Russia-Ukraine War Impacts Tamil Nadu MSMEs, Textile Industry

The ongoing Russia-Ukraine War has started affecting the micro, small and medium enterprises (MSMEs) and the textile industry of Tamil Nadu with orders from European countries reducing amid no signs of the conflict ending soon.

“The textile industries do not get direct orders from Russia or Ukraine—but they get good orders from other European countries which have started reducing,” MT Muthurathinam, president, Tirupur Exporters and Manufacturers Association (TEAMA), told Newsclick.

The European buyers of textile goods from Tirupur have a huge market in Russia which is set to suffer badly since the war is extending beyond the expected duration. “There will be a cascading effect on the orders soon which will further affect textile exports,” Muthurathinam said

Manufacturers, traders and exporters have started to feel the heat as the war has entered the third week. With sanctions and countersanctions being imposed, the situation is set to only worsen.

After being hit hard by demonetisation, the hasty implementation of the Goods and Services Tax (GST) and the economic slowdown, MSMEs were hit hard by the pandemic. The steep increase in raw materials forced several industries to shut down production for the first time. 

Just as the industries were limping back to normalcy after the third wave of the pandemic, Russia attacked Ukraine. “The production in various MSMEs increased in the last three to four months. But three weeks into the Russia-Ukraine War, the impact is being felt by industry,” KE Raghunathan, convener, Consortium of Indian Associations, told Newsclick. 

FREIGHT AND RAW MATERIALS COST SPIKING

Besides, the increase in the cost of raw materials, unavailability of freight containers and rising freight charges have also become a huge challenge for MSMEs. The automobile, textile and pump industry in different parts of the state have taken a massive hit as production has been severely affected and payments for exports stalled. 

Raghunathan feels that exports based on the United States will be severely hit as the war extends. “There is a high degree of uncertainty over the status of freights with a few yet to reach their destinations. The status of payment for goods is another concern since the buyers may not ensure it.”

There is uncertainty regarding new purchase orders and agreements in the textile industry. “The exchange rate has become another concern. This will impact future agreements and orders. The impact, which is already being felt, is set to intensify further,” Muthurathinam said.

The cost of raw materials and essential goods had skyrocketed even before the war began. “The cost of materials like steel, aluminium, nickel have increased by more than 50%. The automobile industry, hit by the semiconductor shortage, is unable to deliver the orders that came its way. The war will intensify this shortage and the automobile industry may soon face a dark phase,” Raghunathan said.

The packaging material shortage is hitting the textile industry. “The shortage of cardboard boxes, essential for packaging materials for export, is another problem. The price of raw materials, including cotton, has also increased in the last 15 months. Now, the textile industry is feeling the impact of the war,” Muthurathinam added. 

‘GOVERNMENTS MUST INTERVENE’

Industry is seeking the intervention of the Union and state governments to overcome the crises. “Entrepreneurs will become a rarity if the governments do not intervene effectively. The Union government must withdraw the GST imposed on online trading companies,” Raghunathan said.

Since Tamil Nadu has industrial centres in all the districts, the raw material shortage, the increased cost of goods and the war will have a huge impact. “Tamil Nadu is an industrial centre. The Budget of the state government must consider the risks faced by MSMEs and address them effectively,” Raghunathan demanded.