SMEs facing brunt of attrition at 40%: Assocham

SMEs facing brunt of attrition at 40%: Assocham

New Delhi: Rupee appreciation may not have hurt exports as expected but have led to widespread attrition in small and medium industries (SMEs), especially in the second half of calendar 2007. In percentage terms its been evaluated to be in the region of 40%, according to estimates arrived at by Assocham.

SMEs paying capacities to their employees were vastly eroded as a result of rupee appreciation which shrunk their margins and currencies inflows and adversely affected manufacturing, consequences of which became more visible and pronounced as SMEs are now reporting huge losses of their human resource.

In India, there are about 90 lakh SMEs which provide employment opportunities to thousands of people both in organized and unorganized sector. In 2006-07, total number of SSI units were estimated at 44 lakh with employment capacities for nearly 238 lakh workers with output to manufacturing measured at Rs14 lakh crore.

As a result of deceleration and overall slowdown, SSI sector has witnessed closure of unproductive units bringing down the number to around 40 lakh. Employment generation has shrunk to 225 lakh workers and output to manufacturing has come down to Rs12 lakh crore.

Key Findings

* Attrition rate more prevalent in knowledge based industries like ITeS, BPO and services sector like real estate, retail, hospitality industry in first half of 2007 . Because of opportunity factor it shifted vastly towards SMEs as these succumbed to pressures arising out of rupee appreciation and slowdown in core sector output

* SMEs engaged in manufacturing of inputs in equipment and heavy machinery and engineering goods including auto and power components and refining equipment claimed heavy erosion in their paying capacity that amounted to attrition rate exceeding 40%

* In textiles, leather and plastic products, SMEs could not insert and introduce technological upgradation as these continued to honour supplies to vendors with old set-up of machines and tools in place leading to a drop in sales orders of nearly 25-30% and an eroded revenue base which made them skip paying salaries to staff leading to attrition that hovered around 30-35%

* Poor extension of credit by commercial and scheduled commercial banks including cooperatives to SME sector in 2007 led to very little expansion and upgradation; machinery and tool processes were not replaced making them lose out to competition and loss of market share by at least 20%

*SMEs contribution which used to be over 60% in last few years in manufacturing, fell by at least 15-20% and if credit flow continues to be neglected to SMEs by relevant financial institutions, employment potential would fall significantly


* SMEs which can prove to be a potential factor in accelerated manufacturing should be extended credit support to help them restructure and replace their existing R&Ds for higher and qualitatively better produce, leading to higher sales and a motivated workforce that does not seek better work opportunities elsewhere

* Train and retrain employees and supervisors

* Find new ways of giving incentives to those who are above average performers