Indian SMEs are optimistic about next quarter but inflation still a major concern

Small businesses in India are optimistic about their performance in the next quarter but they are also worried about rising costs due to Ukraine war, according to a survey and the index reading by ASSOCHAM-Dun & Bradstreet.

The Small Business Confidence Index, which measures the level of optimism of small and medium businesses on key business parameters such as sales, employment, prices, inventory and investment, stood at 87 in the survey.

An index value above 50 signals an improvement in the forthcoming quarter compared to the same quarter in the previous year.

Although the report does not mention total number of respondents in the survey report, all indicators point to a possible increase in economic growth during Q2 2022.

The survey indicates that 77% of the respondents expect an increase in their profit in Q2 FY22 (i.e., June-Sep quarter) while 78% feel they may have normal access to credit while only 5% expect it to be easy and 17% believe it to be difficult during the quarter.

SMEs expect the average capacity utilisation rate to jump to 63% from 57% during Q2. 77% of respondents expect an increase in sales volume during Q2 while 76% anticipated a jump in staff size as well.

Small businesses are also bullish about domestic and export orders, with 75% and 86% of respondents anticipating increases on those fronts, respectively.

Avinash Gupta, Managing Director, Dun & Bradstreet India believes “the high level of optimism on export orders could be a result of the Comprehensive Economic Partnership Agreement that India signed with the United Arab Emirates and the Economic Cooperation and Trade Agreement with Australia, as well as the prospects of similar agreements with the UK and Canada in 2022 and 2023.”

He further added that "these agreements are expected to boost India’s export of agricultural products, footwear, gem & jewellery, leather, and textiles. Supply chain disruptions caused by the Russia-Ukraine crisis has improved India’s export prospects of iron ore, iron & steel products, and wheat."

However, SMEs are worried about the factors that may limit production. 59% of SME respondents cited economic uncertainty, while 19% feared high domestic competition, and 16% pointed toward shortage of raw materials.

The survey also highlighted those businesses are concerned about rising input costs and increasing freight expenses.

Small and medium enterprises (SMEs) have the potential to drive an economy, but given the risk of rising costs and increasing borrowing rates, it is important for them to work to create sustainable strategies to bring their cash flows in order.

One of the ideas that we explain in our book Let The Cash Flow is the Virtuous Revenue Cycle (VRC), which consists of eight steps to getting paid on time. It includes taking responsibility for the problem and reviewing your credit policy to motivating your sales team, as well as constant and consistent communication with your customers.

When VRC is used appropriately, it ensures that you are closer to your customers than your competitors, and that you are in a better position to identify potential concerns to get paid on time. 

Get more tips on effective cash flow management from our book, Let The Cash Flow. To find out more about how RIABU helps small businesses get paid on time, visit RIABU.com