Lack of funds & late payments force MSEs to perform billow capacity

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SME Times News Bureau | 12 Apr, 2010
Dearths of funds and delayed payments have forced the Micro and Small Enterprise (MSE) sector to perform below capacity, a study conducted by the industry lobby ASSOCHAM said Sunday.

"Most of the MSEs are running at close to 70 percent capacity utilization due to paucity of funds, arising out of unduly delayed payment of their dues, resulting in serious suffocation," says the ASSOCHAM study.

Releasing its findings, D.S. Rawat, the secretary general of ASSOCHAM, said if MSEs have to be taken to the next level, a lot of ground work needed to be done.

"Other than timely finance, there are issues such as limited access or knowledge of technology, better marketing skills, difficulties in scaling up and diversifying besides low production capacity are some bottlenecks which is holding back the growth of the MSEs," said Rawat.

He pointed out that the sector is labour intensive and suffers from not having enough qualified personnel at an affordable price. Moreover, 74 percent of sick SMEs in India attribute their sickness and lower capacity utilization to the fact of low availability of funds, he added.

ASSOCHAM has recommended that the government should further extend the stimulus package for SMEs for one more year so that their contribution to exports in domestic production enhances.

The government had offered sops to the exports industry which were in red following the economic downturn worldwide. After the firming-up of exports since November last year, the government has withdrawn these incentives now.

"Secondly, the government should also ensure strict adherence to the stipulated targets of commercial banks for micro enterprises. There should also be a separate fund for SMEs with the Small Industrial Development Bank of India (SIDBI) using pitfalls if any against MSE targets set for commercial banks," it added.

"According to our study, 92 percent of all SMEs remain dependent on personal and family savings and even borrow money from friends and relatives at higher rates of interest to ensure their survival," the study said.

There are 13 million SMEs in India which provide employment to 42 million people.