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INDUSTRIAL DEPRESSION AND PROBLEMS OF SMEs IN INDIA

BY: Prof Vijay Kumbhar | Category: India | Post Date: 2009-10-03
 



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   Prof Vijay Kumbhar
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Mr. Kumbhar V. M. (M.A., B.Ed., NET, SET, G.D.C. & A., D.I.T.)
Lecturer in Economics, Abasaheb Marathe Arts, New Commerce and Science College,

Rajapur Dist - Ratnagiri (Maharashtra), kumbhar9@gmail.com


Fluctuations in economy are the steps of rising and falling health of the economy, it calls business cycles. During a business cycle, an economy grows, reaches a peak, and then begins a downturn followed by a period of negative growth it calls a depression that ends in a trough before the next upturn. Depression broadly defined, a depression is a downturn in a nation's economic activity. The consequences typically include increased unemployment, decreased consumer and business spending, and declining stock prices. Depression is period of economic crisis in economy it may be affect on overall economy or part of economy. How it affects on economy it will be depends upon situations.

As per the present situation in Indian economy Indian industrial or more specifically small and medium industries are facing a problem of depression. It is not only happened in India but also all the rest of world. Due to the depression Indian SMEs having a problems of falling prices, restriction of credit, overproduction, decreased demand, and investment and a high level of unemployment. It is happened in Indian SME's due to followings causes:-

LOW UTILIZATION OF INSTALLED CAPACITY
Industrial success is depends upon a maximum utilisation of installed capacity. It expects that the duration of operation is 12 months 26 days. But unfortunately, it was found that only 83 % of the units in the total SMEs Sector operated for 9 months or more but remaining units can't work long duration in the year. It is indicator of low utilization of installed capacity. Details are given in the following table.

Table No 7
Operational Duration of Indian SME's in Months
No of Units(%)Months
0.29less than 1 month
0.391 to 2
0.842 to 3
1.003 to 4
1.094 to 5
2.355 to 6
2.076 to 7
3.687 to 8
4.488 to 9
13.229 to 10
17.8310 to 11
52.2911 to 12
0.47Not Recorded
100.00Total

Source: - Source -Ministry of Small Scale Industries

POOR AWARENESS ABOUT IPR
In the changing global scenario, the issues of IPR have gained special importance for the Micro, Small & Medium Enterprise (MSME) sector. IPR protection plays a key role in gaining competitive advantage in terms of technological gains for achieving higher economic growth in a market driven economy. It is felt that IPR requires greater understanding and attention by the industry, particularly the MSME sector in India. The Indian MSME sector needs more information, orientation and facilities for protecting their intellectual powers. While majority of the countries have adopted strategies for implementing strong IPR protection for strengthening their industries and trades Indian industries, particularly the MSME are lagging behind in recognizing the importance of IPR and adopting IPR as a business strategy for enhancing competitiveness.

PROBLEM OF SPECIALISED TRAINING
In a present global scenario there is an urgent need for creating skilled human resources so as to build capacity and develop the SME's sector that is compatible with commercialization requirements. To achieve this objective there is need to conduct training programmes for enhancement of knowledge and capacity building of SMEs sector in all fields of Intellectual Property.

PROBLEM OF SKILLED MANAGEMENT
In a market with low entrance barriers, trained apprentices usually leave the enterprise to start their own. Management constraints include inter alias the lack of skills in basic business management, accounting, book keeping and the lack of accessible consulting and support services. In addition, with a relatively low level of educational attainment only 9% of small and micro entrepreneurs have university degrees.

LOW QUALITY OF INPUT
High-quality production inputs are not easily available to SME's. In order to obtain these inputs, SMEs can't compete with export oriented units and big industrial houses as well as Multi National Companies. Larger firms are acquiring all high quality input / raw material in the domestic market due to their bargaining power but SMEs can't porches that input to better and quality output. In addition, the government has imposed tariffs on high quality imported inputs it affecting on compatibility of SMEs in India.

LESS INNOVATIVE ACTIONS IN SME's
Innovation is the means by which the entrepreneur either creates new wealth producing resources or endows existing resources with enhanced potential for creating wealth. There is need of Product innovation, Process innovation and Organizational innovation. There is need of creative development and commercialization of radically new products or services, using new technology and linked to unmet customer requirements. As well as development of new ways of producing or delivering services that lead to cost efficiencies or speedier deliveries.

LACK OF PROPER MARKET INFORMATION
Information about market is the core factor of any business activity. Even it is an essential part of marketing strategy. But, according to the survey of ministry of small scale industries, nearly two-thirds of small businesses consider the lack of market information to be a very severe constraint. SMEs lack the capacity, and their owners lack the education to tap sources of relevant information about new products, consumer trends, technological developments etc.

RESEARCH AND DEVELOPMENT (R&D)
Another hurdle faced by the SMEs is low levels of research and development (R&D). R&D is most important requirement of the industrial and service units in the era of globalized market. But the current understanding of R&D activities of SME's is much lesser than the understanding of similar activities of large multinational enterprises. SMEs are still falling down on R&D due to weak links between business and academic research.

LACK OF AWARENESS OF GLOBAL TRADE LAWS
The other barriers in the path of SMEs are lack of information, capability to build up an international market position and maintaining international business relations and unsatisfactory management skills. Most enterprises in this sector are more product and technology oriented than market oriented. Moreover the lack of managers with international experience, global trade laws and foreign language skills are another barrier in their growth.

REDUCTION IN EXPORT SUBSIDIES
The emerging challenges to the small-scale sector are to come from the impact of the Agreements under WTO. This is expected to lead to an expansion in the volume of international trade and changes in the pattern of commodity flows. The main outcomes of WTO stipulated requirements will be brought about through reduction in export subsidies, greater market access, removal of non-tariff barriers and reduction in tariffs. Increased market access under WTO requirements will also mean that our industries can compete for export markets in both developed and developing countries as well as big and small scale industries.

LOW LEVEL OF ICT ADOPTION IN SMEs
ICT adoption by the Indian SMEs is extremely low. As per the governments estimates the ICT adoption among small business in India is less than 30%, and if the IT firms in the SME segment are not considered, the number will be significantly less. The main reasons for low adoption are; the first-generation small firm owners are not technology savvy and are extremely uneasy to adopt new technology. Many clusters are located in semi-urban areas or rural areas and therefore, cannot avail the benefits that communication can bring in. The small firms of India have significantly less funds compared to their competitors and therefore, they cannot adopt ICT in SMEs.

All above problems of SMEs in India are affecting on progress of SMEs. But this sector is an important sector in the Indian economy because it is an instrument of poverty and unemployment abolition. Hence, there is need of support and encourage to Indian SMEs. It will be possible by the followings measures and policy.

MEASURES AND POLICY IMPLICATIONS
A) Possible Measures


- Entrepreneur should try to utilize full of resources and installed capacity
- Entrepreneur should take attention to IPR and its applications.
- To conduct market research in their related business for exact demand forecasting.
- Try to know international rules and regulations for export of their products in international market.
- Identification of industrial opportunities including ascertaining their commercial viability, based upon local consumption or exports
- Identify the applicability and use of ICT and equipment's for setting of identified industries based upon local and export market requirements.
- Enhance managerial skills and knowledge on prospective markets.

B) Government Should Adopt Proper Policy:-

- The Ministry of SMEs should provide more comprehensive marketing support for India's SMES
- To develop a project sub-contracting promotion policy; increasing access to procurement by central government and international agencies.
- To establish a vendor development programme for linkages between small, medium and large industry.
- Govt. should reserve rural market for SMEs and protect them from competition by the big industrial houses.
- To develop SME trade promotion through public-private partnerships Such partnerships can take various forms, including training facilities, technology upgrading centers, research and testing labs, scientific hubs, investment funds, etc..
- Organize training programmes on packaging, technology, marketing, quality product for exports in various parts of the country.
- To promote SMEs exporters by international exhibitions in easy mode.
- There is an urgent need to enlarge flow of credit to the SMES sector from institutional sources. The creation of a facilitating environment for SMEs will centre on access to credit.
- To develop separate stock exchange for the SMEs sector to help them increasingly move towards a strong financial situation.
- The government should give all possible help to encourage SMEs to focus on innovation and technology development.
- The coverage of the Technology Up-gradation Fund (TUF) Scheme needs to be broadened to the entire SME sector irrespective of the product line.

CONCLUSION
According to this research, especially small and medium enterprises are facing many problems in globalized market. There are a so many hurdles and internal obstacles in the Indian SMEs. But they want to be succeeding for the better economic development of India and reduce economical disparities in the economy. Today's depression is punctured growth of Indian SMEs, but the government should help to SMEs and encourage to more investment and building competitiveness. Along with the government help entrepreneurs should understand the global change and try change self for adjust in the changing world.

REFERENCES:-
- Bhagaban Das, Mr. Nikhil Chandra Shil, Mr. Alok Kumar Pramanik,(2007)- Strengthening SMEs to make export competitive.
- Divya Sampath, (2006) Symbiosis Institute Of Business Management, Pune, How can Indian SMEs become export competitive?
- Stuti Kacker, IAS, (2004), Overcoming Barriers to Innovation for Indian SMEs
- V.K. Chopra is Chairman & Managing Director, Small Industries Development Bank of India ,2004 , Innovations in SME Financing
Micro, Small and Medium Enterprises (MSME) : An review 2007, GOI
Support for Entrepreneurial and Managerial Development of SMEs: Through Incubators-(2008) GOI
- Economic Survey of India 2006-07, 2007-08.
www.tradeindia.com/dyn/gdh/alliance/assocham/survey/studyonsme.html
www.smallindustryindia.com/publications/
india.smetoolkit.org/india

Article Source: http://www.saching.com



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Comments on this article: (2 comments so far)

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Comment Comment By Comment Date
Our Industry & Competition/Survival
This was well researched study of Economic problem faced by India and our survival. Also an example for job growth. Technical development is very fast and we have to keep pace with Government conducting exhibitions with foreign involvements. We all look for the Latest and Best.
Swapan PURKAYASTHA 2009-10-25
Nice
Sir, you have written an excellent, presentable and a very informative article.
Vivek 2009-10-03



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