MSMEs in TN lie low, shut shop amid steep price rise of raw materials
Gone are the days when 45 year old D Vijay slept peacefully at his home in Tamil Nadu’s Coimbatore. For the past 15 years, he had been running a small-scale business of manufacturing spare parts of pump sets and valves, using a Computer Numeric Control (CNC) lathe and milling machines. He was content with his life and often proudly took the profit home. But those days have vanished.
Over the past one year, Vijay has exhausted his savings to keep the business alive. One of the main reasons behind the losses, he says, is the constantly increasing prices of raw materials like steel, copper, aluminium, pig iron and gun metal amid their shortage.
Many like Vijay running Micro, Small and Medium Enterprises (MSMEs) in the state are struggling to run their business and have even reduced their production by half due to the constantly rising prices of raw materials. Others have shut down their businesses unable to cope with the shooting prices.
“Like gold and fuel prices, the prices of raw materials have been increasing every day and have now become unpredictable. With this, it has become impossible to run my business for profit at all. I am continuing the business only because I cannot afford to quit it,” Vijay said.
Vijay says he has been spending around ₹1 lakh to ₹1.5 lakh towards building rent, electricity and labourers’ wages, from his savings every month.
“I don’t know for how long I will be able to manage with my savings if the situation persists,” he said, adding that he has been doing business at a loss of 10 per cent.
“Even though inquiries that I receive in a month have gone up by 10 to 20 per cent, I could not convert these into business. In fact, my factory’s production has come down by 20 per cent in comparison with 2019,” he added.
Unlike Vijay, P Karthikeyan, who owned lathes, and R Saravanakumar, who owned CNC machines in Coimbatore, have shut their business and taken up menial jobs for livelihood instead.
Those running the businesses say the price of raw materials has gone up by 60 per cent to 150 per cent since November 2020 and the government has not intervened despite several representations. Tamil Nadu has over 25 lakh MSMEs and about 50 to 60 lakh people are dependent on the industries directly or indirectly.
V Nithiyananthan, general secretary of Tamil Nadu Small and Tiny Industries Association (TANSTIA) said the frequent rise in the price of raw materials that is being witnessed now had not happened in the past three decades.
He said that around 5 per cent of industries that were taking orders from the government and in turn used to give product orders to other factories have decided not to receive the orders until the problem is addressed, citing their inability to afford the price of raw materials needed for production.
“The government departments do not agree to pay revision and slap penalty against us if we delay in supplying the products. Most of us are manufacturing products at a loss of 25 per cent. We cannot afford it. So, we have decided to stop manufacturing products and just pay the wages to labourers and building rent. In this way, we can at least reduce our loss. Many of us are continuing the business only because we have no other option. We had pledged our houses and obtained loans to invest in the business,” he said.
C Babu, an industrialist from Ekkaduthangal in Chennai and former president of TANSTIA said, “Until a couple of years ago, traders used to provide raw materials on credit basis. But, now, it has completely stopped. We can purchase the materials only after transferring the money to them. But we will not receive the payment immediately after the product is delivered. So, the fund flow itself has reduced.”
Most of the industries have reduced their production by more than 50 per, he said, adding that it would have a cascading effect on other ancillary industries and on the livelihood of workers employed there. Referring to NCRB data, Babu said suicide among businessmen distressed by losses has increased and that the growth of the sector would be badly affected if the government doesn’t step in and control the price rise.
MV Ramesh Babu, president of Coimbatore District Small Scale Industries Association (CODISSIA) said that they have been requesting both the government and traders to retain the earlier price of raw materials at least for a month but none of them are accepting.
“In this situation, many of the industries had reduced their production considerably. Orders have also come down in case of foundries, pump and automobile sectors. Gone are days when industries were functioning three shifts a time. These days, they function hardly for 1-1.5 shifts a day. About 5 to 10 per cent of micro industries have shut their business. Other companies are functioning only to retain their workers and reduce their loss,” he added.
C Sivakumar, of Coimbatore’s Tirupur Districts Micro and Cottage Industries Association (COTMA) said, “Earlier, we used to manufacture products at a profit of 5 to 8 per cent. But, in the last one year, most of the profit goes in managing the expenses incurred in purchasing the materials.” Pointing out that they have made multiple representations to the government, he said that the government should at least temporarily ban exporting the materials or waive off import duty to save the industries.