As MSMEs Struggle With Inventory Pile Up, Will Big Fat Weddings Come As A Saviour?

The piling up of inventories has amped up pressure on the prices of the final products as well. The easing of demand in the automobile sector and affordable housing has hit the meduim-scale MSMEs the most, while geopolitical tensions have hit their exports.

The Reserve Bank of India’s report, released this week, noted that the rising price of raw materials was one of the major economic issues faced by MSMEs during both pre- and post-Covid periods.

“Nearly one-fourth of firms witnessed increased input prices, labour costs and pressure to reduce output prices,” the report said.

The RBI data revealed that under the priority sector lending, credit towards micro and small enterprises has been slowing. In the March to August period, loans to MSMEs grew by less than 3 per cent, compared to 8.7 per cent in the corresponding period of the previous financial year.

Anil Bhardwaj, secretary general, the Federation of Indian Micro and Small and Medium Enterprises (FISME), however, told The Secretariat that the slowing down of the loans is also due to lower demand for credit.

“With inventories piling up for MSMEs, the demand for fresh loans to process orders has reduced significantly,” he said, adding that rising food prices along with overall inflationary pressures have affected retail-consumption, especially in semi-urban markets.  

At the same time orders from abroad have been drying up. India’s merchandise exports declined by 9.3 per cent in August due to subdued demand, while the April-August growth of merchandise exports was a marginal 1.1 per cent.

Nagesh Kumar, a member of the RBI's Monetary Policy Committee, noted that the industry suffers from demand deficits in both the domestic and external markets. “Demand deficits may be the reason private investment has not picked up momentum, despite the companies' healthy balance sheets, along with all the reforms and incentives extended by the government,” he said at the last MPC meeting.

The annual pre-budget economic survey on the other hand pointed out that the MSME sector continues to face extensive regulation and compliance requirements, which create bottlenecks. Access to affordable and timely funding is another key concern. 

The MSME sector contributes about 30 per cent of the country’s GDP and provided employment to 11 crore people. To enable this key sector to grow, issues related to licensing, inspection and compliance requirements need to be addressed.

Can The Wedding Season Help MSMEs?

So how are the MSMEs banking on the Indian wedding season to bring them some respite?

The Confederation of All India Traders (CAIT) has projected that the forthcoming wedding season will generate a whopping Rs 5.9 lakh crore revenue, up from around Rs 4.25 lakh crore in FY23.

Many MSMEs directly contribute to the wedding industry - raging from dresses to crockery and from gadgets gifted at weddings to handicrafts given as return gifts. The big fat Indian wedding brings good news for the sector, especially firms categorised as micro and small units. However, it is to be seen whether CAIT's figures are more optimistic than down to earth projections.

Earlier Prime Minister Narendra Modi had urged people to "wed in India" with a view to boosting local manufacturers and service industries. The remark came in the background of many upper-middle and upper-class Indian families opting for destination weddings in foreign locations.

About a crore of weddings take place annually in India, making the industry the second largest of its kind globally. It has also shown resilience in the face of economic uncertainties and continued to grow year-on-year despite downturns locally or in the global market.

“Now, with rising tensions across the globe leading to economic uncertainties, the country’s micro and small units must try to cash in on the domestic market. One way is to focus on weddings,” FISME secretary general Bhardwaj said.

MSMEs have been taking hope from the much-talked-about pre-wedding and wedding events and parties of Radhika Merchant and Anant Ambani, which were spread over months and kept the nation captivated. They reportedly generated substantial revenues for the country’s micro and small enterprises.

The funding also supported the growth and innovation of small-scale businesses, contributing to a more vibrant and diverse economy, according to a report. “The pre-wedding celebrations in Jamnagar honoured the roots of the Ambani family and their traditions, and provided a substantial boost to the local economy,” it said.

Within the MSME basket, micro-enterprises comprise about 99 per cent of the units, with investments anywhere between Rs 1 crore and Rs 10 crore. “While the micro and small enterprises units face the toughest challenges, they also benefit the most from spot events like Diwali or India’s wedding season,” Bhardwaj said.