Input Costs Are Back on Fire: Why Indian SMEs Must Prepare for a New Inflation Cycle
For a brief period after the pandemic-era disruptions and the Russia–Ukraine conflict, many Indian SMEs had begun operating under the assumption that commodity volatility was stabilising. Freight rates had eased, energy markets appeared relatively calmer, and inflationary pressure seemed manageable. That comfort may now be ending.
A new CRISIL analysis suggests that India’s manufacturing ecosystem is once again entering a phase of sharp input cost escalation, triggered by geopolitical disruptions in West Asia and renewed pressure across critical industrial commodities.
The closure of the Strait of Hormuz, one of the world’s most strategically important oil transit chokepoints, has amplified a global energy shock that is now spilling over into metals, chemicals, plastics and industrial manufacturing inputs. For Indian SMEs, particularly those operating in manufacturing, exports, engineering, packaging, chemicals, automotive ancillaries and industrial supply chains, the implications could be significant over the next few quarters.
What makes this cycle different is not merely the rise in oil prices. It is the breadth of the inflationary pressure. CRISIL’s proprietary Wholesale Price Index (WPI)-based input-output ratio crossed the critical 1.0 threshold in April 2026 after remaining below that mark for 44 consecutive months. In practical terms, this indicates that input costs are now rising faster than output prices, compressing margins for manufacturers unless they are able to pass on costs quickly to customers.
The April numbers were particularly sharp. Input prices rose 6.2 per cent month-on-month, while output prices increased only 0.7 per cent. The inflation pressure was visible across crude petroleum, natural gas, mineral oils, steel, chemicals, fertilisers, plastics, synthetic rubber and non-ferrous metals.
For SMEs, this matters because many of these categories sit deep inside the hidden cost structure of manufacturing businesses. Even firms that are not directly energy-intensive eventually feel the ripple effect through packaging materials, transportation, industrial intermediates, vendor pricing and imported components.
Copper and aluminium, two critical industrial metals used across electronics, electrical equipment, automotive components and infrastructure-linked manufacturing, have already seen substantial inflationary pressure. CRISIL notes that copper prices rose 8.7 per cent in fiscal 2026, while aluminium prices increased 6.5 per cent. In April 2026 alone, copper prices surged 17.3 per cent and aluminium jumped 20.6 per cent.
For SMEs operating on thin margins, such increases can rapidly alter working capital cycles.
A mid-sized electrical components manufacturer in Pune, for example, may suddenly find that supplier quotations are only valid for a few days instead of a few weeks. A plastic packaging SME in Gujarat may discover that raw material procurement costs have risen faster than customer renegotiation cycles. Export-oriented SMEs could face the dual challenge of higher domestic input costs alongside pricing pressure in global markets.
The challenge becomes even more complex because demand conditions inside India remain relatively resilient. CRISIL believes manufacturers may still have some ability to pass costs on to consumers, especially in sectors where demand has held up. But for SMEs, passing on costs is rarely straightforward. Larger enterprises often have stronger pricing power, longer customer contracts and deeper balance sheets. Smaller businesses, meanwhile, are forced to absorb volatility for longer periods.
This is where strategic preparedness becomes more important than short-term reaction. The current environment is likely to reward SMEs that build stronger procurement visibility, diversify supplier dependence and strengthen cash-flow planning. Businesses that continue operating with static pricing assumptions or highly concentrated sourcing models could find themselves exposed if commodity volatility persists through FY27.
The larger lesson is that geopolitical risk is no longer a distant macroeconomic issue relevant only to policymakers or large corporations. Events occurring thousands of miles away, whether in the Strait of Hormuz, Eastern Europe or the South China Sea, are now directly influencing the balance sheets of Indian SMEs.
In many ways, this marks the emergence of a new operating reality for the SME sector. Cost volatility is becoming structural rather than cyclical. The next generation of competitive SMEs may therefore not necessarily be the ones growing the fastest, but the ones building the greatest resilience into procurement, pricing and operational strategy.
As global supply chains become increasingly uncertain, resilience itself is quietly becoming a business advantage.
