* Rising costs, sluggish demand add pressure on small businesses
* India's manufacturing shrinks in Q1, GDP growth slows
* Small business contribute 45% of manufacturing, employ 110 mln
By Manoj Kumar
AGRA, India, June 2 (Reuters) - In his small shoe factory in the Indian city of Agra, Rajesh Kumar, his two brothers and three workers have been sitting idle for a week, faced with a dearth of new orders and increasing pressure from surging materials costs.
"The cost of synthetic leather, chemicals and other raw material, mostly imported from China, has gone up by over 20% in last three months, while the price of the final product remains same," the 60-year-old said in his poorly lit two-room factory in the congested back lanes of the Taj Mahal.
"We are now unable to earn even a 10 rupee ($0.1) margin on 200 rupee shoes due to the rise in costs," Kumar said. Before the pandemic, he could earn 20-25 rupees on a pair of shoes.
Agra has been India's biggest shoe making centre since the Mughals ruled from the city centuries ago but Kumar's small businesses and thousands like it across the country now work on shrinking margins, squeezed by rising commodity prices and weak consumer demand.
India's economy grew at its slowest pace in a year in the first three months of 2022, data showed this week, hit by a fall in manufacturing and weaker consumer spending.
Manufacturing contracted 0.2% year-on-year, after a 0.3% expansion in the previous quarter.
Small firms, which employ about 110 million Indians and account for 45% of manufacturing, were hit the hardest, casting a cloud over the economic recovery.
"Life has become miserable for small businesses," said K.E. Raghunathan, convenor of the Consortium of Indian Associations, which represents nearly half a million businesses.
He is concerned about a 30% rise in costs for the auto-parts, textiles, footwear, food processing, engineering and packaging industries.
"Unlike big companies, small businesses - who have little bargaining power and depend on middlemen - are unable to pass on rising costs," he said.
Over 72,000 small businesses in the southern state of Tamil Nadu have shut up shop in the past few months and many others face closure, he said.
In western India's industrial hub of Ahmedabad, Nirav Trivedi's metalworks business has struggled with a 60% rise in steel and gas costs over six months, forcing him to cut his production and workforce by a third.
"Though we have more work compared to the pandemic, profits have slipped to below 8% compared to 20-22% margins earlier," he said, adding some projects had become economically unviable.