India Business
Plight of SMEs may drag growth: PHDCCI
May 10, 2007 - 12:33:51 PM

Bhopal, May 10 - India Inc. is not very optimistic about the growth of the manufacturing sector despite the overall growth of the economy because technological obsolescence, liquidity crunch and high rate of interest were major stumbling blocks in the growth of small and medium enterprises - sector, says the PHD Chamber of Commerce and Industry -.

'PHDCCI has reached the above conclusion on the basis of a recent Perception Analysis conducted by it among the peer leaders of industry', said PHDCCI Resident Director Rajendra Kothari adding, 'the steady erosion of the share of manufacturing subdued the mood of the manufacturing sector - the key driver of the industry segment'.

'The share of industry to the real GDP at factor cost has dropped from 22 per cent in 2001-02 to 19.6 percent in 2006-07. Share of manufacturing has also gone down from 17.2 per cent to 15.2 percent. Though the production has gone up in absolute terms, the trend is disturbing since the share of industry in the GDP might fall in future as well', Kothari told IANS.

Most of the respondents to the Perception Analysis, Kothari said, felt that the manufacturing sector has to contribute more significantly - at least 25 per cent of the GDP in the next 10-15 years - to ensure sustainable economic growth and employment creation in a country of India's size. To achieve this, manufacturing needs to grow at minimum 15 percent per annum.

Majority of the respondents feel that the focus on SMEs is important to drive the growth of the industry and to put it in a sustained growth path of over 12 per cent. But technological obsolescence, liquidity crunch and high rate of interest - which reflect on costing, sickness and skilled manpower shortage - are stumbling blocks in the growth of the SME sector which forms the backbone of the Indian manufacturing sector due to its output, exports and employment contribution.

Respondents, according to the analysis, have pointed out that the Government should extend the coverage of the Technology Upgradation Fund - Scheme, which has been presently rolled over for another five years, to the entire SME sector irrespective of the product line. Availing the incentives in the TUF would help the SMEs to defray 5 percent of the cost of the money, which is given as a subsidy.

Another suggestion, says PHDCCI, relates to setting up of a separate stock exchange for the SME sector to help them increasingly move towards financial dis-intermediation. Also, the sector needs more pumping of money into capital investment and competitiveness through better targeted institutional and bank finance, venture capital investment and other innovative sources of funds.

Besides, the PHDCCI also calls for setting up of incubators for product and process research jointly by India Inc and IITs and NITs across the country, greater industry sponsored research on fundamental research side, granting bridge funds to the industry on the lines of the infrastructure related activities on the basis of the suggestions thrown up by the Perception Analysis.

PHDCCI Perception Analysis has catalogued the grave concerns of the industry peers about the mismatch between the availability and supply of skilled manpower for the industry in general and manufacturing in particular. The tendency of the ICT sector to increasingly attract trained manpower from other industrial sectors is further squeezing the supply.

Add to it, capacity building of SMEs in terms of knowledge about global product and quality standards, technical standards, WTO, intellectual property rights is required. And the Indian SMEs also need exposure to the new e-business environment and need to be encouraged to adopt IT tools more comprehensively. SMEs need to be made aware that successful enterprises globally are knowledge based and driven and survival now depends increasingly on continuous product and system innovation.

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