SSIs vulnerabilities could be hit hard in ‘08

SSIs vulnerabilities could be hit hard in ‘08

New Delhi: Small scale industry in 2008 is likely to be the most vulnerable as its contributions to manufacturing and employment generation is likely to slip by 5% and 3% respectively.

According to a study onProspects of SSIs in 2008 vis-à-vis other booming sectors’ was carried out by industry chamber Assocham, this deceleration will happen because of the inability to absorb latest technologies, which have eroded competitiveness to a large extent.

Number of SSI units in 2006-07 were estimated at 44 lakhs with employment capacities for nearly 238 lakh workers with their output to manufacturing, measured at Rs14 lakh crore. As a result of deceleration, SSIs came down to around 40 lakh and employment generation shrunk to 225 lakh workers and output to manufacturing came down to another Rs12 lakh crore

Key Findings

* Large and medium industries are sourcing inputs through cheaper imports that have endangered SSIs’ existence and the trend is unlikely to be arrested in 2008

*SSIs input costs have risen and supplies are restricted to vendors since most SSIs have failed to absorb technologies; they find R&D costs to be high

* It is predicted that SSIs will encounter a gloom period, beginning 2008 as its contribution to manufacturing would come down to 35% as compared to 40% of now and over 45% in preceding years until 2006-07

Since, not many visible policy decisions such as reduction in inspector raj nor credit extension is being given to them at concessional rates, their export potential which used to be between 40-45% for the last many years would decline by 7-8% as inputs being produced by entire SSI sector are costing their supplier over 6-7%.

As a result vendors in medium and large industries are sourcing supplies from economies of scale at much cheaper price and the trend will continue as customs and import tariffs for most inputs would fall and until SSIs upgrade them technologically and the number of inspectors are reduced to less than 15, their contribution to exports as well as manufacturing would fall by 5% and over 8-9%.

Barriers in the growth of SSIs

* Expansion in many SSI units have come to virtual halt and employment opportunities have dipped

* Credit extension is at very high cost and delivery mechanism is faulty

* Failure to adopt technology will make them sluggish and uncompetitive

* Lack of information, capability to build up an international market position and inability to maintain international business relations and insufficient business skills will impact them negatively

* Most enterprises in this sector are more product and technology oriented than market oriented; lnot having managers and supervisors with international experience and foreign language skills further hinders growth

* External barriers include technical trade restrictions (standardization, quality requirements, conformity assessment, packaging and labeling, ecology requirements); bureaucratic procedures, marketing and distribution problems, lack of risk assurances and in distant countries, high transportation costs and communication problems


* A balanced multi-pronged strategy to be adopted by the government

* Inspectors should be reduced to bare minimum

* Concessional credit should be extended to entire SSI sector at not more than 6-7%

* Availability of equipment and machinery will have to be made at a much reduced customs tariff with facilities for technology adoption to the entire SSI sector