Big problems for MSMEs in 2011

Readymade garments

Small is beautiful! So goes the adage. But the year 2011 was anything but beautiful for India's 26 million micro, small and medium enterprises (MSMEs).

MSMEs contribute immensely to the industrial landscape of the country in terms of their 45 per cent share of manufacturing output and 40 per cent of exports.

The sector provides jobs to 60 million people in different segments such as readymade garments, leather, gems and jewellery, light engineering and handicrafts.

MSME entrepreneurs faced several challenges throughout the year, with the situation worsening as the months went by.

High interest rates, the rising cost of raw materials and labour remained the key input challenges, while demand compression and tough competition, both in domestic and foreign markets, confronted the units as they ventured out to market their produce.

Aggressive China, with which India ran up an over USD 12.6 billion trade deficit during the April to July period, added to their woes.

"Rising competition from Chinese imports was a cause of concern. The sector faced a lot of heat because of cheap imports from China. Besides, the slowdown in Europe and Western countries was the biggest challenge and threat," National Small Industries Corporation (NSIC) Chairman and Managing Director H P Kumar said.

Kumar said Indian MSMEs are at a disadvantage when it comes to interest costs. "We were unable to compete with other Asian economies. The high borrowing cost of 13-15 per cent naturally affected our competitiveness, compared to other nations where it was 6-8 per cent."

As the going becomes tough, there is widespread sickness among MSMEs. According to government data, as many as 91,400 micro and small units had shut down their operations as of March, 2011. Of these, about 13,000 were added in the fiscal 2010-11.

The reasons for the closure were financial non-viability due to the changing business environment, lack of demand, obsolete technology, non-availability of raw material, infrastructural constraints, inadequate and delayed credit and managerial deficiencies.

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