Andhra's SME sector wilts under market slowdown

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SME sector in Andhra Pradesh is wilting due to slowdown in the market. Also, the production in many units has taken a hit due to the power shortage last year, due to which many units have reduced their manpower.

The industrial development in Andhra Pradesh has been witnessing a downward trend and declined from 7.7 per cent during 2011-12 to 0.73 per cent during 2012-13. The registered manufacturing sector recorded a steep decline in its growth rate from 9 per cent to a negative growth of 4.2 per cent. Even the unregistered manufacturing sector recorded negative growth rate during the year 2012-13 making the combined manufacturing sector growth rate negative, according to M Sreeram Murthy, chairman, industrial development committee, Fapcci.

Severe power crisis faced by the industrial sector for more than 20 months coupled with high input costs, inflation, high interest rates, delay in implementation of projects and the global economic slowdown are the primary causes for the marginal performance of the industrial sector. The steep fall in rupee value too added to the woes.

According to him the micro small and medium enterprises are worse affected. The prolonged power crisis, hike in tariff rates, imposition of FSA with retrospective effect from 2010-11 caused irrecoverable financial loss to SMEs, he said adding that the operational costs of SMEs have increased. Fall in production and decline in orders made majority of SME accounts into NPAs. Most of these units have turned into either sick or incipient sick units, he said.

Quoting RBI reports, he said the total number of sick units in Andhra Pradesh at the end of June 2013 quarter was 19,481 with an outstanding credit of Rs 1256.56 crore as against 12,982 sick units with outstanding amount of Rs 833.16 crore as of March 2013 – 50 per cent increase in number of sick units in a span of 90 days.

Last week, chief minister N Kiran Kumar Reddy in the SLBC meeting had urged the banks to help the SME units with special packages on a case to case basis to make them viable. If banks took up rehabilitation of sick or potentially sick units, the Andhra Pradesh Government could provide reliefs relating to power, sales tax dues, interest subsidy and others.

Murthy said immediate measures required to rescue the SME sector. Interest rates of banks have been high, which is demoralising the entrepreneurs SMEs should be provided loans at a lower interest rate and there should be no need for a collateral security for loans upto Rs one crore.

SMEs face challenges as the customers demand a 90-day credit, whereas their suppliers provides credit for 30 days. Hence, the cost of working capital is very high. The incentives provided to the industries should be given directly reducing the procedural delays, he said.

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