Reacting to the latest index of industrial production (IIP) figure, which is 4.8% for the month of September, 08 against 7% reported in the same month last year, industry chambers have called for a special attention of the government towards the small and medium enterprises (SME?s) to push up the IIP.
According to Amit Mitra, secretay general, Federation of Indian Chambers of Commerce and Industry (Ficci), ?The micro, small and medium enterprises (MSME?s) play a pivotal role in the overall industrial economy of the country. It is estimated that in terms of value, the sector accounts for about 39% of the manufacturing output and around 33% of the total export of the country?.
Acording to Ficci, one of the major reasons for fall in IIP is the exports growth going in negative (-15%), which is directly related to the SMEs who are in a very bad shape due to the high lending rate of the banks. The SMEs have not been able to grow because banks have been offering loans to the SMEs at the interest rate of 15-16% which was way too high and was not viable at all.
The key interest rates that were raised sharply in stages during the last one and a half years have affected the growth of India?s industrial sector. Ficci believes that while RBI has reduced the key rates recently, there is still ample scope for further cuts in the key policy rates.
Even today, average interest rates being charged from industrial borrowers is in excess of 13% which are prohibitively high to sustain investment rate of the last few years. Also, measures are required to boost exports by providing credit to the exporters at international rates and restoration of the interest subvention scheme for the exporters.
?All this underlines the need for appropriate interventions in the industrial and export sector on immediate basis, particularly for the SME sector?, Mitra emphasised.
According to sources from ministry of micro, small and medium enterprises, the MSME sector employs an estimated 31 million persons(about 50% of the organized sector employment) spread over 12.8 million enterprises and the labour intensity in the MSME sector is estimated to be almost 4 times higher than the large enterprises.
DS Rawat, secretary general, Associated Chambers of Commerce and Industry said, ?As the cost of finance and raw material gets dearer, it is the small manufacturing firms that witness the pressure most. These companies sell out their stock of goods at cheap prices, thus, their net sales increases but financial statements get weak?.
He added that this particular sector is not receiving the adequate cooperation from the government which is one of the main reasons for the fall in IIP compared to the last year.
The industry bodies are of the view that the government should focus on the SME sector and should provide them with micro finance, power as well as logistical support.