Raw Material Cost: A Concern for the Indian Manufacturing Industry

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Automobiles, electronics, capital goods, toys, paper goods, fertilizers, and medications are all predicted to increase in price. In the second quarter of 2021-22, at least 61% of companies polled by FICCI reported higher production costs (July-September 2021-22).

Big challenges to the Indian manufacturing industry-

The largest problem India has is the lack of scale. The second factor is the cost of land, which is among the most costly industrial land in the world, as well as the cost of power, which is among the most expensive industrial power in the world thus making purchasing raw materials a tedious task due in part to cross-subsidies. However, in today’s competitive world, the Indian manufacturing industry can no longer afford its cross-subsidy load. The cost of capital is the third factor to consider. Leaving aside the current low cost of capital due to COVID-19 and low interest rates, India’s cost of capital is 20 to 30 percent higher than the cost of capital in most other exporting countries. The fourth component, which is essentially the responsibility of industry, is labor productivity and skill. The fifth area is to enhance the micro, small, and medium enterprise (MSMEs) sector, because while major corporations will provide scale, they will not be able to do everything on their own without a robust MSME sector.

Overall Impact on the industry-

According to the FICCI poll, a large majority of respondents are reporting growing business and production costs. In Q1 2021-22, the cost of manufacturing as a proportion of sales for manufacturers in the study increased for 80% of respondents. FICCI’s latest quarterly survey tells, (Q2) on manufacturing, the prognosis appears to have improved markedly in Q2 following a weak Q1 (April-June 2021-22). (July-September 2021-22). 

From April of last year to October of this year, the price per kilogram of a variety of items increased. Aluminum alloy has climbed 154 percent from Rs 106 to Rs 270, copper has increased 119 percent from Rs 355 to Rs 779, kraft paper has increased 110 percent from Rs 20 to Rs 42, and engineering plastic has increased 100 percent from Rs 70 to Rs 140, according to AICA data.

What should MSMEs do while purchasing raw materials?

We can focus on the latter aspect because MSMEs have already requested government help. Several e-commerce platforms offer to purchase raw materials through their websites. SMEs should look for a location that serves as a one-stop-shop for all of their needs. A one-stop shop provides attractive offers to people who have been in the business for a long period. OfBusiness is one of the venues that meets these requirements, and SMEs frequently choose it for fulfilling their business needs.