Small industries feel the pinch of economic slowdown

November 12th, 2008 - 12:37 pm ICT by IANS  

New Delhi, Nov 12 (IANS) The government’s move to improve liquidity has hardly helped small enterprises in India as banks and other financial institutions are still reluctant to lend them due to their low creditworthiness.Many small and medium enterprises (SMEs), hit by the financial meltdown, have either closed down units or cut production.

“The government may have taken steps to infuse liquidity into the market but those measures have only helped a few industrial houses and companies with good credit rating,” said Brijesh Ahirwal, who owns a small glass factory in north Delhi.

“Banks are not willing to fund our business,” said Ahirwal, who recently cut down production by more than 50 percent.

“There is hardly any buyer in the market. Earlier, I used to have 80 workers at any point of time. But now less than 50 people work in my glass factory,” he added.

Almost 90 percent of industrial units in India are in the SME sector, which accounts for 40 percent of value addition in the manufacturing sector.

They also contribute 35 percent to India’s merchandise exports, said an official at the micro, small and medium enterprises ministry.

The official added that textiles, light engineering, leather, chemical and petrochemical industries were severely hit by the economic downturn.

“The entire stretch between Vadodara and Mumbai which are the hub for SMEs are badly hit. Many of them have even stopped production,” he added.

According to Ajay Sood, a Delhi-based dye manufacturer, private lenders too are hesitant to give money to SMEs. “They fear losing their money. People are not in a position to pay back their dues due to losses incurred in their business,” Sood said.

Ahirwal and Sood do not expect the market to recuperate soon. “We have no option but to wait till the market catches up and we get financial support from banks and other financial institutions,” Ahirwal said.

Earlier this month, the Reserve Bank of India had slashed cash reserve ratio (CRR) to 6.5 percent and the repo rate to 7.5 percent to infuse additional liquidity of Rs.400 billion into the cash-starved system.

However, the industry leaders say the SME sector did not get any benefit from those measures.

National Small Industries Corp (NSIC) chairman and managing director H.P. Kumar said the production and sales of many small enterprises went down due to the economic crisis.

“These units are facing liquidity crunch and credit squeeze with substantially high rates of interest during the last quarter and this has certainly impacted the bottomline of such units,” said Kumar.

Though the slowdown has adversely impacted export-oriented units, higher export realisations due to substantial depreciation in the Indian rupee in comparison to the US dollar have offset the losses somewhat.

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