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Tata Capital > Blog > Loan for Business > Petrol price jumps to all time high, here’s how it impacts the micro, small and medium enterprises

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Petrol price jumps to all time high, here’s how it impacts the micro, small and medium enterprises

Petrol price jumps to all time high, here’s how it impacts the micro, small and medium enterprises

Petrol and diesel prices in India are shooting up day by day. Last month in Delhi, the price of petrol peaked at Rs 76.57 per litre – the highest in the last five years. The previous all-time high of Rs 76.06 per litre was recorded in late 2013.

In the last week of May, petrol prices rose to Rs 85.78 per litre in Mumbai, Rs 80.61 per litre in Kolkata, and Rs 80.95 per litre in Chennai. Diesel prices too increased to Rs 68.90 per litre in Delhi, Rs 73.36 per litre in Mumbai, Rs 71.45 per litre in Kolkata, and Rs 72.74 a litre in Chennai.

Oil marketing companies set these prices on a daily basis. Petrol and diesel prices in India are formulated on a number of factors, such as global crude prices, exchange rate, and domestic taxes. Since the retail price of petrol is dependent on excise, when excise is increased, the overall cost consumers pay for fuel also increases.

Soaring fuel prices often lead to inflation, which affects many businesses. But the worst to hit by these price rise and inflationary situation are the small businesses. Rising oil prices push up input costs of small business other than increasing transportation cost. It also affects their position to negotiate prices from manufacturers or wholesalers or to pass inflationary costs on to their consumers.

Also, rising costs lead to lower consumer expenditure, which in turn affect their profit margins. Here are some of the ways suggesting how small companies can overcome this problem:

Supply costs – Businesses that rely extensively on transport of supplies will be badly affected by rising fuel prices. Daily operations are likely to be severely affected. Without receiving timely supplies, businesses may suffer losses. Even if supplies are received on time, the profit margin will suffer due to rising costs.

Rerouting – SMEs and MSMEs that offer services solely dependent on transportation will be the ones most impacted by the rising cost of fuel. Limiting their geographies and altering their routes can be a solution. Also, managing their time and date of multiple deliveries can help them save on making unnecessary trips for the same or closer destinations.

Travel budgets – Many businesses require their executives to travel often. If your business follows this model, you may want to rejig your travel budget. Travelling in comfort may not be an option anymore. Considering the rate at which fuel prices are rising, cutting back on such little luxuries is bound to happen.

Cost-cutting – With petrol and diesel prices reaching record highs, you may wish to minimise costs wherever possible. This includes everything that’s not of utmost necessity. For example, reducing the use of electricity can help. You might have to revisit your account books and figure out if there are unnecessary spends that can be axed.

If the price of crude oil decreases or stabilises, there is some hope that petrol and diesel prices will fall. The alternatives don’t look viable – either the government reduces the taxes on fuel, or oil companies start selling petrol and diesel at a lower price while incurring losses.

However, this should not deter you from going ahead with your entrepreneurial sojourn. But choosing the right partner to fund your business is the key. Tata Capital provides you quick business loans of up to Rs 50 lakh without any collaterals. Log on today to avail one and get started.