Impact of the European Energy Crisis on Indian SMEs
Construction has always been one of the main drivers of India’s rapid growth. However, India’s construction sector has struggled to meet increased demand from domestic and global clients, particularly in times of severe weather-related shocks such as cyclones and earthquakes. The European electricity crisis has seen this trend exacerbated even further for SMEs in India. Hit by a pervasive slowdown owing to the ongoing Russia-Ukraine war, MSME exporters are now turning to the government for immediate intervention. On the other side, even raw material procurement lines have been stressed with skyrocketing demands.
Assessing the Situation
According to SBI, the current round of gas crisis in Europe will create fresh inflationary pressures on food and transport prices. Raw material procurement across sectors has also been hit internationally. The crisis has already led to production reductions in energy-intensive industries including steel, aluminum, and other metals. For example, in June 2022 alone, India’s Iron and Steel exports declined by 56.1% on a year-on-year basis. This is reflected in the currently falling domestic prices, or in real-time when sourcing construction material online through B2B commerce platforms.
Chemical companies being energy intensive could also see an impact on production. The manufacturing of numerous energy-intensive compounds, including melamine, ammonia, caprolactam, methanol, and caprolactam has been slashed by more than 50% in some cases of the available capacity, as per industry reports. Most of these processes relied on Russian natural gas for energy, and the recent Nord Stream sabotage negates hope in the short term. While on one hand, one may think the margins and earnings see the highest impact, the passing on of higher prices means ultimately higher costs for crop producers, leading to a rise in the prices of agricultural produce, and consequently inflation.
European households, on the consumer end, are looking at potential energy bills over €500 this winter. A direct detriment to expendable income, such factors only strengthen the argument being made. This loss of purchasing power in Europe will in turn negatively impact the export of intermediate and finished goods from India.
Solutions
The government’s decision to permit 100 percent FDI in construction is a positive step because it will provide India’s construction industry with a much-needed stimulus. The highly fragmented character of Indian SMEs and their incapacity to compete with big international companies, however, mean that this move alone won’t be sufficient to revitalize the industry. Through its consolidated digital platform, OfBusiness strives to close this gap. When looking for building material online, our real-time, updated inventory guarantees that you have the widest selection possible.
MSMEs have also dominated India’s exports to Russia and Ukraine. The current crisis will present a number of difficulties for MSME exporters, including late payments, damaged shipments, and delayed shipments. For any SME, these obstacles can frequently be very intimidating. OfBusiness understands this and provides the best-suited credit period at competitive interest rates. It provides complete guidance throughout the process of browsing, selecting, and ordering construction material online right up until delivery.
Silver Linings
The drop in production from European chemical producers means a clear potential for an increase in the volume take-off for their Indian counterparts. It also opens up avenues for foreign consumers to diversify their supply chains for raw material procurement.
The green energy sector is also expecting higher demand owing to the EU’s resolution to shift away from Russian gas within the year. The European Commissioner for Energy, Kadri Simson’s visit signals the EU’s strong engagement with India in the area of energy. The visit’s main objective was to increase EU-India cooperation on developing a “greener” energy mix, particularly in the fields of clean hydrogen, energy conservation, renewable energy, offshore wind, grid integration, smart grids, storage, power market design, and environment-conscious financing.
Particularly in industries like decentralized renewable energy and energy-efficient building techniques, MSMEs have enormous room to expand profitable business models while maintaining sustainability. Therefore, it is crucial that MSMEs have access to capital resources so they can continue to develop and adapt their business models to include sustainable business practices without sacrificing capital efficiency. OfBusiness is a comprehensive digital service created with this idea in mind. Reach out today for sourcing all your construction material online.