By T P Banerjee, General Manager (ER), Bank of Baroda

In terms of volume of production, exports and generation of employment, Small Scale Sector has exhibited tremendous performance. In India there are about two and half million small industrial units accounting for 90% of total number of industrial units. Majority of industrial workforce belongs to SSI and its share in export is valued at around 40%. In fact SSI sector provides maximum employment, next only to Agriculture and that too with minimum Capital investment as compared to Large Industries.

Over the years, definition of SSI units in terms of original investment in Plant and Machinery has also undergone changes mainly to take care of price escalation, devaluation of Indian rupee and the need for technological upgradation to enable the units to complete both in domestic and international market.

Needless to say, such an important segment of our economy deserves preferential treatment in credit delivery and other promotional assistance. Keeping in view such need, following Committees were set up in recent years, which came out with significant recommendations bringing about far-reaching changes. They are, Nayek Committee in 1995, Expert Committee on Small Industries headed by Abid Hussain in 1998, High Level Committee on credit to SSI headed by S L Kapur.

It is in pursuance of the recommendations of the above Committees; assessment of Working Capital for SSI has been simplified besides setting up specialised SSI branch of PSBs dedicated exclusively for providing comprehensive financial assistance to SSI.

Admittedly, implementation of the recommendation leaves much to be desired, but there is no denial of the fact that for the first time since independence, problems of SSI are being addressed seriously.

Issue of Sickness
A recent study shows that the number of sick SSI units increased from 221472 in 1991 to 220594 in 1998 while bank credit serious social repercussions including displacement of manpower resources, loss of productivity, idleness of productive assets and unemployment. For financial institutions such a large number of sick units means erosion of profit, locking of funds impairing recycling capacity etc.

Causes
According to an analysis (M M Hasija "Impact of Economic Reforms on Sickness in SSI") a number of causes -both internal and external -often working in combination, have been responsible for sickness in SSI. What is needed, is taking proactive steps to cure the sickness. Some of the causes are: faulty planning, management deficiency, inefficient financial control, diversion of resources, inadequate attention to R&D, obsolete technology and machinery, poor industrial relations, power cuts, shortage of working capital, delayed sanction of working capital, time gap between sanction of term loan and working capital.

• Facilities sanctioned by Banks are not need based. For example, Banks are hesitant to grant book debt facility while most SSIs need such facility.
• Big units make payments to small units much after the normal due dates.
• Taking advantage of vulnerability of SSI units big units abets unhealthy competition among small units so that they are compelled to offer low prices and longer credit period.
• SSIs suffer from lack of information on sources of raw materials and inputs, machines, accessories etc.
• Shortage of consultancy service either because the same is not available around or the cost is prohibitive.

Pressing Issues
The most pressing issues facing the SSI are related to marketing of its products and delayed realisation of receivables. According to an estimate, out of Rs.631463 Crores worth of production in SSI sector goods worth Rs.545589 Crores were sold in the domestic market and goods worth Rs.85874 Crores were sold in international market in 1998-99. It is observed that so long as they operate in insular market, free from competition, they can take care of their marketing problem; however, once exposed to competition, they face a variety of problems. Major marketing problems identified are as follows:

• Limited area of marketing because of inability to delve deep into domestic and international market
• Lack of adequate market-knowledge due mainly to lack of manpower to carry out market survey
• Lack of testing facilities to ensure quality control
• Lack of fund advertisement and other promotional activities

• setting up establishment to provide them with up-to-date market information,
• a network of sales outlets,
• sales and advertisement support,
• well-equipped testing centres is provided,

SSIs would emerge as strong partners in industrial development of the country. Our aim should be to ensure that small, medium and large units co-exist to function harmoniously in a symbiotic relationship.

E-Commerce facilities may be utilised and developed to help SSIs to market their products in wide area at a very cheap rate.

 

Major Marketing Problems identified are as follows: Limited area of marketing because of inability to delve deep into domestic and international market Lack of adequate market-knowledge due mainly to lack of manpower to carry out market survey Lack of testing facilities to ensure quality control Lack of fund advertisement and other promotional activities

A major irritant that prevents development of healthy relationship between small and large industries is the problem of delayed payment by Large Units. SSI Units have been facing constraints on account of inadequacy of working capital caused by delay in receiving payments for their suppliers. A large number of SSI Units are managed by people with technical orientation who are unable to pay continuous attention to debt collection, accounting and management of working capital. In this area, "invoice discounting" or factoring can be of immense help.

Under a typical factoring arrangement the client maintains a running account with a factor. As receivables are sold to the factor without waiting for their realisation from the customer, the unit does not suffer from shortage of Working Capital.

Conclusion
A multi pronged diagnostic approach is required to analyse in depth the problems, prospects and challenges facing SSI. Kapur Committee recommendations relating to flow of credit to SSI, identification of incipient sickness and taking timely action, working out timely rehabilitation package, facilities for marketing etc. would go a long way in progress of sector. Banks have a pivotal role to play accelerating the pace of development. After all, banking institutions are committed to contribute their mite in building exercise.