Amid turmoil, MSMEs look to adapt

With the West Asia crisis dealing yet another blow to Tamil Nadu’s micro, small and medium enterprises (MSMEs), industry bodies are drawing on lessons from past disruptions to navigate the latest bout of geopolitical volatility. The state is home to one of India’s largest MSME ecosystems, spanning sectors such as leather products, engineering goods, automobiles, castings, electronics and garments.

“The West Asia crisis is not just a challenge; it also presents a significant opportunity for Tirupur’s growth,” said Raja M Shanmugam, former president of Tirupur Exporters Association and a non-official member of the Board of Trade, govt of India.

India’s knitwear capital, Tirupur, is looking to create a second industrial cluster—a replica of the existing garment manufacturing and export hub—to double production, boost exports and cater to the domestic market. He said establishing a new cluster would require investments of about `10,000 crore, largely towards housing infrastructure. Currently, exports and domestic sales contribute equally, at around `40,000 crore each. Domestic production has grown from `3,000 crore in FY11 to `40,000 crore in FY26. Tirupur accounts for about 65% of India’s knitwear exports. If the state govt facilitates a new cluster, production could rise to `2 lakh crore,” he added. Noting that 99% of Tirupur’s units are MSMEs, Shanmugam said the region’s strength lies in its entrepreneurial culture, where employees often go on to establish their own businesses.

The Tamil Nadu govt should focus on attracting overseas investors as Asian footwear manufacturers revive plans to establish non-leather footwear factories in India following the reduction in US reciprocal tariffs on Indian goods, said Yavar Dhala, vice-president of Indian Shoe Federation.“While the impact may not be immediate for MSMEs, it will help existing players attract new overseas customers and strengthen TN’s leadership in leather and non-leather footwear exports,” he added.

Tamil Nadu accounts for about 40%-45% of India’s leather products and non-leather footwear exports. India’s footwear, leather and leather products exports stood at $4.7 billion in FY26. The conflict in West Asia has adversely affected MSMEs in TN. Prices of key raw materials such as copper and aluminium have risen sharply, while higher inventory costs have increased working capital requirements. The crisis has also disrupted logistics and supply chains, with MSMEs facing higher freight charges, shipment delays, fuel price volatility, and shortages of LPG.

Overall, logistics and delivery costs have risen by 25%-30%, according to the Ambattur Industrial Estate Manufacturers’ Association.

“Prices of electrical and plastic components have increased sharply due to the ongoing conflict. The price of tungsten carbide, in particular, has risen by nearly 300%, while plastic raw materials have become 50%-60% more expensive,” said G Ravichandran, president of the association.

He urged the TN govt to provide power tariff concessions and reduce diesel prices to support MSMEs. The Ambattur industrial estate generates annual production worth about `20,000 crore, he said, adding that exports have been affected.

The state is home to around 8 lakh to 10 lakh manufacturing MSMEs, of which 99% are micro and small enterprises, says S Vasudevan, president of The Tamil Nadu Small and Tiny Industries Association (TANSTIA).

“We have faced multiple disruptions since 2020, including Covid-19, the Russia-Ukraine war, the Red Sea crisis, US tariffs and now the West Asia conflict. This is the worst crisis since Covid,” he added. Vasudevan called for a six-month moratorium under the Emergency Credit Line Guarantee Scheme (ECLGS) 5.0. The Centre recently approved ECLGS 5.0, which provides 100% credit guarantee coverage for eligible MSMEs facing liquidity stress arising from the West Asia crisis. LPG shortages have emerged as the biggest challenge for MSMEs in the Coimbatore region, says M Karthikeyan, president of Coimbatore District Small Industries Association (CODISSIA).

“Against a monthly requirement of 1,000 tonnes, only about 20% of LPG demand is being met. Industries linked to castings have been severely affected. Capacity utilisation has fallen from 70% in January to around 50% over the past three months,” he said.

The disruption has affected production worth nearly `15,000 crore, including exports valued at about `5,000 crore, he added.

M K Anand, chairman of the MSME panel at the Andhra Chamber of Commerce, stressed the need for MSME cluster war rooms and export market diversification.

“Tamil Nadu needs district-level supply-chain intelligence cells, logistics monitoring systems, export advisory desks and crisis forecasting dashboards. MSMEs must also expand into ASEAN, Africa, Australia and Latin American markets,” he said.