The Hindu : Karnataka News : Small units reeling under recession Business sense

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Karnataka

Karnataka

Small units reeling under recession Business sense

Many units that ran three shifts are running single shifts now
Eight lakh persons are employed in the Peenya industrial belt

Small scale manufacturing, a key cog in the industrial sector and a major source of livelihoods, is in a serious crisis in the State. Hit by the recession and caught between the whimsical ways of big business and the credit squeeze they face from banks, they have nowhere to turn during the crisis. By all accounts, this recession is likely to be the deepest and longest in a long while.

Many units in the Peenya Industrial Estate, which houses more than 4,000 Small and Medium Enterprises (SME), are under severe pressure. Arvind N. Burji, President, Karnataka Small Scale Industries Association (KASSIA), told The Hindu that most units that ran three shifts till a few weeks ago are running single shifts now. The erratic power situation has only added to the misery, he added.

M.S. Meenakshisundaram, a trade union activist and State Secretary, CITU, said although wages had not been formally cut, workers are likely to lose “incentives and the productivity-related component of their wage, which normally accounts for about half their monthly take-home pay.”

Mr. Burji said at least eight lakh persons are employed in the 8,000-9,000 units in the industrial belt around Peenya. He warned that even if only 10 per cent of the 8 lakh workforce is retrenched, it would result in job losses totalling at least 80,000.

Critical link

Small units, which are a critical link in the industrial production chain, are reporting postponement or outright cancellation of orders by large units. Inventories are building up and there is a mounting problem of delayed receipts from the larger units. “Bankers are not accepting Letters of Credit (LC) for European and U.S. markets because of the tremendous uncertainty about non-payment by customers,” says Mr. Burji.

The problem is particularly acute for engineering units catering to capital goods and automobile components segments. Although large-scale job losses have not been reported, continued pressure on these units may soon result in that happening as well.

M.C.R. Shetty, immediate past president, KASSIA, said the SME segment has been hit from both sides – from the collapse of the export market as well as demand from domestic large industries that had scaled down their output because of lower demand.

The State, which prided its status as a “hub” for the automobile industry, finds this very sector in deep trouble. Mr. Shetty, who runs a unit manufacturing industrial films for the packaging industry and a food processing unit in the city, said small units located in Peenya, which supply components and material to large units such as BEML, L&T, Ashok Leyland and Volvo “are reporting much lower offtake.” He said the situation is “not yet as bad” in the pharmaceutical and food processing segments but wonders how long they will be immune from the crisis that is enveloping industry. “The situation has worsened dramatically in the last month,” he observes.

Auto industry in crisis

Sources in the industrial estate said the slowdown has hit vehicle manufacturers such as Volvo, which supplies high-capacity trucks for use in the mining industry, which has slowed down significantly because of slackening demand from China.

Ashok Leyland recently announced a three-day week at its facilities till December. Tata Motors has also announced a limited shutdown of its facility in Jamshedpur. The ripples can be felt in Peenya.

S. Biswas, who runs a small unit which manufactures metal components for several auto companies, said his output volumes have shrunk by half in the last few weeks. He expects the “situation to worsen significantly by December.”

Mr. Shetty said as many as 400 small units in Peenya cater to European companies, which had been badly hit in recent months. Of this half are engineering units. “Demand has collapsed, this is carnage,” he remarked.

Asked how units are coping, Mr. Shetty replied, “The standard mantra is being repeated — cut costs, inventories and wastage — but I do not know how that will help.” He said companies have “already started cutting labour costs.”

An SME supplying dentists’ chairs to clients in Europe, and located in Kamakshipalaya, has shed a third of its workforce of 450, he said.

Mr. Shetty’s “gut feeling” is that things are particularly bad now because industries had squandered resources in “speculative activity during better times by investing in such things as real estate.” “In hindsight, it was a mistake to assume that the Indian economy could grow forever at 9-10 per cent.”

V. SRIDHAR

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