The developments in the West Asia region are now impacting the Indian economy directly due to increasing costs of oil, a weakening rupee, rising costs of transport and logistical issues. MSMEs are being impacted the most in this context, as small businesses operate with lower margins and cash flows.
Recently, Prime Minister (PM) Narendra Modi asked citizens to cut down on unnecessary expenditures such as excessive fuel usage, purchasing gold, extravagant expenses, and foreign travel. However, many citizens misinterpreted this directive. It does not mean that citizens should stop spending altogether. The Indian economy is based on consumption, and without any spending by citizens, businesses will be affected negatively.
The bottom line is straightforward; be frugal, cut costs, encourage local entrepreneurship, and alleviate any economic pressures amid uncertainty.
Now is the time for MSMEs to be prepared, not panicked.
The key issue facing the MSMEs today is higher logistics and fuel prices. As global oil prices rise, it is reflected in higher costs in Indian logistics. Cost of transport, cost of raw materials, packaging cost, cost of power and utilities, and the daily operational cost all increase. MSMEs relying on imported products are further impacted because of the weakening rupee.
The second issue is reduced consumer spending. During the time of uncertainty, consumers generally tend to hold off on purchasing. Jewellery, tourism, luxury fashion, the hotel industry, and automobile segments may see lower spending, so MSMEs connected to such industries need to prepare for reduced spending.
{{/usCountry}}The second issue is reduced consumer spending. During the time of uncertainty, consumers generally tend to hold off on purchasing. Jewellery, tourism, luxury fashion, the hotel industry, and automobile segments may see lower spending, so MSMEs connected to such industries need to prepare for reduced spending.
{{/usCountry}}However, every crisis also creates new opportunities.
India is making efforts towards Atmanirbhar Bharat and manufacturing. This can be very advantageous for Indian MSMEs, provided they pay attention to quality, develop supply chain management within India, and rely less on imported goods.
Now is the best opportunity for Indian MSMEs to become smart and strong.
What actions should MSMEs take at this stage?
First, try to reduce costs. You can achieve this through optimising the transportation costs, encouraging online meetings, and improving efficiency.
Second, boost your productivity. Saving is not enough – you should change your system, introduce more advanced technology, and train your employees. Higher productivity is the key to success.
Third, identify export possibilities. There is a need for improved exports to balance out increased imports and foreign exchange issues in India. Small enterprises could even think about exporting through the Internet and international markets.
Fourth, improve local sourcing. Dependence on foreign raw material sources amidst global uncertainty poses risk. Good local sourcing would create more stability.
Last, but most important, is to maintain financial discipline. For this, maintain enough cash reserves, refrain from borrowing, and ensure efficient management of inventory. Cash flow management becomes crucial in times of economic instability.
Entrepreneurs from India have always been resilient in hard times. Those companies which react quickly, manage their cost structures effectively, enhance their productivity, and contribute to local value addition will be better positioned in the years ahead.
It’s not the time to panic. It’s time to think strategically.
(The views expressed are personal)
This article is authored by Rahul Jain, founder director, Business Coaching India LLP.