Recurring West Asia tensions force MSME exporters to prioritise resilience over cost savings

Renewed tensions in West Asia have once again raised concerns among Indian exporters over shipping delays, higher freight costs, and supply chain disruptions. Industry leaders say these recurring disruptions highlight the fact that export competitiveness can no longer depend only on low production costs; resilience and supply chain diversification have become equally critical.

Industry officials say geopolitical tensions, volatile commodity prices, and uncertainty around key shipping routes are becoming long-term challenges for exporters, especially micro, small, and medium enterprises (MSMEs) in the country. Notably, the MSME sector contributes nearly 48% to India’s exports but has limited capacity to absorb rising costs and prolonged disruptions.

Sankar Chakraborti, MD & CEO of Acuité Ratings, says the latest geopolitical developments have exposed smaller exporters’ vulnerability to disruptions beyond their control. “Global trade is becoming structurally less predictable. Competitiveness today is anchored as much on resilience as it is on cost efficiency,” he says, adding that while large companies can diversify sourcing and logistics, MSMEs often lack that flexibility.


In fact, net foreign exchange earnings of MSMEs have contracted by an estimated 12-15% in FY26, as higher freight charges, inventory accumulation, and currency volatility continue to weigh on profitability, according to Acuité’s analysis.

Chakraborti says the rupee’s depreciation this year has provided only limited relief to exporters, as gains have been offset by increased input costs, higher freight rates, and sky-high insurance premiums driven by geopolitical uncertainty.

According to industry officials, challenges extend beyond transportation costs. Smaller exporters continue to grapple with working capital constraints, limited market diversification, and restricted bargaining power with logistics providers, making them disproportionately vulnerable during global disruptions, they say.

Haresh Calcuttawala, CEO & Co-Founder of autonomous trade compliance platform Trezix, says exporters must now treat geopolitical risks as a permanent feature of international trade rather than temporary disruptions. “Geopolitical disruptions are no longer isolated events. Exporters must build compliance readiness, logistics flexibility, and market diversification into their long-term strategy. For MSMEs especially, the ability to quickly reroute shipments, manage evolving customs requirements, and diversify export destinations will increasingly determine competitiveness,” he says.

Notably, the government has introduced a series of measures to cushion exporters from external shocks. These include the Rs 497-crore RELIEF (Resilience and Logistics Intervention for Export Facilitation) scheme, implemented through ECGC Ltd (formerly Export Credit Guarantee Corporation), which provides freight reimbursements and enhanced risk coverage for exporters affected by disruptions in West Asia and critical maritime routes. The Centre has also rolled out the Rs 25,060-crore Export Promotion Mission to strengthen financing support, market access, and overseas warehousing. Existing schemes such as RoDTEP, RoSCTL, Advance Authorisation, Duty-Free Import Authorisation and the Export Promotion Capital Goods (EPCG) programme continue to support exporters by reducing cost disadvantages.

Exporters, however, argue that government incentives alone will not be sufficient unless they are backed by improvements in logistics, shipping capacity, and market diversification.

According to Vikas Singh Chauhan, Founder of the Home Textile Exporters Welfare Association (HEWA), an industry body representing the MSME-dominated home textile sector, any policy support should now be coupled with actions to bolster India’s logistics system and encourage market diversification for exporters, especially considering the challenging period that has severely hit the working capital of many small firms.

“Government schemes have certainly improved exporters’ competitiveness, but recurring geopolitical disruptions show that logistics resilience is equally important. India needs stronger shipping capabilities, efficient container availability, and faster access to alternative export markets,” he says, adding that global buyers are increasingly looking beyond low-cost sourcing and value reliability and uninterrupted supplies.

“MSMEs that invest in digital trade, value-added products, and market diversification will be better positioned to capture emerging opportunities,” he says.

He adds that the ongoing China+1 strategy continues to create opportunities for Indian exporters, provided the country can offer predictable and resilient supply chains.

Anil Bhardwaj, Secretary General of the Federation of Indian Micro and Small & Medium Enterprises (FISME), says geopolitical disruptions have exposed deeper structural challenges for Indian MSMEs. “This is not a temporary crisis but a structural transition in global trade. The long-term answer is not protection from global competition but strengthening MSME competitiveness through technology, productivity, quality, sustainability, and timely payments,” he says.

Bhardwaj’s assessment reflects a broader industry view that India stands to benefit as global manufacturers diversify their supply chains and seek reliable sourcing destinations.

Namit Joshi, Chairman of industry body Pharmexcil, says resilience has become central to India’s export ambitions, as global supply chains undergo realignment. He notes that the pharmaceutical sector, for its raw material needs, remains dependent on global shipping routes, including the Strait of Hormuz, making supply-chain stability critical amid renewed tensions in West Asia.

“Indian exporters have repeatedly demonstrated resilience through global disruptions, but this time, it is different, as uncertainty in shipping and logistics has raised costs manifold. Strengthening supply-chain reliability, expanding market access, and reducing procedural bottlenecks will be critical if India is to deepen its integration with global value chains,” he says.

Looking ahead, Bhardwaj says India’s long-term export ambitions will require its MSME policy framework to shift its focus from protection and subsidies to productivity, innovation, market access, and capability building, enabling smaller businesses to compete more effectively in an increasingly uncertain global trading environment.