Lack of Demand – the Top Reason for Sickness of SMEs in India

Posted on February 14, 2011 by

Some of the reasons for sickness of Micro, Small and Medium Enterprises sector have been found by SIDBI report in 2010. It is said that there are eight important reasons for sickness of the sector. These problems include lack of demand, shortage of working capital, marketing problems, power shortage, non-availability of raw material, equipment problems, labor problems, and management problems. These are stated to have the importance in decreasing order. It can be estimated from this report that lack of demand is considered as the top reason for sickness.

The Lack of demand was reported by 71.6 percent of sick units. The percentage of sick units facing the problems was found to be, 48% due to shortage of working capital, 44.5 percent due to marketing problems, 21.4 percent due to power shortage, 15.1 percent due to non-availability of raw material, 10.6 percent due to equipment problems, 7.4 percent due to labor problems, and 5.5 percent due to management problems.

Certain data was compiled by the Reserve Bank of India on the status of sick small-scale units, potentially viable units, and units under rehabilitation programs. This report was from the Fourth Census of MSME (2006-07). It revealed that there were about 1,14,000 sick units as on March 2007. Among these the number of units that were found to be potentially viable by banks was only 4,287. This constituted for 3.7 percent of the total sick units. Rehabilitation programs were conducted by banks for only 588 units.

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