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Last updated: 27 Jun, 2023  

Rupee.9.New.Thmb.jpg MSME: Working capital challenge

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Bikky Khosla | 27 Jun, 2023

Imminent slowdown in advanced economies, particularly the US and the EU will adversely impact one out of five Indian Micro, Small and Medium Enterprises, states a latest report. A third of our overall exports are shipped to these two major markets and considering that MSMEs contribute around 40 percent to the export basket, there is little doubt that slowdown in these major economies will hit the sector one way and another.

The report particularly points out that Indian MSMEs will see stretched working capital. According to its estimate, MSME sector’s debt requirement stands at more than Rs 100 lakh crore and out of this around 70 percent is for working capital. But our MSMEs source only a fourth of their debt requirement formally while cost of borrowing from the informal segment is extremely high. This again implies vulnerability of the sector.

The report, which covers 69 sectors and 147 clusters, adds that MSMEs in sectors like gems and jewellery, dyes and pigment and construction are already witnessing high working capital requirements, with the Ahmedabad cluster – majorly populated by dyes and pigments, pesticides and pharma companies - and the Surat cluster – mainly comprising diamond exporters - witnessing their working capital days swelling to 20-25 days and 35 days, respectively.

Working capital management is key to profitability and survival for MSMEs, and considering the huge gap between supply and demand for working capital credit for the sector and the declining trend in exports for quite some time now due to slowdown in our major markets, it seems easy and low cost of credit to the MSMEs is the need of the hour. The Centre should urgently step in to address this concern.

I invite your opinions.

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