Until last year, Karnataka was home to nearly 600,000 small-scale units (of which 350,000 are registered), nearly 75 per cent of them located in and around Bangalore, Mysore, Mangalore, Belgaum, Hubli and Shimoga.
But Peenya Industrial Estate in Bangalore, considered the biggest in South East Asia, is on the verge of losing its pre-eminent position. From being an ancillary hub for large industries such as HMT and Mysore Lamps, Peenya today houses big companies such as ABB, Volvo Construction Equipment, Himalaya Drugs, Wipro, NTTF, Jindal, Hitachi, Triveni Engineering and Hindvac, to name a few.
With MNCs coming to Bangalore, small units in Peenya were hoping to benefit. Most engineering companies in Peenya have started supplying components to automobile companies like Toyota, Volvo, Timken, BFW, Bosch and Kennametal India, among others. These units were making profits. But, the orders from automobile OEMs have virtually dried up, leaving many SMEs in a precarious state.
The last eight months have been turbulent for SMEs in and around Bangalore. First raw material prices shot up to an all-time high. Last year, the units suffered large losses, since they had to buy raw materials at high prices. Prices of steel used for casting, for example, were ruling at Rs 58-60 per kg in September 2008. They are currently Rs 38 per kg— a decline of 36 per cent.
But SMEs had produced goods at higher prices; buyers are not ready to pay these higher prices and are asking for cuts in the prices of finished products. SMEs are unable to cut prices, since this would entail selling at a loss.
Automobile ancillary units are among the major units in Peenya. Most small units in Peenya produce for export, for automobile sector and public sector units. Their combined annual turnover is over Rs 15,000 crore, of which exports are Rs 6,000 crore.
Most units here were supplying components to public sector enterprises in Bangalore, such as Bharat Electronics, Bharat Heavy Electricals, BEML, HMT and HAL. Since the effect of the slowdown started percolating down to small units, almost 150,000 jobs have been lost in and around Bangalore, says Arvind N Burji, president of the Karnataka Small Scale Industries Association (Kassia).
Meanwhile, delayed payments by large companies for supplies made by the small units began to hurt a large number of units. Orders from state government departments have also dried up, and large numbers of units have been unable to pay regular salaries. Only 15 days’ salary is currently paid by them.
Innumerable units located in residential areas of Bangalore have also been served a notice by the Karnataka State Pollution Control Board to relocate. However, they have no place to go, since the state government has not developed a new industrial township in the Bangalore region over the past decade.
SMEs have also had to cope with what M C Dinesh, vice-president of Kassia, calls ‘harassment’ by the commercial tax department officials who, he complains, misplaced the C-forms that the SMEs had already furnished and are now again demanding the C-forms for assessment under the CST Act and threatening heavy penalties unless the demand is complied with. SMEs also have to contend with a steep hike in property tax and a burdensome solid waste cess.
“The plight of SMEs in Karnataka is much worse than in the neighbouring states, because of bureaucratic apathy and corruption,” says Burji, adding that duties and taxes levied on SMEs amount to nearly 32 per cent.
