One out of five MSMEs will see an increase in working capital requirement this fiscal: Crisil
- IBEF
- June 27, 2023
According to the credit rating agency Crisil's biannual MSME report, a fifth of the micro, small, and medium-sized firm (MSME) sector by value is anticipated to have an increase in working capital requirements this fiscal year compared to the pre-pandemic (FY20) level. These MSMEs operate in industries with high working capital needs, whereas industries like gem & jewellery, construction, and dyes & pigments would experience a significant reduction in their working capital needs.
According to Mr. Pushan Sharma, Director of Research at CRISIL Market Intelligence & Analytics, the working capital days for export-oriented MSMEs in Ahmedabad and Surat are anticipated to increase, this fiscal year compared to the pre-pandemic levels. The Ahmedabad cluster will witness an increase of 20-25 days, driven by an increase in the working capital requirement of the dyes and pigments sector, and the Surat cluster by around 35 days, driven by a higher working capital requirement of the diamond exports sector.
The Ahmedabad cluster has a major presence of MSMEs in dyes and pigments, pesticides, and pharmaceuticals, and accounts for about 20-25% of the total exports of those sectors. On the other hand, Surat is home to around 90% of India’s diamond exports and diamonds make up more than half of India’s gems and jewellery exports.
The MSME sector is projected to need more than US$ 1.22 trillion (Rs. 100 lakh crore) in debt, of which about 70% is for working capital requirements, as per the Crisil report. The cost of borrowing money from the informal sector is very high. Hence, it is crucial to comprehend the various sectors' and clusters' needs for working capital.
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.
Partners
