New Delhi: Anxious that many small and medium enterprises, or SMEs, may have to shut shop for want of funds, Union minister for micro, small and medium industries has written to the finance minister to make 10% of the net bank credit available to the sector.
“There are apprehensions that the measures (by the Reserve Bank of India to infuse liquidity into the system) may not help in enhancing credit availability to the sector due to high risk perception by banks,” Mahabir Prasad wrote to P. Chidambaram in October end.
Hit hard by the financial crisis and slide in demand, SMEs expect large-scale closure of units if the government fails to ensure enough funds for the sector.
“Around 500,000 units may have to shut in six months,” said Sudarshan Sareen, president, All India Confederation of Micro and Small Industries, an industry body. “Banks are flush with funds after the Reserve Bank of India injected more liquidity into the system, but it is unlikely that they will lend more to the SMEs.”
He said the share allocated to SMEs out of the net bank credit available in the country has declined from 17% in 1998 to 6.5% in 2008.
The net bank credit available in the country now is around Rs28 trillion.
As many as 24.9 million people work at 10.5 million small and medium units in the country, according to the 2001-02 census conducted by the government.
“We believe the data are inaccurate due to faulty interviews during the census,” said Sareen.
Tilakraj Plaha, who owns a cottage industry in Hoshiarpur in Punjab that specializes in handicraft, said, “We are on the verge of stopping commissioning of work to artisans as our stocks have piled up.”
An official in the ministry of micro, small and medium enterprises admitted that SMEs were facing credit crisis but said the scale of the problem was yet to be ascertained. “We will know about the impact of the slowdown on the sector only after the census for the sector is completed,” said this official who did not want to be named. The census is due to be completed in 2009.
He said it was clear that all export-oriented units are also facing a severe crunch in demand. “However, those who cater to the domestic sector may not have been hit as hard.”
“The credit crisis in the economy will definitely have an impact on the sector but it is very difficult to assess how big that would be,” said T.A. Bhavani, professor at the Institute of Economic Growth, who specializes in SMEs. “The biggest problem with the SMEs is that even the government does not have accurate information on the number of units in existence or the number of workers employed by the sector.”