The appreciation of the rupee might not have hurt exports to the anticipated extent, but its fallout has ignited widespread attrition in the small and medium industries (SMEs), especially in the second half of the calendar year, according to a survey conducted by The Associated Chambers of Commerce and Industry of India (ASSOCHAM).

“As per the estimates, the attrition was over 40 percent and was mainly because the paying capacities to their employees were vastly eroded as a result of rupee appreciation which shrunk their margins and currency inflows and adversely affected manufacturing, consequences of which became more visible,” the industry body’s findings said.
Pressure points

Mr Venugopal N. Dhoot, President of ASSOCHAM, in a release said that the attrition rate, which was more prevalent in knowledge-based industries and services sector in the first half of 2007 because of the opportunity factor, shifted vastly towards SMEs as these succumbed to pressures arising out of rupee appreciation as also slowdown in core sector output.

“SMEs engaged in manufacturing of inputs in areas of equipment and heavy machinery and engineering goods, including auto and power components as also refining equipment, claimed heavy erosions in their paying capacities which amounted to attrition rate exceeding 40 percent,” ASSOCHAM said.

It added that in textiles, leather and plastic products, SMEs could not upgrade their technology and their orders fell by nearly 25 to 30 percent, which resulted in an attrition rate that hovered around 30 to 35 percent.
Poor credit

“The other factors responsible to multiply attrition factor among most SMEs include very poor extension of credit by commercial and scheduled commercial banks including cooperatives to SME sector in calendar 2007, as a result of which virtually no expansion and upgradation exercise could take off in SMEs,” the release said.

The Chamber has suggested that the SMEs which can prove their potential for accelerated manufacturing should be extended credit support to help them restructure and that their existing R&D centres should be replaced to get qualitatively better produce. The sales will improve and the workforce will be encouraged to stay with them, it said.

Mr. Divya Aggarwal

Money Management Consultants Ltd

Senior Copy Editor, Money Management Consultants Ltd
New Delhi, India

Free Member, Joined :05/11/2007
No of Topics Posted : 113
Reply/Comments : 14