New Delhi, May 20 (IANS): Working capital for Indian MSMEs would deteriorate further if wholesale price inflation continues to stay in double digits, Aditya Birla Group’s senior economist Dr Madhavan Kutty said on Thursday.
“MSMEs are being hit hard by rising commodity prices,” he said, amid India’s wholesale inflation, as measured by the wholesale price index, which rose to 15 .08% in April 2022 compared to 14.55% in March – and has been in double digits for over a year now.
Kutty was speaking at a panel discussion on “The Impact of Commodity Price Inflation on MSMEs” jointly organized by WTC Mumbai and the Association of Indian Industries (AIAI).
“Prolonged periods of high inflation will erode the profit margin of large corporate buyers, who in turn will delay their payments to their MSME suppliers,” he said.
He called on banks and NBFCs to help MSMEs through this tough time and lenders need to increase the flow of credit to the sector and get rid of their risk aversion.
Currently, 57 percent of the loan portfolio of private banks and 30 percent of public sector banks is linked to external benchmarks. By linking their loan portfolio to external benchmarks such as the RBI’s repo rate, banks are forced to pass on policy rate hikes to their borrowers.
However, in these difficult times, banks can refrain from passing on the RBI policy hike to MSME borrowers, he said, calling on public lenders to introduce innovative derivatives to hedge interest rate risks. interest and thus support MSME borrowers.
Citing an example of commodity inflation, Advanced Material, Texport Syndicate India, Director and CEO, and Vice Chairman of the Indian Tech Textiles Association, Avinash Misar, said: “India’s textile industry is severely affected by the higher cotton prices, as 75% of the downstream industry produces cotton. clothing and only 25% produce synthetic fiber clothing”.
Cotton prices have risen three times the growth of general inflation and MSMEs are unable to pass on this cost inflation as they have entered into long-term agreements with foreign buyers, he said. added.