MSMEs in Karnataka facing headwinds amidst falling rupee | The Financial Express

MSMEs in Karnataka facing headwinds amidst falling rupee

Ease of Doing Business for MSMEs: MSMEs are forced to increase the market cost of their final products in the local markets and export markets as a result of the rising production cost, as per the report.

MSMEs in Karnataka facing headwinds amidst falling rupee
Small and medium electronics manufacturing companies import most of the raw materials including semiconductors and integrated circuits.

Ease of Doing Business for MSMEs: Import activities of the micro, small, and medium enterprises (MSMEs) in Karnataka have been affected due to a fall in Indian rupee at 81.94 against the dollar on Wednesday, as per a report by The Hindu. The raw material import bills of the MSME community in Karnataka have gone up at least 20 per cent to 25 per cent in the last six months as the rupee continued to slide, suggested trade bodies data.

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The import duty component has also increased with the rise in import costs. Since the quantum of money involved has increased, bank transaction charges have risen too. There is a surge in logistics and landing costs, mostly paid in dollars, by 5 per cent to 10 per cent. Not only that, the finished products attract 18 per cent Goods and Services Tax (GST) in local markets.

MSMEs are forced to increase the market cost of their final products in the local markets and export markets with the increase in the production cost, as per the report.

To support the production process, small and medium electronics-based manufacturing industries import most of the raw materials including semiconductors and integrated circuits. 

Industries working on aerospace, and defense with Defence Public Sector Undertakings (DPSUs), services, Research & Development labs etc., have long-term contracts with fixed prices, and without any scope of increasing prices.

Some MSMEs started facing a shortage of raw materials as they are unable to import at a higher cost. Such units have already slowed down or shut their operations temporarily, as per trade body sources, the report said. 

As many as 5000 MSMEs in Karnataka import various raw materials regularly, such as metal sheets and metal wires, industrial paints, chemicals, engineering and electric items, machine tools and automotive items from global markets to run their factories and small production units in the state.

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Despite the improvement in rupee to 81.55 on Saturday against the dollar as per RBI, the industry analysts say that it is expected to depreciate further amid a strong dollar. It  might head towards 83/84 levels on the backdrop of recession fears, the report added.

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