Tariff Wars Threaten MSMEs While Mid-Corporates Stand Resilient

India Ratings and Research warns that reciprocal tariffs will increase stress on medium, small, and micro enterprises (MSMEs), which are more vulnerable to financial shocks compared to mid-sized corporates. Despite MSMEs showing some post-COVID recovery, their resilience remains weaker than that of more financially sound mid-corporates.

India Ratings and Research (Ind-Ra) has issued a cautionary note about the escalating tariff war's impact on medium, small, and micro enterprises (MSMEs). With reciprocal tariffs rising, MSMEs face greater financial stress, unlike mid-sized corporates that have more financial cushions.

On March 31, 2024, the data indicated that 23% of MSMEs were stressed, a stark contrast to just 11% of mid-corporates (MCs). Although MSMEs have picked up on capital expenditure post-COVID, the current economic climate shows their financial resilience is weaker.

The ongoing global tariff war, particularly the U.S. raising tariffs on Chinese exports, may further weaken MSMEs' operating metrics. While mid-corporates are better prepared for economic shifts, MSMEs will require strategic financial management to navigate potential downturns.

(With inputs from agencies.)