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SMEs remain upbeat on demand revival

SMEs remain upbeat on demand revival, according to the ASSOCHAM-Dun & Bradstreet Small Business Confidence Index

Confidence amongst India's small businesses remains high with an overwhelming majority of the SME executives expecting improvement in the second quarter of 2022 on most of the parameters including sales, capacity utilisation and hiring, according to the ASSOCHAM-Dun & Bradstreet Small Business Confidence Index (SBCI).

The 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 Q2 2022.  An index value above 50 signals an improvement or increase in the forthcoming quarter compared to the same quarter in the previous year.  All indicators suggest a likely expansion in economic growth during Q2 2022.

One of the primary findings of the ASSOCHAM-D&B SBCI survey is that export demand is projected to increase. The percentage of the SMEs expecting an increase in their net sales and new export orders stood at 77 and 86, respectively, suggesting export-led demand growth in Q2 2022. On the other hand, 75% of SMEs expect an increase in their domestic orders, it pointed out.

“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. 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. In addition, businesses are increasingly looking for alternate suppliers to de-risk their operations since the outbreak of COVID-19. Cost competitiveness makes India an attractive destination for sourcing. These factors will lend to India’s export momentum in Q2 2022” said Mr Avinash Gupta, Managing Director, Dun & Bradstreet India.

On improved prospects for sales, businesses see an increase in their average capacity utilization rate to 63 percentage in Q2 2022, up from 57 percentage in Q1 2022.   An overwhelming 77% of SMEs expect an increase in their new fixed capital investment, which is indicative of optimism for future demand.

As many as 76% of SMEs expect an increase in their workforce, even as they have to deal with the price pressure. 80% of the SMEs expect raw material prices to increase, whereas 75% see upward revision in their selling prices. Consequently, the percentage of SMEs expecting an increase in their net profits stood a tad below other indicator at 77. 

“Energy prices have reached their highest level since 2008 as a result of the Russia-Ukraine crisis, while base metals prices have reached a record high. The combination of rising input costs and increasing freight expenses is a key source of concern for businesses. Given that the majority of newly ordered tonnage is not planned for delivery until 2023, global container freight rates will continue to remain elevated in the coming months. As the survey indicates, not all producers will be able to pass on the increased costs to their customers, eroding profit margins” said Dr Arun Singh, Global Chief Economist, Dun & Bradstreet

“As is clear from the latest IMF World Economic Outlook, the Indian economy is projected to be the fastest growing amongst the leading economies of the world. Our survey amongst the SMEs' executives clearly points towards significant contributions from the small businesses” said ASSOCHAM Secretary General Mr Deepak Sood. He said, an important highlight of our survey is that the small businesses have gathered enough confidence to add to their workforce.

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