In 2024, about 40 to 50 per cent of the working capital demand in the run-up to the festive season is expected to emanate from tier two and three cities of Gujarat, Maharashtra, and Uttar Pradesh in that order which is expected to help Indian micro, small and medium enterprises (MSMEs), according to a report by KredX, an Indian supply chain finance platform.
In India, festive sales are a crucial lifeline for MSMEs, with a majority falling under the manufacturing segment, followed by ecommerce and logistics. Yet, lack of easy access to short-term credit has been the biggest hindrance MSMEs face impeding their growth.
Conversely, tier-one cities such as Maharashtra, Tamil Nadu, Telangana, Karnataka and Delhi NCR are projected to drive demand significantly, ranging between 20-30 per cent, the report stated.
“Capital requirements for Indian businesses are expected to remain high as they go in for capacity expansion and inorganic growth spending. Concurrently, MSMEs, pivotal contributors to the country's gross domestic product (GDP) are poised to witness a surge in their working capital needs,” it stated.
This high capital requirement is driven by the need to expand capacity in response to strong consumption growth, fueled by India's growing population, rising incomes, and increasing urbanisation.
The report added that the ecommerce sector, in particular, is poised to drive significant demand, with consumer appliances, fashion and apparel and fast-moving consumer goods (FMCG) as the key commodities fueling this growth.
The report highlights that the number of stock-keeping units (SKUs) is increasing across all ecommerce platforms, with significant demand emerging from tier two and three cities. Ecommerce services now reach over 20,000 pin codes, driving a rise in working capital requirements.
Notably, Kolkata and Hyderabad, which were primarily focused on manufacturing, are now experiencing a growth rate of 200 per cent in ecommerce. Meanwhile, Chennai, Mumbai, Delhi, and Bangalore show a growth rate of 100 to 150 per cent. Additionally, tier two and three cities in Telangana, Uttar Pradesh, and Andhra Pradesh are exhibiting growth rates exceeding 500 per cent.
In the manufacturing sector, the primary demand is foreseen in commodities such as electronics, automotive, engineering, and chemicals, with an anticipated 50 to 60 per cent increase in working capital demand. Ahmedabad emerges as the front-runner among tier-one cities, boasting a remarkable 200 per cent growth rate in manufacturing, closely trailed by Mumbai, Kolkata, Chennai, and Bangalore.
According to the report, tier two and three cities within Delhi NCR, Tamil Nadu, Chhattisgarh, Uttar Pradesh, and Jharkhand are expected to lead the demand, with an impressive growth rate projection of 500 per cent.
Manish Kumar, Founder and Chief Executive Officer (CEO), KredX said, “The festive season stands as a crucial period for Indian business especially MSMEs as they witness an enormous uptick in sales during this time. From what we are seeing, the working capital demand in tier two and tier three cities is expected to increase by 200 per cent, indicating a compelling need for our intervention.”
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