GEOPOLITICAL CHANGES AND IMPACT ON MSMEs

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GEOPOLITICAL CHANGES AND IMPACT ON MSMEs: 

  Though the Government of India is in the mood to reduce GST further to boost domestic spending, the international geopolitical influence on our SMEs is not yet completely averted.

The impact of changes in the global political environment on Indian Small and Medium Enterprises (SMEs), also known as Micro, Small, and Medium Enterprises (MSMEs), is complex, presenting both significant challenges due to their inherent vulnerabilities and new opportunities arising from geopolitical shifts.

1. Bigger Challenges

Indian MSMEs are very vulnerable to global political and economic instability due to factors like limited resources, lack of awareness, and lower resilience compared to larger corporations.

1. Risks & Challenges

 Increased Costs and Delays: Geopolitical conflicts, such as those impacting global trade routes, lead to higher fuel prices, increased insurance rates, longer shipping routes, and operational costs. These expenses directly eat into the profit margins of MSMEs.

 Dependence on Imports: Disruptions can halt the supply of critical imported raw materials, components, and technology, forcing MSMEs to reduce production, stock less variety, and sometimes close temporarily.

 Tariff and Non-Tariff Barriers: Trade wars and protectionist policies by importing nations can prevent Indian MSMEs from competing effectively in the global market. They may face high tariffs, quotas, or strict and complex product quality and compliance standards, which they may lack the resources to meet.

 Lack of Awareness and Resources: Many small units are often unaware of international trade agreements, WTO negotiations, or shifting regulatory changes in foreign markets, leaving them unprepared to adapt.

 Export Readiness: Micro and small enterprises face distinct challenges in export readiness and a lack of awareness about product quality requirements in foreign markets, contributing to a decline in the export share of MSME-related products.

 Policy and Regulatory Uncertainty: Global and domestic political instability, especially during election cycles, can lead to unpredictable changes in trade agreements, tax policies, and regulations, delaying business operations and capital inflows.

 Limited Access to Finance: MSMEs already face a major barrier in accessing formal finance. Economic uncertainty and higher geopolitical risk can exacerbate this by increasing the perceived risk and cost of lending, hindering investment in R&D, and technology upgrades needed to stay competitive.

 Technology Gap: Limited access to global advancements in science and technology leaves MSMEs with outdated facilities, impacting productivity and product quality.

2. Opportunities ahead. 

The global political environment also creates avenues for Indian MSMEs, particularly as large global buyers seek to "de-risk" their supply chains by diversifying away

 from Alternative Supplier Status. Escalation of trade conflicts, such as the US-China trade war, where tariffs on Chinese goods are raised, makes Chinese products more expensive. This provides an immense opportunity for Indian exporters in sectors like textiles, toys, and electronics to gain market share.

 Level Playing Field: Higher tariffs on rivals can create a "level playing field" for Indian exporters, allowing them to better leverage their existing cost advantages in high-volume, price-sensitive segments.

 Integration into Global Value Chains (GVCs): The global push to increase supply chain resilience through diversification can lead to stronger integration of Indian MSMEs into GVCs. This can boost their exports and competitiveness, provided they can scale capacity and ensure high-quality standards.

 Domestic Innovation: The need to build self-reliance in critical technologies and minerals, as a response to global shocks, will drive demand for domestic innovation and manufacturing, benefiting MSMEs that can adapt.

 Digital Adoption: The increasing adoption of digital payments and tools offers significant growth opportunities by streamlining processes, enhancing visibility, and improving business efficiency.

In summary, for Indian SMEs to survive and capitalise on global political changes, they must move beyond simply reacting to survive. They need to build resilience through supply chain diversification, technology upgrades, and leveraging supportive government policies to capture the new export opportunities created by the shifting global landscape.