COVID-19 pandemic can deal MSMES a serious blow

CRISIL SME TRACKER

Micro, small and medium enterprises (MSMES) in India braced themselves for a fresh bout of trouble as the coronavirus outbreak (COVID-19) cast a long shadow over the much-anticipated mild recovery in the economy.

The World Health Organisation has declared COVID-19 a pandemic, as more than 114 countries have reported cases of the affliction. This has material implications for the global economy.

The number of confirmed coronavirus cases in India crossed the 100 mark on Sunday. Given the country’s dependence on global trade, short-term hiccups are to be expected, especially in sectors such as auto components, pharmaceuticals, textiles, and gems and jewellery.

Import-dependent sectors such as auto components (where SMES have a share of 25-30 per cent) and pharma bulk drugs (where the SME share is 35-40 per cent) can withstand headwinds in the near term, given their inventory of one to two months. However, as inventories run down, the pressure will increase.

In export-dependent sectors such as apparel (SME share 25-30 per cent), leather (SME share 80-85 per cent) and ceramic tiles (SME share 50-55 per cent), exporters are hopeful of an increase in orders, including from new geographies, because of manufacturing disruptions in China. However, the benefits are likely to be limited, because of expected moderation in global GDP growth.

Meanwhile, commodity prices such as steel will come under pressure as demand declines. This will impact refractories, steel rerollers, and the pig iron industry, which have a sizeable MSME presence.

And if the outbreak within India is not contained, discretionary spending will be impacted.