Orissa firms choked by credit, marketing woes

T he small and medium enterprises of Orissa are suffering due to non-availability of credit. Bank credit, which is the main source of finance for these enterprises, is far below the benchmark set by the Union government.

In addition, poor infrastructure and a weak marketing link have further stunted the growth of the SME sector in the state.

According to the latest government figures, state banks lent Rs 2471 crore to the SSI (small-scale industries) sector in Orissa during 2006-07. This was just 7.2 per cent of the gross advance provided by the banks in the state. The advance to the SME sector was Rs 4,455 crore, only 12.98 per cent of the gross bank credit.

The above mentioned figures form a very small part of the Centre's target for the banks to allocate 20 per cent of the gross credit to the SME sector. To make matters worse, the Orissa State Financial Corporation (OSFC), which used to play a key role in financing the SME sector in the past, has stopped lending to the segment following its restructuring.

According to a Reserve Bank of India stipulation, the working capital need of SMEs should be around 20 per cent of their turnover. "However, in Orissa, working capital availability to SMEs is only 5 to 6 per cent of the turnover," said Niranjan Mohanty, vice-president, Utkal Chamber of Commerce and Industry.

Industrial sheds, promoted by the Orissa Industrial Infrastructure Development Corporation (IDCO), are being auctioned at the rate of Rs 69 lakh per acre, a steep price for small and medium entrepreneurs.

"The corporation is also demanding maintenance charges for 10 years' in advance and levying ownership change fees, all this has made it difficult for the first-time entrepreneurs to set up industry," Mohanty added.

The problem of marketing the products has further added to the woes of small and medium entrepreneurs. Meanwhile, keeping in view the marketing problems and other logistics, the Orissa government has recently formed a committee, headed by the director, state industry department, to look into various problems faced by the SME sector and suggest measures for formulation of short- and medium-term action plans for the micro, small and medium sector enterprises (MSMEs).

According to Mohanty, over-dependence of SMEs on the Orissa government for purchases is further impeding the sector's progress.

Admitting that the sector lacked resources and competitiveness to access the national market, he advised a cluster approach to boost these industries.

However, there seems to have been a shift in the attitude of the state government towards the sector of late. Aiming to achieve overall industrial development and employment generation through the SME sector, the state is giving priority to its development. The state government is providing incentives like interest subsidy, reimbursement of sales tax and capital investment subsidy to improve competitiveness of the units.

The government is adopting the cluster approach for the SME sector. It has identified some sector-specific clusters for development and is forming a marketing link with assistance from the United Nations Industrial Development Organisation (Unido).

It has identified Cuttack (Jagatpur) for spices, Dhenkanal (power loom), Ganjam (power loom and rice mill), Koraput (rice mill), Puri (rice mills) and Sambalpur (rice mills).

According to an official of the state industry department, the government is keen to adopt the cluster approach in more areas under schemes like the Small Industry Cluster Development Programme (SICDP), the Industrial Infrastructure Upgrade Scheme (IIUS) and the National Programme for Rural Industrialisation (NPRI).

The state government had submitted proposals for an engineering and pharmaceutical cluster at Bhubaneswar and a rice milling cluster in Baragarh and adjoining areas. The Union government has agreed to grant Rs 254.45 lakh for the rice milling cluster at Baragarh and adjoining areas.

A steel and metallurgical cluster at Duburi is being developed through assistance under the IIUS. Besides, a cluster development programme for brass and bell metal work at Bhatimunda, Cuttack and a leather products cluster at Barang are proposed to be implemented with assistance under the NPRI scheme.

The banks have also taken up development of 70 craft clusters in the economically-backward KBK (Kalahandi-Bolangir-Koraput) and non-KBK districts under the Rural Long-Term Action Plan (RLTAP) with additional assistance from the central government.

"The cluster approach is very useful because it helps the entrepreneur to have a larger capacity and greater bargaining power for his products," Mohanty said.

"Besides, the legal procedures involved in setting up units need to be simplified to enable entrepreneurs to concentrate more on their businesses," he added.

At the end of fiscal 2005-06, there were 87,869 SME units in Orissa involving a combined investment of Rs 2,554 crore and employing around 5.36 lakh people.