All India Council of Association of MSMEs (AICA), representing around 170 MSME associations, has written to the prime minister urging the government to intervene after a massive spike in key raw material prices hurt MSMEs.
In its letter, AICA has said that there is an erosion in the working capital of MSMEs due to a huge rise in prices of raw materials like steel, iron ore, aluminum, copper, plastics, PVC, paper and chemicals.
It further said that the open market is not accepting the resultant effect of the increase in the price of raw materials. AICA further said that the raw materials are being blocked and stocked in the supply chains.
"We understand this volatile situation is temporary in nature, however can cause permanent damage to the MSME sector. In spite of drop in demand due to lockdown, prices are in upswing, particularly steel, pig iron and other raw materials too," AICA said in a statement.
Between April 2020 and June 2021, the price of copper has surged 109 percent from Rs. 345 to Rs 745 while the price of steel plates have jumped 82 percent from Rs 45 to Rs 82 during the same period.
The industry body has suggested hedging of steel for the MSMEs in order to provide protection against escalation for some period.
"Easy mechanism to hedge steel for all MSMEs, National Small Industries Corporation (NSIC) should act as a consolidation agency. They should be in a position to consolidate and hedge overall steel quantity in the market place. This kind of hedging should be possible for a period of one year," it said.
AICA further suggested that the public sector enterprises must be instructed to accept cancellation of orders from MSMEs without putting a penalty or blacklisting them as an event of increase in the prices of steel is not within the control of the MSMEs.
The industry body also called out for the PSUs to publish steel prices on a quarterly basis and urged that the price should be maintained for a minimum of 3 months at a stretch.
"PSUs like SAIL and Vizag steel should focus on MSMEs for supply of materials on priority basis and all steel industries should allocate at least 40 percent of their production for Indian MSMEs," AICA said in its suggestions.
As a result of the consecutive lockdowns in 2020 and 2021, the MSME sector has been facing a massive liquidity and supply crunch, shortage of labour and non-payment of dues.
The MSME sector in India is said to be the second-largest employment creator after agriculture, providing employment to an estimated 11 crore people. It contributes to 30 percent of the GDP and accounts for 48 percent of the exports.