The ongoing West Asia crisis has dealt another significant blow to Tamil Nadu's micro, small and medium enterprises (MSMEs), prompting industry bodies to draw on lessons from past disruptions to navigate the latest bout of geopolitical volatility. The state hosts one of India's largest MSME ecosystems, spanning sectors such as leather products, engineering goods, automobiles, castings, electronics and garments.
Tirupur's Growth Ambitions Amid Crisis
Raja M Shanmugam, former president of Tirupur Exporters Association and a non-official member of the Board of Trade under the Government of India, stated that the West Asia crisis is not just a challenge but also presents a significant opportunity for Tirupur's growth. India's knitwear capital, Tirupur, is planning to create a second industrial cluster that would replicate the existing garment manufacturing and export hub. This initiative aims to double production, boost exports and cater to the domestic market. Shanmugam noted that establishing a new cluster would require investments of approximately INR 10,000 crore, largely towards housing infrastructure. Currently, exports and domestic sales each contribute around INR 40,000 crore, with domestic production growing from INR 3,000 crore in FY11 to INR 40,000 crore in FY26. Tirupur accounts for about 65% of India's knitwear exports. If the state government facilitates the new cluster, production could rise to INR 2 lakh crore. Shanmugam highlighted that 99% of Tirupur's units are MSMEs, and the region's strength lies in its entrepreneurial culture, where employees often go on to establish their own businesses.
Opportunities in Footwear Sector
Yavar Dhala, vice-president of the Indian Shoe Federation, emphasized that the Tamil Nadu government should focus on attracting overseas investors, as Asian footwear manufacturers revive plans to establish non-leather footwear factories in India following the reduction in US reciprocal tariffs on Indian goods. While the impact may not be immediate for MSMEs, it will help existing players attract new overseas customers and strengthen Tamil Nadu's leadership in leather and non-leather footwear exports. Tamil Nadu accounts for about 40% to 45% of India's leather products and non-leather footwear exports. India's footwear, leather and leather products exports stood at $4.7 billion in FY26.
Adverse Effects on MSMEs
The conflict in West Asia has adversely affected MSMEs in Tamil Nadu. Prices of key raw materials such as copper and aluminium have risen sharply, while higher inventory costs have increased working capital requirements. The crisis has also disrupted logistics and supply chains, with MSMEs facing higher freight charges, shipment delays, fuel price volatility and shortages of LPG. Overall, logistics and delivery costs have risen by 25% to 30%, according to the Ambattur Industrial Estate Manufacturers' Association.
G Ravichandran, president of the association, noted that prices of electrical and plastic components have increased sharply due to the ongoing conflict. The price of tungsten carbide, in particular, has risen by nearly 300%, while plastic raw materials have become 50% to 60% more expensive. He urged the Tamil Nadu government to provide power tariff concessions and reduce diesel prices to support MSMEs. The Ambattur industrial estate generates annual production worth about INR 20,000 crore, and exports have been affected.
Worst Crisis Since Covid-19
The state is home to around 8 lakh to 10 lakh manufacturing MSMEs, of which 99% are micro and small enterprises, according to S Vasudevan, president of The Tamil Nadu Small and Tiny Industries Association (TANSTIA). He stated that the sector has faced multiple disruptions since 2020, including Covid-19, the Russia-Ukraine war, the Red Sea crisis, US tariffs and now the West Asia conflict. This is the worst crisis since Covid-19. Vasudevan called for a six-month moratorium under the Emergency Credit Line Guarantee Scheme (ECLGS) 5.0. The Centre recently approved ECLGS 5.0, which provides 100% credit guarantee coverage for eligible MSMEs facing liquidity stress arising from the West Asia crisis.
LPG Shortages in Coimbatore
LPG shortages have emerged as the biggest challenge for MSMEs in the Coimbatore region, says M Karthikeyan, president of Coimbatore District Small Industries Association (CODISSIA). Against a monthly requirement of 1,000 tonnes, only about 20% of LPG demand is being met. Industries linked to castings have been severely affected. Capacity utilisation has fallen from 70% in January to around 50% over the past three months. The disruption has affected production worth nearly INR 15,000 crore, including exports valued at about INR 5,000 crore.
Call for Cluster War Rooms and Market Diversification
M K Anand, chairman of the MSME panel at the Andhra Chamber of Commerce, stressed the need for MSME cluster war rooms and export market diversification. He recommended that Tamil Nadu establish district-level supply-chain intelligence cells, logistics monitoring systems, export advisory desks and crisis forecasting dashboards. MSMEs must also expand into ASEAN, Africa, Australia and Latin American markets to mitigate risks from regional conflicts.
