New Delhi: India’s micro, small and medium enterprises or MSMEs, already facing challenges, could face additional strains as the conflict between Iran and Israel intensifies, experts warn.
MSMEs form a vital part of India’s global trade network and contribute to a wide range of sectors such as textiles, handicrafts and automobile components.
Growing instability in West Asia, particularly around key transit routes such as the Strait of Hormuz and the port of Chabahar, may disrupt supply chains and increase freight costs, increasing pressure on MSME exporters.
According to government data, MSMEs contribute around 45% of India’s total exports.
“The continuous Iran-Israel conflict poses significant risks to the automotive sector, particularly with regard to raw materials and components coming from the Middle East,” said Veer Singh, CEO of Lord’s Automotive. Mint. “Given that many financial institutions are closely linked to this region, disruptions could lead to funding shortages for numerous startups that rely on investments from the Middle East.”
“This stagnation in financial flow could hamper growth, reduce revenue prospects and increase operating expenses for startups in the automotive industry,” he said, adding that as geopolitical tensions increase, supply chain vulnerabilities supply may become more pronounced, impacting production schedules and costs. .
According to the Economic Survey 2024, MSMEs contribute 30% to India’s GDP and employ 11 million people, and 35.4% of the country’s manufacturing output comes from this sector.
The survey reveals that the gross value added (GVA) per worker increased from $1,652.56 to $1,695.15, while the gross value of production (GVA) per establishment increased from $4,762.58 to $5,540.81, indicating a greater productivity and work efficiency.
“Our trade with Europe and Russia would be severely affected and key air routes could be affected, significantly affecting exports of textiles, electronics, gems and jewellery, pharmaceuticals and agricultural products,” said Ram Singh, professor of International Business. at the University of India. Institute of Foreign Trade and Head of Center for Distance and Online Education (CDOE), IIFT.
Canceled reservations
Bookings confirmed in August and September are now being cancelled, said a Gurugram-based textile exporter who spoke on condition of anonymity. “The export of textile products to Iran and other Middle Eastern countries is mainly through Turkey and due to the ongoing unrest, the textile trade is greatly affected,” the person said.
Textile exports decreased by 3.23% to $34.40 billion in FY24, down from $35.55 billion in FY23. In FY22, textile exports were valued at 41.12 billion dollars.
“When all the big players are under pressure, the MSME sector is no exception. “We are currently assessing the damage to the industry due to the unrest in West Asia,” Engineering Export Promotion Council president Arun Kumar Garodia said.
Also read: India braces for economic tensions as West Asia conflict escalates
Mukesh Mohan Gupta, president of the Indian Chamber of Micro, Small and Medium Enterprises, said, “The unrest will definitely affect the MSME units. “Overall, there will be an impact if tensions escalate to the next level.”
Under such circumstances, freight prices will increase and shipping insurance costs will increase, significantly affecting the MSME sector, he said.
“Even if some MSME units are not directly involved in the export of specific goods and supplies, the stress experienced by these larger companies will inevitably be transmitted to smaller and medium-sized manufacturing units,” Gupta explained.
Email queries sent to the Ministry of Commerce remained unanswered as of press time.
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In the Union Budget 2024-25, Finance Minister Nirmala Sitharaman announced key measures to support MSMEs.
These include a credit guarantee plan that offers up to $100 crore for capital investment in machinery, public sector banks developing internal credit assessment models and a government-sponsored fund to provide credit support during periods of stress.
Mudra loan limits to be raised to $20 lakh, mandatory onboarding on TReDS platform will be expanded, SIDBI will open new branches in MSME clusters and financial support will be provided to set up food irradiation units and safety laboratories.
In a written reply, Micro, Small and Medium Enterprises (MSME) Minister Jitan Ram Majhi told the Lok Sabha on July 25 that of the one million registered MSMEs, 49,342 have closed down, resulting in loss of 317,641 jobs. of work.
According to data provided by Majhi, Maharashtra saw the highest number of lockdowns, with 12,233 MSMEs shutting down, resulting in the loss of 54,053 jobs. They were followed by Tamil Nadu (6,298 closures, 43,324 job losses), Uttar Pradesh (3,425 and 33,230), Gujarat (4,861 and 22,345) and Bihar (2,414 and 15,317).
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