Explained: How MSMEs in Electricity and Electronics Manufacturing Are Affected Due to High Commodity Prices
Ease of doing business for MSMEs: High commodity prices around the world over the past 12 months have kept businesses and governments on their toes as the world recovers from the impact of Covid. The rising prices of various raw materials, involved in the manufacture of almost all industrial products, including steel, copper, zinc, aluminum, nickel, lead, cement, etc. and medium-sized enterprises (MSMEs) in the electrical and electronics manufacturing sector in India, among others.
MSMEs are dispersed across different segments of the manufacturing and supplying sector. The electrical equipment market in India includes production equipment such as boilers, turbines and generators; transmission and distribution (T&D) and related equipment such as transformers, cables, transmission lines, switchgear, capacitors, energy meters, insulators, etc. Experts say the impact of rising prices has taken a toll on the operations of small businesses facing severe cash shortages.
âThe price impact is very high in terms of plastics or metals or even electronic components compared to the pre-Covid. And unfortunately, MSMEs are unable to pass this cost on to their customers. Steel and aluminum, copper, etc., have almost doubled. The same goes for plastics. Polyamide and polycarbonate also doubled. The other challenge has been in logistics, especially for exports with regard to the container load and the cost of the container. For example, if you exported to the Middle East earlier it was practically free, but today you rarely get the container and if you did get it it would be at a very high cost â, Vipul Ray, Director general, Elmex Controls told Financial Express Online.
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Elmex Controls manufactures electrical terminal blocks and also specializes in electrical wire termination technology. Ray is currently President of the Indian Electrical and Electronics Manufacturers Association (IEEMA) which has approximately 1,000 members. The T&D equipment segment comprises 85 percent of India’s electrical equipment industry, while production equipment accounts for the remaining 15 percent. According to industry estimates, the industry’s output for FY21 was estimated at $ 22.6 billion with exports worth $ 7.9 billion and imports worth $ 7.9 billion. $ 8.6 billion.
Besides the impact on production, the challenge for MSMEs has also been on the supply chain side, as many have scaled back their operations. âIn our company, we have reduced our operations in half compared to what we were a year and a half ago. The key impact on MSMEs has been that their working capital requirement has increased with the increase in commodity prices. Then there are the challenges of transportation, material availability and the supply chain. Freight rates have also increased 2-8 times. Ultimately, many MSMEs scaled back their operations, âHarish Agarwal, CEO of Kolkata-based Supreme & Co., told Financial Express Online. The company manufactures and exports overhead line fittings and accessories for power transmission, distribution and substations.
Prices per kilogram, for example, for major products such as hot-rolled coils have roughly doubled since July of last year, from Rs 35-36 to Rs 70, while zinc has gone from Rs 120 to Rs 280, aluminum from Rs 125 to Rs 260. Copper from Rs 400 and up to Rs 700 apart from the prices of various inputs, Agarwal said.
Then there is the continuing shortage of semiconductor chips, which power almost all electrical devices, including smartphones, desktops, cars, refrigerators, washing machines, medical devices, and more. The disruptions caused by Covid in the manufacture of new chips resulted in a shortfall and as a result, manufacturers were unable to meet growing demand for months in the post-Covid world. During the current holiday season, experts have pointed to the impact on companies making different electronics, from cars to tablets, due to the lack of sufficient chips.
âMost of the semiconductor manufacturing is done in China. It is important to encourage manufacturers to set up units in India so that the downstream can open up. We really expect the government to adopt special programs to attract investment in the segment. But I think all this is already under discussion at the highest level of government, and MSMEs are ready to seize this opportunity. But there has to be a certain anchor maker who has to start in India, âCharu Mathur, managing director of the Indian Association of Electrical and Electronics Manufacturers, told Financial Express Online.
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Nonetheless, in February this year, the government approved the Production Incentive Program (PLI) for computer hardware products such as laptops, tablets, all-in-one personal computers, and desktop servers. ‘worth Rs 7,350 crore over four years for the manufacture of these products. in India. According to a statement from the Ministry of Electronics and Informatics in February, production valued at Rs 3.26 lakh crore and exports valued at Rs 2.45 crore lakh are estimated in four years. In addition, it is expected that the program will provide additional investment of Rs 2,700 crore, generate direct and indirect income of around Rs 15,760 crore and create 1.80 lakh of jobs.
This was growing in importance as the government forecast India’s electronics manufacturing sector to reach around $ 300 billion by 2024-25, PTI reported citing the Minister of State for Electronics and Technology. IT Rajeev Chandrasekhar last Friday at an event organized by the Public Affairs Forum of India (PAFI). The minister said electronic production rose to Rs 5.5 lakh crore in five years, compared to around Rs 1.8 crore lakh earlier in the country. Electronics is the second most traded commodity after hydrocarbons and petroleum, the minister said. In addition, earlier last week, the minister said that the government would soon put in place a five-year plan to make India “a major player in the technological space”.
As the government seeks to exploit the opportunity in the global technology space, volatility in commodity prices can create a challenge for countries wishing to adopt the right policies, according to the Bank’s latest commodity markets outlook. world released last week. âThe strong rebound in commodity prices is proving to be more pronounced than expected. Recent price volatility could complicate policy choices as countries recover from last year’s global recession, âAyhan Kose, chief economist and director of the World Bank’s Outlook Group, said in a statement this week. last.
For example, crude oil prices (an average of Brent, West Texas Intermediate, and Dubai’s global benchmarks) are expected to average $ 70 per barrel in 2021 and $ 74 per barrel in 2022, as demand for oil is strengthening and reaching pre-pandemic levels. On the other hand, as global growth slows and supply disruptions are resolved, metals prices are expected to fall by 5% in 2022, after increasing by around 48% in 2021, according to the report. the World Bank.