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77% SMEs expect jump in net profit, 86% anticipate growth in exports during Q2: Survey

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Ease of Doing Business for MSMEs: Business confidence among India’s small enterprises remained high with a majority of small and medium businesses expecting improvement in the second quarter of 2022 on most of the parameters including sales, capacity utilisation, and hiring, according to a survey by Assocham and Dun & Bradstreet. 77 per cent of the respondents surveyed expected an increase in their net profit in Q2 2022 while 78 per cent anticipated ‘normal’ access to credit while 5 per cent expected it to be easy and 17 per cent believed it to be difficult during the quarter. Importantly, the average capacity utilisation rate was anticipated to jump to 63 per cent from 57 per cent during Q1.

The capacity utilisation rate is essentially the percentage of maximum economic output that can be achieved with installed capacity compared to the actual output. 

77 per cent respondents said an increase in sales volume was expected during Q2 while 76 per cent anticipated a likely jump in workforce size as well. SMEs were also upbeat about domestic and export orders as 75 per cent and 86 per cent respondents expected an increase on respective fronts.

“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,” the survey said. These agreements are likely to boost export of agricultural products, footwear, gem & jewellery, leather, and textiles. 

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The index, which measured the level of optimism of SMEs on various business parameters, stood at 87 for 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, the survey said. However, the total number of respondents was not mentioned in the survey report.

Among other key findings from the survey included 77 per cent respondents expected an increase in their new fixed capital investment, indicating optimism for future demand. 80 per cent SMEs also expected raw material prices to increase while 75 per cent expected to increase their selling prices. “This indicates that not all producers may be able to pass on higher raw material prices to consumers,” the survey noted. 

In terms of the factors limiting production for SMEs were economic uncertainty for 59 per cent respondents, high domestic competition cited by 19 per cent respondents, and shortage of raw materials according to 16 per cent SMEs.

“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,” the survey added.

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