ERA OF TARIFFS & MSME

As of December 2024, India had approximately 57 million registered Micro, Small, and Medium Enterprises (MSMEs). Of these, around 173,350 were engaged in export activities, representing just 0.3% of the total. While concerns have grown around the 26% U.S. tariff hike, it’s important to note that the impact on MSMEs varies significantly by sector. Not all exporters are equally affected. However, the broader environment of global uncertainty, rising costs, and shifting trade policies continues to influence decision-making. For MSMEs—already operating on tight margins—this adds pressure to adapt quickly. To remain competitive, they must strengthen internal resilience and rethink business strategies that can help them weather such global shocks.

Exploring New Markets:

One practical step for MSMEs is to diversify their export destinations, especially by tapping into tariff-advantaged regions. Markets such as the European Union (EU), ASEAN countries, and the Middle East offer promising opportunities through existing trade agreements like the India-UAE CEPA, which lower tariffs and encourage trade. These regions are also showing steady growth in demand, making them attractive for smaller exporters. Additionally, targeting countries like Canada, which enjoys preferential access to the U.S. market under the USMCA, can help MSMEs offset losses in traditional sectors like seafood, where tariffs have recently hit harder.

Focusing on Competitive Sectors:

MSMEs can also leverage India’s strengths in sectors where the country has a clear edge. Industries such as textiles, pharmaceuticals, and ceramics have proven to be more resilient and face lower tariff risks. These sectors continue to enjoy strong global demand and are well-suited for export-led growth. Compared to competitors like Vietnam—which is currently facing up to 46% U.S. tariffs on key exports—Indian MSMEs in industries such as apparel and auto parts are positioned to capture a larger share of global demand by offering cost-effective and reliable alternatives.

Building Resilient Supply Chains:

In the face of supply disruptions, MSMEs should focus on building resilient supply chains. This involves identifying potential risks and diversifying suppliers and sourcing locations. Smaller firms, which often rely heavily on a limited number of vendors, are especially vulnerable to global shocks. By adopting flexible and adaptive supply chain models, MSMEs can maintain business continuity while keeping costs under control. Multi-sourcing strategies, including sourcing from nearby or sustainable alternatives, can further protect against delays and ensure a consistent supply of raw materials and components.

Optimizing Costs through Efficiency:

Given the cost-sensitive nature of MSME operations, cost optimization is critical. Exporters can reduce expenses by adopting lean manufacturing practices, which help cut waste and improve productivity. Investing in technology, even at a small scale, can lead to significant improvements in efficiency. Moreover, MSMEs can explore financial efficiencies by shifting parts of their production closer to raw material sources or end markets. This helps cut down on logistics costs and improves the overall cost-to-serve ratio. These steps not only help MSMEs stay competitive but also improve their chances of expanding into new and emerging markets.

#MSME #Supplychain #Tariffs #tradewar #Resilience #CompetitiveAdvantage #Optimisation