Input cost hike, freight rates drag chemical MSMEs in Gujarat to 50% output

A staggering 100-200 per cent increase in crucial raw materials has forced micro, small and medium enterprises (MSMEs) in Gujarat's chemical sector to cut production by 50 per cent.

Of the 11,000-odd units in the state, which account for nearly 40 per cent of India's chemical output, almost a third have turned sick, with overall production down by 50 per cent due to several factors, including input cost and freight rate hikes, according to the Gujarat Chemical Association (GCA).

"Not only has production fallen due to multiple factors, but nearly 60 per cent of all MSME units have turned sick as well. The chemical industry has seen a decline in cost competitiveness decline and a fund crunch as well. So we have asked the government and banks for some sort of stop gap arrangement," said Jaimin Vasa, president of GCA.

The chemical industry, which is largely represented by MSMEs, sane for a few large players, relies on key raw materials such as sodium nitrate, aniline oil, sulphuric anhydride and urea, whose prices have risen sharply over the past few months.

For instance, sodium nitrate prices have risen from Rs 34 per kg last year to over Rs 100 a kg now while aniline oil has shot up from Rs 110 per kg last year to Rs 215 now. Similarly, industrial grade urea prices have increased from Rs 28 per kg last year to Rs 75 per kg, according to industry sources.

Besides, fuel costs have also increased, with coal rising from Rs 4,600 a tonne to Rs 13,000. There has been a spike in gas prices as well, even as the chemical sector is unable to pass on the burden to customers.

"In addition, international freight and shipping rates from India to the US have risen from $800-1200 to $12,000 and yet containers are not available," said Shailesh Patwari, advisor to GCA. He adds, unlike large players who export to multiple markets, the MSMEs largely export to a few destinations such as Bangladesh and Turkey.

"While several importers from Bangladesh have stopped payments, demand from Turkey has been hit by the Russia-Ukraine conflict which is making MSMEs in the chemical industry uncompetitive, forcing them to either cut production or turn sick," said Patwari.

Meanwhile, the chemical cluster in the state has also made representations to the government through GCA, for conducive policies such as that in environmental laws.

"Unlike large players who seek permission for all kinds of products, MSMEs are limited in capacity and seek product-specific permission. So when they have to expand their product portfolio, say, from red to yellow dye, such regulatory permissions take almost a year. During this period, an MSME is unable to make the most of the latent demand for yellow dye with production getting stalled until such approvals come," Patwari added.