NEW DELHI: Tata Steel managing director T V Narendran, who leads industry lobby group CII, suggested on Monday to devise contracts that allow for price adjustments, a move that will help cushion the impact of inflation on companies, particularly small and medium enterprises.
Narendran told TOI that the industry chamber had raised the issue with the government and had also held internal discussions. SMEs, largely in metals and commodity-based sectors, have been complaining about their margins being significantly dented as prices have been rising for the last several months and there is a change between the time they receive order and supply it.
“In the longer term we need to look at indexed contracts to protect some of the vulnerable MSMEs and those who are caught between fixed price contracts and volatile input costs,” he said, adding that transportation contracts are already indexed to fuel price changes.
Narendran said the issue usually comes up when commodity prices rise sharply. “We need to work out these mechanisms in an environment that is far more volatile than it has been in the past… We are an interconnected world where the geo-political impact will be felt.”
He, however, said that input cost increase is unlikely to dampen demand, while noting that higher fuel prices may be one of the reasons for a slowdown in demand for two-wheelers. “I don’t see input costs being a derailer (of demand) yet, although there will be a margin squeeze for all those who can’t pass on the increases to the customer. The bigger issue is working capital for MSMEs, which is creating some bottlenecks, for which we need to work with banks,” the Tata Steel boss said.
He also said an increase in interest rate is unlikely to hit investments by the corporate sector, with sectors such as metals and chemicals, which are ramping up capacity, leading the way. “In the big areas, we do not see any significant impact. Most people have deleveraged their balance sheets,” he said.