One out of five MSMEs to see stretch in working capital days

Mumbai, June 26, 2023: Micro, small and medium enterprises (MSMEs), accounting ~40% of India’s exports, will face headwinds from the imminent economic slowdown in advanced countries, particularly the US and Eurozone. These two geographies account for a third of India’s overall exports.

An analysis by CRISIL MI&A Research, captured in its biannual MSME Report, shows a fifth of the micro, small and medium enterprise (MSME) sector by value is expected to witness an increase in working capital requirement this fiscal, compared with the pre-pandemic (fiscal 2020) level.

These MSMEs are in sectors already grappling with high working capital requirements.1

On the other hand, sectors such as dyes and pigments, construction, gems and jewellery will see a material stretch in their working capital days.2

Says Pushan Sharma, Director – Research, CRISIL Market Intelligence & Analytics, “In the Gujarat cluster, export-oriented MSMEs in Ahmedabad and Surat are expected to see their working capital days swell this fiscal compared with the pre-pandemic levels. 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 ~35 days, driven by higher working capital requirement of the diamond exports sector.”

Says Elizabeth Master, Associate Director – Research, CRISIL Market Intelligence & Analytics, “Liquidity benefits, such as payments on the achievement of small milestones, that MSMEs in the construction-roads sector have been receiving from the central government for the past few years as a part of the Atmanirbhar package will not be available from this fiscal. That will further increase working capital days.”