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WPI inflation unlikely to fall below 5% in the next two years, says Economist
“MSMEs are badly hurt by rising commodity prices and we expect their working capital position to deteriorate further if Wholesale Price Inflation continues to remain in double
digit in the coming months. Prolonged period of high inflation will erode the profit margin of large corporate buyers, who will in turn delay their payments to their MSME vendors.
Already WPI inflation is at a 9-year high and CPI inflation is at a 2-year high. I don’t expect global crude oil price to fall below USD 100 per barrel in the near future and WPI
inflation to decline below 5% in the next two years. CPI inflation is also likely to remain elevated above 5% in the foreseeable future,” said Dr. Madhavan Kutty, Senior Economist,
Aditya Birla Group, Mumbai at a panel discussion on ‘Impact of commodity price inflation on MSMEs’. The event was organized jointly by WTC Mumbai and All India
Association of Industries (AIAI).
Dr. Kutty suggested banks and NBFCs to support MSMEs navigate through this challenging time. He said, “Banks and NBFCs have adequate capital above the RBI prescribed limit and their
NPAs are also at a manageable level. They should use their better financial position to support MSME borrowers by increasing flow of credit to MSMEs. MSMEs are heavily dependent on bank
loans to meet their credit needs and hence they need liquidity support from banks and NBFCs in this challenging time.”
In his remarks, Mr. Avinash Misar, Director & CEO, Advanced Material, Texport Syndicate India Ltd & Vice Chairman, Indian Tech Textiles Association informed that the sharp increase in price
of cotton will affect downstream industries such as garment. He said, “Indian textile industry is badly affected by rise in cotton prices as 75% of downstream industry produces cotton garments
and only 25% produce man-made fibre garments. India’s garment export has just recovered to the pre-pandemic level of USD 18 billion last year. If the cotton price remains elevated, it will hurt
our export performance in the coming months.”
Mr. Misar suggested industry to increase spending on R&D to bring out new products based on man-made fibre and thereby reduce dependence on cotton.
Earlier in his welcome remarks, Dr. Vijay Kalantri, Chairman, MVIRDC World Trade Center Mumbai and President – All India Association of Industries said, "Rising costs of input materials has cascading
impact on industry, trade and common man. In order to provide relief to industry, the central and state governments should consider lowering petroleum taxes and GST.
Except liquor and tobacco, GST on all other items should be below 28% slab."
The event was attended by members of trade & industry, consular corps, financial institutions and professionals.
During the event, WTC Mumbai released a White Paper on “Impact of Commodity Price Inflation on Trade & Industry”. The White Paper examined the impact of rising commodity prices on industry by analyzing
the cost and sales data of 96 companies across 36 broad manufacturing sectors listed on Bombay Stock Exchange.
The analysis shows that companies spend on an average 50% of their total expenditure on raw materials and intermediate goods. Among these 96 companies, 68 firms witnessed sharper growth in raw material
cost than sales revenue in the financial year 2021-22.
