How MSMEs Can Maintain Growth and Resilience in an Inflationary Economy

Inflation affects every business, but MSMEs often bear the brunt of its impact. Rising operational costs, shrinking profit margins, and shifts in customer demand can make it challenging to achieve growth and maintain stability. However, with the right strategies, MSMEs can navigate these challenges effectively and build resilience.

This article explores how inflation affects MSMEs and provides actionable strategies to manage costs, increase revenue, and access financial support such as business loans.

How Inflation Impacts MSMEs

Inflation increases the cost of raw materials and production, making it challenging for MSMEs to maintain profitability. Studies indicate that 15% of MSMEs have reported reduced earnings due to rising costs. Here’s why:

● Increased expenses force businesses to raise prices, making products less affordable.

● Higher prices can reduce demand, especially in price-sensitive sectors like retail and services.

● Delayed payments become more frequent, causing cash flow issues and financial strain.

With lower demand and financial pressures, MSMEs must adopt cost-effective strategies to remain stable in an inflationary economy.

Impact on Different Sectors

● Manufacturing: Rising raw material costs have driven up overall expenses. India’s manufacturing sector slowed in late 2024, making it harder for MSMEs to expand.

● Retail: Small retailers are struggling with an increase in procurement costs, leading to inventory management challenges for consumer goods. Since customers are price-sensitive, passing on these costs is difficult, affecting profit margins.

● Services: An increase in fixed operational costs like rent and utilities make it harder for service businesses to remain competitive.

● Agriculture: Fertilizer costs have risen over the recent years, adding financial pressure on small agricultural businesses. Additionally, higher fuel and logistics costs continue to erode profitability.

Key Indicators to Decode Inflation for MSMEs

Tracking inflation trends helps MSMEs plan effectively. Key indicators could include:

● Consumer Price Index (CPI): Measures changes in consumer goods and service prices. For example, if CPI rises due to higher food and fuel costs, retail businesses may see reduced spending on non-essential items.

MSMEs can prepare by adjusting inventory and pricing strategies.

● Wholesale Price Index (WPI): Tracks wholesale price fluctuations. If WPI data shows increasing steel prices, construction firms and machinery manufacturers can expect higher production costs.

MSMEs can negotiate bulk purchases or explore alternative suppliers.

● Producer Price Index (PPI): Reflects prices received by producers. A rise in PPI for textiles could indicate higher apparel costs, affecting garment manufacturers.

MSMEs can adjust sourcing or pricing to maintain margins.

By monitoring, MSMEs can anticipate economic shifts, manage costs, and make informed financial decisions.

How Business Loans Can Help MSMEs Combat Inflation

In December 2024, the Reserve Bank of India (RBI) revised its inflation forecast to 4.8%, signalling inflationary pressures that could challenge MSMEs.

In order to stay competitive and ensure sustained growth, enterprises need strategic financing solutions, such as a business loan. Reputed lenders like SMFG India Credit provide free online business loan EMI and eligibility calculators to help MSMEs plan their finances effectively and make informed borrowing decisions.

Here are some effective ways MSMEs can use business loans to maintain stability and navigate an inflationary economy:

1. Manage Costs Effectively

A business loan can provide working capital for bulk purchases and long-term supplier contracts, ensuring stable pricing and potential protection from price fluctuations. The loan funds can also be used to strengthen inventory management, preventing challenges arising from overstocking or shortages.

Click here to watch a video illustrating how a small retailer overcame insufficient stock challenges and expanded his business with a business loan from SMFG India Credit.

2. Boost Revenue Streams

Expanding sales channels through online platforms and wholesalers increases customer reach. Business loans can support the launch of e-commerce platforms, fund digital marketing campaigns, or help with expansion into higher-margin export markets, reducing dependency on local demand.

3. Use Technology for Efficiency

AI-driven demand forecasting helps businesses adjust production based on market trends, while process automation reduces manual workload and operational errors. With a business loan, MSMEs can invest in cutting-edge automation tools to improve operational efficiency.

3. Strengthen Workforce Resilience

Upskilling employees in digital and operational skills improves productivity. Business loans can help MSMEs execute training programmes, career development initiatives, and performance incentives to attract and retain top talent in a competitive market.

Conclusion

Inflation presents significant challenges, but MSMEs can navigate them with smart strategies. Managing costs, diversifying revenue streams, leveraging technology, and securing financing through business loans can help enterprises remain resilient.

Additionally, applying for business loans can help MSMEs manage cash flow, fund expansion, and invest in digital marketing. Regular credit monitoring improves eligibility, enabling MSMEs to secure favourable business loan interest rates and maintain access to funding during economic uncertainties.

*T&C apply. Loan eligibility, loan terms, and loan disbursement processes are subject to the lender’s policy at the time of loan application.

Disclaimer: No Asian Age journalist was involved in the creation of this content. The group also takes no responsibility for this content.