… by Anurag Mehra, Founder of Expert Panel
Indian manufacturers are grappling with a sharp rise in input costs, from commodities and energy to logistics; as global shocks cascade through supply chains. Crude oil and petrochemical derivatives have surged, freight rates are higher, and currency weakness has inflated import bills.
In the past 12–24 months, input prices have surged across the board. Geopolitical tensions (e.g. the Middle East war) pushed international oil prices above $100/bbl, increasing fuel and power costs. By March 2026, the wholesale (WPI) inflation was 3.9% YoY, driven largely by crude and fuel (fuel & power index +4.1%). Commodities used in manufacturing – steel, aluminium, copper, plastics and chemicals – have seen double-digit hikes. For example, within textiles, raw material prices jumped dramatically: cotton yarn +20%, polyester polymers +50%, paper +10% and dyes/chemicals +40% over a month. In auto and electronics, manufacturers report plastics, resins and polymers costs up ~25% in a month, and freight rates are higher by 7–10%. Logistics bottlenecks (port congestion, insurance premiums) and higher insurance costs are compounding these pressures, especially for sectors reliant on imports.
Interest Rates and Credit: Unlike past tightening cycles, RBI has held policy rates steady (repo at 5.25% as of April 2026). Term lending rates for manufacturing have thus remained relatively low compared to pre-2020 levels. Bank credit to industry continued expanding, aided by supportive NBFC and MSME lending. For MSMEs in particular, credit flows have surged – total bank loans to MSMEs jumped from ₹16.97 lakh crore in FY2022-23 to ₹26.43 lakh crore by FY2024-25, reflecting both higher credit demand and government schemes (CGTMSE, Mudra, ECLGS).
Asset quality in manufacturing loans is generally strong: overall bank gross NPAs have hit historic lows (~2.15% in Sep 2025). However, some firms, particularly small-scale units, face loan burden challenges. Sharp cost inflation has squeezed cash flows, and many MSMEs rely on working-capital loans at rates above 8–9%. Proactive loan restructuring and priority-sector lending targets have helped, but tighter global liquidity and any future rate hikes would raise funding costs.
MSMEs: Small and medium manufacturers, from Tirupur knits to Morbi tiles, feel the strain most acutely. Limited scale means less ability to hedge or negotiate. Many Tamil Nadu pump or Tirupur textile units report order postponements amid rising yarn and scrap metal prices. In Gujarat’s Morbi ceramic cluster, firms endured a three-month shutdown and export delays due to cost and logistics shocks. They have coped by raising new equity (venture funding), automating plants and pivoting to premium products. However, many micro-units still rely on informal credit and face huge working-capital gaps. In sum, margins are under stress industry-wide, even if output growth (supported by domestic demand) has so far kept the sector above water.
Policy Responses: Authorities have acted on multiple fronts. The RBI has emphasised stable liquidity and instructed banks to continue lending to industry and MSMEs. It also tweaked priority-sector rules (e.g. higher collateral-free loan limits up to ₹20 lakh for small enterprises). The government boosted credit support via new guarantees and equity funds (e.g. a ₹50,000 cr Self-Reliant India Fund for MSMEs, expanded CGTMSE). Supply-side measures include subsidised loans (Mudra, EMEs), export incentives (PLI schemes: e.g. a ₹10,683 cr textile PLI) and tariff relief (reduced import duties on some inputs). On energy, the Centre used tax cuts and price caps to absorb part of the crude shock. State governments are also offering relief: for instance, power tariff rebates to export‐oriented units in some states. Regulatory inspections and compliance were temporarily relaxed for MSMEs during the worst phase of the shock.
Short-to-Medium Outlook: In the near term, input costs remain elevated. The RBI cautions that volatile oil and mineral prices could rekindle inflation, though recent data show headline CPI at ~5% and expected to ease (projected ~4.6% in FY27). Many firms have started passing on costs via price hikes, which will dampen volume growth. Domestic demand (infrastructure, consumer credit growth) is a buffer, as is record-high forex reserve (about $700 bn), which helps stabilise the rupee. Over 60% of manufacturing output is for the home market, so robust consumption and planned capacity expansions (e.g. by Maruti and others) should sustain activity. In the medium term, easing global supply chain tensions and easing commodity cycles should lower cost pressures. If the West Asia conflict abates, freight costs and insurance premiums should fall. A rebound in capital goods investment (see rising GST e-way bill activity) would also revive manufacturing.
Recommendations (Policy & Business): To ease the strain, we suggest:
- Strengthen financial buffers: Industry and banks should proactively refinance high-cost short-term debt into longer-term loans. The government can further ease collateral norms (already raised to ₹20 lakh loans) and extend subvention schemes (like lower interest caps for MSME loans). Faster claims settlement under credit guarantee schemes (CGTMSE, ECLGS) would also help cushion small firms.
- Ensure input supply diversity: Firms should diversify suppliers (including exploring domestic alternatives) and use hedging/inventory strategies to manage raw material volatility. Public agencies can help by releasing strategic reserves (e.g. for chemicals) or by negotiating with exporters. Trade policy can temporarily reduce tariffs on critical inputs (e.g. phosphates, metal scrap).
- Boost productivity and R&D: Companies should invest in process improvements and automation to offset higher input costs. Adopting energy-efficient technology (e.g. rooftop solar in factories) will cut power bills. The government should fast-track grants for clean/advanced manufacturing (PLI, Atmanirbhar Bharat funds) and support industry-specific innovation clusters (e.g. electronics cluster in Gujarat).
- Support domestic demand & exports: Continued infrastructure spending and demand stimulus (e.g. tax incentives for capital goods purchases) will sustain volumes. On exports, measures like interest equalisation for working capital and expanding free trade agreements can help offset global cost disadvantages. For example, extending production-linked incentives to more products (as done for textiles) encourages value addition.
