Working capital requirement may surge for 20% of MSMEs in FY24: Crisil

New Delhi, June 27 (KNN) During this current fiscal year one out of five MSMEs is expected to see an increase in working capital requirement as compared to the pre-pandemic level, said Crisil on Monday.  

According to the credit rating agency’s biannual MSME report these MSMEs are in sectors already grappling with high working capital requirements while sectors such as dyes and pigments, construction, gems and jewellery will see a material stretch in their working capital days.

This comes amid the headwinds MSMEs, which account for around 40% of India’s exports, will face from the imminent economic slowdown in advanced countries, particularly the US and Eurozone which account for a third of India’s overall exports, according to Crisil. 

Speaking of the Gujarat cluster, Pushan Sharma, Director – Research, CRISIL Market Intelligence & Analytics said export-oriented MSMEs in Ahmedabad and Surat are expected to see their working capital days swell this fiscal compared with the pre-pandemic levels.

“The Ahmedabad cluster will see an increase of 20-25 days, driven by a rise in the working capital requirement of the dyes and pigments sector, and the Surat cluster by around 35 days, driven by higher working capital requirement of the diamond exports sector,” said Sharma.

The Ahmedabad cluster has a major presence of MSMEs in dyes and pigments, pesticides, and pharmaceuticals. The stretch in working capital here will be due to a jump in working capital days for the dyes and pigments sector for three reasons; first, inventory pile-up following dumping by Chinese producers; second, the recent earthquake in Turkey; and third, slowdown in the US. These three account for 20-25% of the total exports of dyes and pigments, pesticides and pharmaceuticals.  

With respect to Surat, it is home to around 90% of India’s diamond exports. Diamonds make up more than half of India’s gems and jewellery exports and a substantial decline in demand from the US, the largest export market, is having a significant impact.  (KNN Bureau)