MSMEs Struggle to Navigate Commodity Price Volatility Amid Global Economic Uncertainty

ENA MSME 2024-11-12 15:25:24 New Delhi, Nov 12 (KNN) Micro, small, and medium enterprises (MSMEs) are crucial to Indias economic fabric, contributing about one-third of the countrys GDP and employing around 18 crore people. These enterprises play a significant role in reducing income inequality by fostering regional development and offering widespread employment opportunities. However, recent global economic uncertainties, exacerbated by the aftermath of the COVID-19 pandemic and geopolitical tensions, have introduced significant volatility in commodity prices—fuel, agriculture, and basic metals—creating challenges for MSMEs, as reported by professors at ICFAI Business School, Hyderabad. Over the past five years, the prices of primary commodities have fluctuated sharply, with variations ranging from -15 per cent to +15 per cent from their long-term averages. However, the prices of output goods—those produced by MSMEs—have remained relatively stable, varying only between -2 per cent and +2 per cent. This discrepancy reveals a key vulnerability: MSMEs often cannot pass on increased input costs to customers, undermining their ability to set prices, forecast sales, or budget effectively. A significant portion of MSMEs works as subcontractors or local suppliers in the B2B sector, offering generic products or project-specific services. A minority operates branded businesses with original equipment manufacturer (OEM) status. However, these enterprises often lack the financial and strategic resources to cope with rising input costs. Many MSMEs operate on thin profit margins and face distress when commodity prices rise unexpectedly, pushing them into a cycle of borrowing and repayment. Research across 17 states has identified several key challenges faced by MSMEs: the inability to negotiate fixed-price contracts, limited access to capital for stockpiling commodities, and reliance on informal, cash-based transactions. Moreover, the absence of commodity price forecasting expertise prevents them from locking in prices, resulting in a loss of market share to larger, professionally managed firms. To mitigate these vulnerabilities, MSMEs are advised to monitor commodity price trends, improve productivity and innovation, and explore hedging mechanisms such as futures contracts. Strengthening relationships with larger customers, considering inventory management, and embracing digital transactions for better financing options can help MSMEs build resilience and long-term value. Risk management, if effectively implemented, can ensure stability amidst market fluctuations. (KNN Bureau) 39887 https://knnindia.co.in/news/newsdetails/msme/msmes-struggle-to-navigate-commodity-price-volatility-amid-global-economic-uncertainty 2024-11-12 15:25:24 knnindia.co.in MSMEs Struggle to Navigate Commodity Price Volatility Amid Global Economic Uncertainty