MSME’s Seek PM’s Intervention to Control Steel Prices in India
All India Council of Association of MSMEs, formed recently to represent around 170 Micro, Small & Medium Enterprises associations, has written to the India’s Prime Minister Mr N Modi urging the government to intervene after a massive spike in key raw material prices hurt MSMEs. AICA has said that there is erosion in the working capital of MSMEs due to a huge rise in prices of raw materials like steel, iron ore, aluminum, copper, plastics, PVC, paper and chemicals. It further said that the open market is not accepting the resultant effect of the increase in the price of raw materials. AICA further said that the raw materials are being blocked and stocked in the supply chains. AICA said "We understand this volatile situation is temporary in nature, however can cause permanent damage to the MSME sector. In spite of drop in demand due to lockdown, prices are in upswing, particularly steel, pig iron and other raw materials too. It is obvious that there is a cartel created by steel manufacturers, which include private and public sector undertakings. Steel is an essential commodity for overall development of the country and exports should be as per availability of surplus. Steel and other base material manufacturers are declaring 10 to 20 times higher profit whereas all the MSMEs are on the verge of extinction. This clearly shows that the corporate and PSU commodity companies are profiting at the expense of MSMEs.”
AICA said “Easy mechanism to hedge steel for all MSMEs, National Small Industries Corporation should act as a consolidation agency. They should be in a position to consolidate and hedge overall steel quantity in the market place. This kind of hedging should be possible for a period of one year.”
AICA further suggested that the public sector enterprises must be instructed to accept cancellation of orders from MSMEs without putting a penalty or blacklisting them as an event of increase in the prices of steel is not within the control of the MSMEs. The industry body also called out for the PSUs to publish steel prices on a quarterly basis and urged that the price should be maintained for a minimum of 3 months at a stretch. It suggested "PSUs like SAIL and Vizag steel should focus on MSMEs for supply of materials on priority basis and all steel industries should allocate at least 40% of their production for Indian MSMEs.”
It has also questioned the fixation of benchmark for steel industry pricing based on international market prices rather than the demand and supply situation in the country.
The MSME sector in India is said to be the second-largest employment creator after agriculture, providing employment to an estimated 11 crore people. It contributes to 30% of the GDP and accounts for 48% of the exports. As a result of the consecutive lockdowns in 2020 and 2021, the MSME sector has been facing a massive liquidity and supply crunch, shortage of labour and non-payment of dues.