How Rising Costs Could Spoil the Revival Party for Businesses This Festive Season

Backdrop:

India's GDP in April-June, 2021 quarter was at 20.1% showing growth in the Indian Economy. This particularly means that there is demand, which should mean that profitability should rise, simple?, No. To a business to be profitable it is necessary to look at both factors - Revenue as well as cost. While revenue is up so is the costs, let's look at why is this happening in todays article.

The Challenge:

The biggest challenge was with micro, small and medium businesses (or MSMEs), big corporation are sitting on a lot of Cash reserves so they can afford Cash burn (A rate at which companies use cash, especially when they spend more than that they can earn), but MSMEs don't have this liberty, their challenge is to keep the engine running by whatever means available.

The Way adopted:

To keep their business afloat they need to cut operations, however still moving although at slower pace. 60 million MSMEs of India have shown excellent resilience to strive by adopting new technologies & cost effective digitization. First action was to apply brakes to cash burn, renegotiate rents, staff salaries, lessen office space as majority staff was working from home. This all tactics did help companies to pass the devastating phase but the expense graph especially for components like raw materials, skilled labor which is essential to run business is threatening their party ahead.

The biggest threat:

Wholesale Price Index (WPI), a indicator which shows the cost of doing business. WPI for April-August was at a whopping 11.69%.

Conclusion:

Now what is remaining to see is will businesses especially MSMEs come up with some other innovative idea to lower the costs and still be in the game? Well that is for the time to decide, for now that's it from our side in today's article.

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Source : Moneycontrol.

Disclaimer:

Above information is to spread financial literacy. We are not SEBI registered financial advisor, kindly consult your financial advisor before taking any investment decision.