Economic slowdowns in US, Europe may affect 40% of India’s exports

90 percent of India’s diamond exports emanate from Surat. Diamonds constitute more than half of India’s gems and jewellery exports and a substantial decline in demand from the US, the largest export market, is having a significant impact. That, in turn, is having a bearing on receivable days, leading to an increase in working capital days from about 140 prior to the pandemic to more than 200 this fiscal.

In the construction-roads sector, underachievement of budgeted capex last fiscal — to rein in fiscal deficit — has added to the challenges of developers in meeting working capital demand amid high commodity prices. This has led to an increase of more than 100 days in their working capital cycle this fiscal, compared with pre-pandemic levels.

Furthermore, the total debt requirement for the MSME sector is estimated at about Rs 100 lakh crore. However, not all of tis demand is addressable by the formal financial institutions, as some firms are either not commercially viable or voluntarily exclude themselves from formal financial services. The challenges to accessing capital include high credit risk, lack of collateral, regulatory barriers, etc. Hence with about 70 percent debt sourced from informal sources, the cost of capital is extremely high.

According to the RBI, about 80 percent of India's MSME sector debt is in the high risk category and the non performing assets have increased substantially, which indicates a significant credit gap in the MSME sector hampering its growth and development.

Although, there has been progress in providing access to capital to MSMEs with the new initiatives like priority sector lending norms, cluster-based lending and government schemes. Albeit there is a need for more enabling policies and infrastructure to support the MSME sector and its financing needs.