20% of MSMEs face rising working capital needs

Around 20% of micro, small, and medium enterprises (MSMEs) are projected to encounter heightened working capital requirements in the current financial year, as compared to the pre-pandemic period of FY20.

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According to a recent biannual report by credit rating agency Crisil, approximately 20% of the micro, small, and medium enterprises (MSMEs) are expected to experience an increase in their working capital needs during the current financial year compared to the pre-pandemic FY20.

This rise in working capital requirements is particularly evident in sectors that already face significant challenges in managing their working capital. Additionally, industries such as dyes and pigments, construction, gems and jewellery are anticipated to face a substantial extension in the number of days required to manage their working capital effectively.

The MSME sector, which contributes approximately 40% of India’s exports, is expected to encounter challenges due to the forthcoming economic slowdown in advanced nations, particularly the US and Eurozone which account for a third of India’s overall exports. The anticipated economic downturn in these countries poses additional headwinds for MSMEs in India, according to Crisil.

According to Pushan Sharma, Director of Research at CRISIL Market Intelligence & Analytics, MSMEs in the export-oriented clusters of Ahmedabad and Surat in Gujarat are likely to witness an increase in their working capital days during the current fiscal year in comparison to the levels observed before the pandemic.

“The Ahmedabad cluster will see an increase of 20-25 days, driven by a rise in the working capital requirement of the dyes and pigments sector, and the Surat cluster by around 35 days, driven by higher working capital requirement of the diamond exports sector”, said Pushan Sharma.