The All India Council of Association of MSMEs have decided closure of industries for one day on 20th December requesting the Indian Prime Minister to intervene on the rocketing raw material price hike.
Coimbatore: The All India Council of Association of MSMEs have decided closure of industries for one day on 20th December requesting the Indian Prime Minister to intervene on the rocketing raw material price hike.
In a press release the AICA stated, All India Council of Association of MSMEs (AICA) with the support from more than 200 MSME Associations – Pan India, has been formed to represent the common issues to the Government.
AICA has called for closure of MSME industries for one day on 20th December 2021 and also to conduct peaceful demonstration on the same day in front of the South Tahsildar Office, Coimbatore at 11 a.m. with the participation of Associations in Coimbatore and MSME members, requesting intervention of Prime Minister of India, Narendra Modiji, to save MSMEs by reducing the abnormal and continuous hike in raw material prices.
MSMEs are the backbone of this economy, contributing about 30% of GDP, 48% of exports and creating job opportunities to 12-crore people.
Considering an average of 3.5 people per family, this translates to about 40-crore people i.e., one-third of our population approximately, are dependent on MSMEs.
The press release also stated that MSMEs will cease to exist in the near future, if necessary corrective action is not taken from your good office to reign in the rampant increase in the prices of raw materials and other allied materials. MSMEs have already suffered enough due to the impact of COVID-19. Adding to this woe, the abnormal increase in prices of raw materials has a cascading effect on the MSMEs like cancellation of orders, uncertainty of consumption in the market, decline of exports etc., bringing these units to the brink of extinction.
It must be noted that there is a steep hike in price of raw materials across all sectors, despite low consumption of raw materials and subsequent drop in the production (quantity) by MSMEs. This volatile situation has resulted in depreciating value of rupee and has caused permanent damage to the MSME sector leading to loss of jobs.
In the given situation, MSMEs are faced with huge challenges such as:
1. Sustenance at stake due to erosion of working capital on account of huge rise in prices of raw materials like steel, iron ore, aluminium, copper, plastics, PVC, paper, chemicals etc.
2. There is no price escalation clause for public sector projects.
3. Open market not accepting full effect of raw material price increase.
4. Non availability of basic raw material
Steel is an essential commodity for overall development of the country. Export of steel should be allowed only based on the availability of surplus. However, despite drop in demand due to lock down, prices of all the raw materials are in upswing. Steel and other base material manufacturers are declaring 10 to 20 times higher profit, while all the MSMEs are on the verge of extinction. It is therefore obvious that there is cartelisation of steel manufacturers, which include both private and Public Sector Undertakings, (PSUs) who are profiting at the expense of MSMEs.
The press release also suggested possible solutions to overcome this crisis like:-
i) Request for reducing the raw material prices which was prevailing during April 2020 and fix MRP (maximum retail price) for all raw materials.
It must also be noted that the bench mark for pricing of steel in India is not based on the demand and supply situation within our country, but driven by the international market prices, due to which the project contractors and engineering exporters with firm price contracts are very badly affected. To be precise, the Indian market steel volumes have come down by more than 21% in April 2021.
Due to the above factors, MSMEs are not only unable to execute orders taken at a much lower price but also face the uncertainty of getting black-listed by the PSUs and large corporates, if they do not honour their contracts.
The press note also suggested protection against escalation for some period including, implementation of measures like easy mechanism to hedge steel for all MSMEs. NSIC/any government agency 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 (as rate contract extends for a year) NSIC should make bulk bookings of steel at a price with the option of taking deliveries within 12-months as fixed.
For this a corpus fund should be created from the ministry to buy materials in bulk and distribute to MSMEs, which will pave a way for sustenance of MSMEs and be competitive in the market.
In terms of cancellation of orders, the press note brought to light that Public Sector Enterprises (PSEs) must be instructed to accept cancellation of orders from MSMEs with no penalty / black listing as steel price increase is a force Majeure event outside the control of the MSMEs.
Formula should be derived for price escalation was also suggested. SAIL / Steel industry must publish steel prices of long products, flat products and HRC coils on a quarterly basis. The price should be maintained firm for a period of a minimum of three months at a stretch.
In terms of permitting PSUs to revisit all orders to MSMEs, the press note pointed that the government must ask all public sector and stock exchange listed industries/ companies to revisit the steel orders placed with MSMEs, renegotiate considering the revised price in the market and place an amendment order.
Quota for MSMEs at concessional price was also highlighted in the press note which read, 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% their production for Indian MSMEs.
In terms of ensuring PSUs accept fresh quote, the press statement read, All MSMEs under government contract and suppliers to PSU, should be allowed to revise their price with fresh quote. For all finalised government and PSU supplies, MSMEs should be allowed to invoke escalation clause and re-quote.
GST based funding was also brought to light. GST based funding is needed for all MSMEs on very low marginal rate. This will encourage MSMEs to purchase raw materials.
Allowing import based on cost and quality was discussed. Government should allow import of all steel materials based on cost and quality requirements at a ‘Nil’ import duty (No anti-dumping) and also ban export of iron ore and steel products. It may be noted that better GDP growth can be realised if value added products are exported rather than raw materials. This will generate employment too.
It should be noted that representations made by all associations on this steep hike has yielded no response from the concerned ministries till date. Therefore, in order to draw the attention of our government and the personal attention of the Prime Minister of India, more than 10,00,000 MSMEs across India will be closing down their operations on 20.12.2021, after deep deliberations within the All India Council of Associations of MSMEs, (AICA) which is the umbrella body for more than 200 MSME Associations across India.
Our government has always been advocating strongly for development of entrepreneurship. However, if the MSMEs get crippled and choked this way due to rise in cost of raw materials, it will only discourage entrepreneurship, which will lead to failure of the government’s objective of Atma Nirbhar Bharath, mentioned the statement.
We wish to make things clear that this closure of units by more than 10,00,000 MSMEs across India is not aimed against the government, but only to seek the kind intervention and to take concrete steps to reign in the prices of raw material prices at once and to SAVE THE MSMEs, before they get extinct. We hope and believe that the government will initiate action immediately, ended the press statement.