Tamil Nadu MSMEs struggle amid surge in cost of raw materials

After a quick rebound in activity, the MSME sector in Tamil Nadu is facing multiple challenges as raw material price have increased and the supply chain disrupted. The steep increase in prices of basic raw materials like steel, aluminium, copper, zinc have made matters worse. The industry saw a nearly 50% increase in most of the raw material prices in the last 6 months.

Chennai: For the Micro Small and Medium-scale industries in Tamil Nadu it is the Déjà vu situation, a complete shutdown of industries, and a sign of relief and again a terrible blow to the industrial production. The MSMEs in the state struggle to continue business as the cost of raw materials have increased, affecting the entire supply chain network.

After unlocking the economy, the MSMEs, which are the most crucial part of the state's economy, face multiple challenges to run the business. The industry for a brief period expected a green pasture but after March, cases started to surge again, and with that, their dreams turned into dust. The steep increase in prices of basic raw materials like steel, aluminium, copper, zinc made matters worse. The industry saw a nearly 50% increase in most of the raw material prices in the last six months.

Speaking on the matter Tamil Nadu Small and Tiny Industry Association (TANSTIA) deputy secretary Vasudevan says that, "The raw material prices are volatile, it's changing every day like the price of gold and silver. The orders are being cancelled because of this. Even after finishing the orders, our prices have a huge difference from the agreed price. But the original equipment manufacturers are not ready to pay more for their orders. So we are facing huge losses. We have urged the central government to control the prices, but there is no action till now".

The Coimbatore district in Tamil Nadu has a large number of foundries in the state. It is one of the worst-hit industry due to the raw material prices. Shiva Shanmuga Kumar, President of Foundary Owner's Association says that "Our industry is the basis for industries across sectors. As of now, the metal prices saw an increase of 45%, but tier 1 and tier 2 companies and end consumers are not ready to absorb the increase in cost. The business activity is very dull for the last two months and we are worrying about paying taxes and fulfilling other obligations".

Apart from the price rise, there is a shortage of essential metals, says Baskaran, automobile component manufacturer in Kakalur Industrial Estate, near Chennai. "There are no fresh orders in the whole month and we are not able to hand over spare parts on time. We are small players and can't buy bulk raw materials and store them".

The textile industry too faces a similar problem. The sharp increase in the prices of yarn poses a huge challenge to the industry. Subramanian, former president of EDISSIA, the Industry body of Erode district, worries that yarn prices have gone up to 50% in the last few months. He has urged the government to stop yarn exports and fulfil the needs of the producers within the country.

Along with the raw materials the price of chemicals, the paper also goes up, impacting the packaging cost of finished products. Industrialists across the state plead with the government to put an embargo on metal ore exports.

Ramamoorthy, former president of CODISSIA says that "raw material price rise has affected the entire supply chain. Our exports are dwindling, the cash flow in the industry is stagnant and we have a severe cash crunch. Banks no longer lend us money as they have dispersed loans under ECLGS scheme".

The current medical emergency has stopped the oxygen supply to the industry. Due to this, production in many industries in Tamil Nadu including food processing, engineering products are affected.

All of these has affected the industries and crushed their hopes of economic recovery. Many small industries are worried about continuing their business for a year as they struggle with piling debts, shrinking orders, an increase of input costs, shortage of labour force, and crunch of working capital along with hopes.

MSMEs play a key role in employment generation. At the time the country is facing serious unemployment issues, the lifeline industry is sinking without anyone noticing. The MSMEs want the government to rescue the industry. They expect more guaranteed loans, sorting of raw material price rise and focussed incentives in the long run.