With the rising inflation, there are shrinking cash flow, bad debt cycles and eroding demand in the export and the domestic market. This will help in the manufacturing industry and the MSMEs in the worst of times.
In the data from the MSME numbers, shops in Gujarat have been shut between July 1st 2022 and February 3rd 2022. This is 12 times more the number of shut time between 2020 and 2021 when COVID had struck. Approximately, 10,767 MSMEs have been shut during the period.
Since the Russia- Ukraine war, the manufacturing units have been facing steep inflation to the raw material and the fuel prices. The industry players emphasizes the demand has failed to pick up in the domestic market too. In a span of 1 year, there is an increase of 77% in the number of MSMEs closing. There is a weak demand because of inflation, cash flow cycles have been disrupted in most industries.
The banks have been witnessing adverse effects of the situation in the loan repayments by the MSMEs. The banking sources had a credit offtake by the MSMEs in the December quarter. According to Patwari, “This has led to shrinking of working capital. Many industrial units are also struggling to get financial assistance from banks. Several private banks have not even extended loans under the emergency credit line gurantee scheme, which has further added to sickness in MSMEs”