More than 25% of SME units in Punjab, Haryana, Jammu and Kashmir, Uttarakhand, Himachal Pradesh, Rajasthan and some other states have either closed their shutters or are struggling for survival due to expensive credit, non-availability of timely and adequate funds, increasing power shortages to the extent of 35% and delayed payments by large companies, according to the survey conducted by the Associated Chambers of Commerce and Industry of India (ASSOCHAM).
The survey says the SMEs contribute to 45 per cent of the industrial output, 40 per cent of exports, provides employment to nearly 80 million people and creates as many as 10 lakh jobs each year. The SME sector also produces more than 8,000 different products annually not only for the Indian markets but also international shores.
However, payment delays by corporations raise the transaction cost of small and medium enterprise (SMEs), which eventually bring these to the verge of sickness, pointed out the ASSOCHAM survey on “Spreading sickness in SME Sector”.
The survey reveals that the most important reason for sickness in the sector is the absence of time bound programme for credit dispensation ( 71 per cent of sick units), shortage of working capital (48 per cent), marketing problems (44 per cent), power shortage (21 per cent), non-availability of raw material (15 per cent), equipment problems (10 per cent), labour problems (7 per cent) and management problems (5 per cent).
The survey was undertaken in Uttar Pradesh, Haryana, Punjab, West Bengal, Rajasthan, Madhya Pradesh, Bihar, Himachal Pradesh, Jammu and Kashmir, Uttarakhand and Delhi, said D S Rawat, Secretary General ASSOCHAM.
Delayed payments further reduce the working capital available with a unit for productive use and, thus, hasten the move towards sickness, added majority of the respondents. Nearly 76% of the respondent said that they do not have access to institutional credit have shortage of cheap funds to operate competitively.
Also in the export business, SME’s are much more susceptible to sickness with small changes in the exchange rate and their inability to cope with volatile exchange rates due to cost factor.
The survey also highlighted that at present 80% of sick units’ windup as they seldom match the nursing benchmarks. Hence a comprehensive, borrower friendly, supportive and tax savvy policy is needed as available for the large industry so that this slide is reversed. Over 76% of the participants said that banks insist for additional much collaterals and guarantee for loans and demand interest higher than the base rate and attendant spread. SMEs end up borrowing from other informal sources at high cost hitting their bottom-line.
To mitigate problems, the ASSOCHAM has suggested the need for an independent body to oversee the efforts of the government and the banking sector in rehabilitating sick industries and openly reporting their findings at fixed intervals. The nonexistent of any Exit Policy, there is a need to provide case to case basis workable solutions to SMEs to exit fast by repaying all debts to lenders and creditors. Also provide proper awareness of the options for the benefit of the entrepreneurs by magnifying the fine print, adds the survey.
MSMEs should be incentivized to bring them under the organized sector and implement a monitoring system to check the performance of the sector as a whole. There needs to be a transparent and effective policy and open platform for handling sick industries where entrepreneurs and owners can educate themselves”, added Rawat. He said they should also provide a mechanism for quick exit and revival while protecting lenders but also allowing the entrepreneur to start a new business without the tag of defaulter.
Further push is being given to the SME sector in the areas such as pharma, food processing, auto ancillary, IT, retails, textiles and garments, agro, nano technology, financial sector and service sectors, adds the survey.
It is probably the only sector with an employment potential at a low capital cost. More labour intensive, the sector has consistently registered higher growth compared to the overall industrial sector. And owing to its size, these units are more adaptable to the changing market scenario and show remarkable innovativeness in each vertical.
– Umesh Shanmugam