Many small units in Tamil Nadu have shut shop or are heavily in debt, but others are still positive about their prospects.
Forty per cent of small and medium enterprises (SMEs) outside India have rated Indian SMEs as more competitive than them, according to the recently released findings of the fifth annual UPS Asia Business Monitor 2009 survey on the competitiveness of Asia’s SMEs. The survey also notes that SMEs in India are more positive about their business prospects than their counterparts in the Asia-Pacific region.
SMEs, accounting for 35 per cent of India’s exports, and struggling for survival due to increased debt and declining business volumes, nevertheless say that things will get better. Industry representatives say that the keys to this success are the decision of companies to work together, as well as the contributions of industry associations and chambers.
Since the global recession began, thousands of SMEs are believed to have shut shop in India, due to order cancellations from the US and Europe and lack of credit from Indian banks. Micro and small enterprises in Coimbatore are reported to be in debt to the tune of around Rs 50,000 crore. This town is home to over 50,000 engineering units and a large number of textile mills and textile units, which have reported a 40-50 per cent drop in their order book position and capacity utilisation since 2007. Most of them supply spare parts and machinery to automobile majors like Hyundai, Ford, Ashok Leyland and Maruti Suzuki, and organisations like Reliance, ISRO and BHEL, among others.
Almost as badly affected is Tirupur, a key knitwear hub and home to thousands of SMEs, which for the first time reported a drop in exports. According to Tirupur Exporters Association data, exports from Tirupur fell to around Rs 9,500 crore in 2008-09 from Rs 11,000 crore in 2006-07, a decline of almost 14 per cent. According to industry estimates, the Tirupur industry has to repay loans totalling Rs 6,000 crore.
“Yes, we are going through some of our worst days. Our order book position has come down drastically and this has resulted in closure of units. We have been knocking on the government’s doors for support, but we haven’t got it so far,” says P James, president of the MSME Association. MSMEs in Coimbatore, he adds, have lost Rs 7,000 crore since the recession started.
One of the most promising trends to have emerged from the recession is “working together”, and this has opened up new opportunities, James notes. K Illango, president of the Coimbatore District Small Industries Association (CODISSIA), adds that there has been a change in mindset towards equity partnerships and consolidation within the industry.
One recent example is Penguin Engineers, a packaging equipment company, which has joined hands with an Italian company. Similarly, a Spanish company that supplies castings to oil exploration firms is in talks with Coimbatore-based companies to manufacture castings out of Coimbatore.
In an example of consolidation, in Chennai a consortium of five SMEs— CI.com, Tycons, Shrim Soft, Fifth Generation and Blue Shift— is planning to float a new company, according to Sarada Ramani, president of CI.com. This is being done not only to address the issue of the minimum size that the Tamil Nadu government insists on for a company to be eligible to participate in tenders, but also to take on the bigger players. Similarly, in Tirupur and Ambur (a leather hub), small units are thinking of coming together to launch a common brand.
It is not only the government that has come forward to help SMEs to combat the recession, which it has done through financial aid and arranging refinancing facilities of around Rs 4,000 crore. Even industry chambers and associations are lending SMEs a helping hand.
The Confederation of Indian Industry (CII) is planning to launch 15 new clusters across the southern states in the current calendar year. C R Swaminathan, chairman of CII’s Southern Region, has stated that so far 93 companies from the southern states have benefited through CII’s Cluster Approach, which was launched to improve internal competitiveness. It has generated savings of Rs 70 crore a year in the region.
Coimbatore Industrial Infrastructure Association (COINDIA) has set up a Small Industries Testing and Research Centre (SITARC), a foundry complex, a modern tool room and a business centre to provide infrastructure facilities to the pumpset, motor and foundry industries, while CODISSIA has built a trade fair complex.
Though the beginnings of an economic recovery are evident, there are still challenges ahead. The UPS ABM 2009 survey found that around 90 per cent of SMEs believe the government should focus on transport infrastructure and better access to capital, financing and loans to help small businesses. Eighty-seven per cent said that the government should focus on education and training, while 85 per cent felt that it should take a serious look at R&D and bureaucracy. They also believe the government should make the labour laws more flexible.
Industry representatives from Tirupur say that they are not able to give delivery-schedule commitments to customers due to the power situation, and are not able to match Chinese or Bangladesh prices, despite giving customers a discount of 10 per cent over last year’s prices.
The other concern is availability of manpower, with various cluster representatives complaining that labour scarcity is the biggest challenge in their struggle to claw their way back to normalcy. Industry representatives from the engineering, textile and leather clusters in Tamil Nadu complain that the National Rural Employment Guarantee Programme (NREGP) is taking away workers from their units.
A Sakthivel, president of the Tirupur Exporters Association, notes that of the six lakh people working in the town, 2-2.5 lakh are migrants. Many of them have started returning to their villages since they are earning money through the NREGP.
Clearly, the road to recovery is going to be a bumpy one for some time yet.
