might lead to a slowdown in the growth of the sector.
The RBI’s decision to increase the repo rate is in line with its objective of maintaining inflation within the target range of 4 (+/- 2)%. The inflation has been on the rise in recent months and has breached the RBI’s target of 4% for the first time in five months in December 2017. The increase in the repo rate is likely to help in bringing the inflation under control. However, the SME manufacturers are likely to be the worst hit by this decision of the RBI.
The SME manufacturers are already struggling with the implementation of the GST. The new tax regime has led to an increase in the cost of production for the SME manufacturers. The GST has also resulted in the disruption of the supply chain and has led to a slowdown in the growth of the sector. The increase in the repo rate is likely to further increase the cost of borrowing for the SME manufacturers and might lead to a further slowdown in the growth of the sector.
Ways to Combat Inflationary Pressure on SME Manufacturers
There are a number of ways in which SME manufacturers can combat inflationary pressures. Firstly, they can increase productivity and efficiency in their operations in order to reduce costs. Secondly, they can diversify their product range and customer base in order to reduce their reliance on any one particular market or customer group. Thirdly, they can hedge against inflation by entering into forward contracts with suppliers or customers. Finally, they can lobby the government for support in terms of fiscal and monetary policy.