SME Report Questionnaire Analysis

8/11/2019 SME Report Questionnaire Analysis

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Small and medium enterprises (SMEs) have become the darlings of corporate

India. Bankers pursue them with loan offers, I vendors sa! that their real market

lies with them, stock market anal!sts search among them for the ne"t Infos!s,

and consultants make presentations about them.

here are good reasons for the optimism. In the past five !ears, small companies

have performed better than their larger counterparts. Between #$$% and #$$&,

companies with net turnover of 's % crore $ crore saw a rise of *$% per cent in

net profit, compared to %&+ per cent for large companies with turnover of over 's

%,$$$ crore. ompanies with a turnover of 's $ crore %$$ crore did even better,

raking in profit growth of +&% per cent over the five !ears. Smaller companies

have also outperformed larger ones in the growth of net sales and operating

profits. -perating and net profit margins of smaller companies, too, have

e"panded more than those of the larger ones. ( lthough there is no agreement

on what constitutes an SME, private and foreign banks define SMEs as

companies with turnover between 's %$ crore and 's *$$ crore.)

/et, it wasn0t ver! long ago that the small scale sector was written off as a

casualt! of economic liberalisation. he consensus was that the sector0s under

capitalised, technolog! deficient, skill starved companies would drop like flies in

the face of global competition. 1or a while, these dire prophecies seemed to be

coming true. SME production, which had reached a high of 's %,2+,+$$ crore in

%+2+ +$, dropped dramaticall! the following !ear (see 34erformance -f SSI

Sector0). It was onl! in #$$% $# that the %+2+ +$ level of production was


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surpassed (although data revisions also led to the decline). But the SME sector

has grown b! leaps and bounds since then.

s the Economic Surve! points out, 56uring #$$$ $% to #$$7 $ , the SSI sector

registered continuous growth in the number of units, production, emplo!ment and

even e"ports. he average annual growth in the number of units was around 7.%

per cent, while emplo!ment grew at 7.7 per cent. 1urther, the average annual

growth in production, at current and constant prices, was %$.& per cent and *.&

per cent, respectivel!.8 'emarkabl!, this growth was achieved over a period that

has seen a stead! dismantling of reservations for the sector.

oda!0s SMEs are a different breed. he! have ac9uired companies abroad,

become part and parcel of global suppl! chains and are even convincing foreign

manufacturers to outsource patented design work to them. wo main trends :

ancillarisation and e"port orientation : have been responsible for the change.

Small and medium vendors have adapted themselves to the needs of large local

manufacturers and have also become suppliers to global manufacturers, the auto

ancillaries industr! being a prime e"ample.

;loball!, changes in technolog! and lower transport costs have led to a wave of

outsourcing both in manufacturing and services. onsultants 6un < Bradstreet

have identified auto components, te"tiles, food processing, pharma, engineeringand chemicals as sectors in which Indian SMEs could become globall!

competitive. ccording to 6un < Bradstreet, SMEs in the te"tile sector, for

instance, e"pect an average growth rate of =# per cent over the ne"t two !ears.

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booming econom! has spelt success for a host of SMEs. Besides auto, SMEs

in sectors such as te"tiles, food processing and construction have also been

growing. Big retail stores such as 'eliance 'etail and Big Ba>aar source their

commodities from smaller businesses. Moreover, the banking sector has seen a

sea change in recent !ears. ompetition has increased with the entr! of

aggressive, new private banks. his has led to a rush for assets and has driven

down the returns from lending to prime corporate customers. he trend towards

disintermediation, with big corporates having multiple financing options from the

capital markets or from private e9uit! at home or abroad, has led to wafer thinmargins for banks on prime business. hus, banks have started looking at the

lower rungs of the corporate ladder for higher returns. he spurt in lending to

SMEs is being propelled b! the pull e"erted b! the rapid e"pansion of these

companies on the one hand and the push on banks to improve their margins on

the other.

6espite the h!pe about lending to SMEs, however, loans to the SSI sector (as

defined b! 'BI) haven0t kept pace with lending to other segments. rue,

outstandings on account of lending to the SSI sector grew b! &+ per cent

between #$$$ $% and #$$ $&. But in the past five !ears, SSI loan outstandings

as a proportion of loan outstanding to small, medium and large industries fell

from # .& per cent at the end of March #$$% to %&.7 per cent b! end March #$$&.

learl!, loans to bigger companies, including larger companies in the SME

segment, are growing at a faster pace than loans to the SSI sector. hat0s not

surprising, considering that net ?4 s (non performing assets) for public and

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private sector banks in the SSI sector stood at %&.*# per cent and %$.=% per cent

of total ?4 s, respectivel!, at the end of March #$$&, although the proportion of

SSI loans to total loans was much smaller at &.7 per cent.

he current approach to lending is ver! different from the approach of the public

sector banks in the past. Earlier, these banks funded SMEs mainl! to meet their

priorit! sector targets. Sanction as well as follow up and control rested with bank

personnel at the branch level, leading to immense scope for corruption. @oans

were made hapha>ardl!, often without a proper stud! of the environment in which

the SME operated. Bankers in the sector often had no e"pertise in handling small

loans.

here has been a marked change in lending practices, with private banks

adopting novel and innovative approaches. 1or instance, Aotak Mahindra Bank,

which terms SMEs as emerging corporate business, 5applies parametrics to

grade SME performance. I I I Bank, which boasts 2$$,$$$ SME customers,

operates on the scorecard methodolog! for SMEs in the manufacturing and

construction sectors, and 2 per cent of its business comes from parameterised,

cluster based trade financing. he bank also finances standalone SMEs and

believes that financing is moving towards invoice discounting, where there is no

legal recourse on the corporate to pa! the bank. he bank classifies its SME

business in the retail segment, where apart from corporate loans, SME

entrepreneurs are given services such as auto and housing loans.

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Even public sector banks have become savvier. he State Bank of India (SBI),

for instance, has several branches dedicated to SME lending. ?ew wa!s are

being devised to ensure that SSIs repa! their loans. Banks prefer to fund SMEs

that are dedicated suppliers of raw materials or components to larger -EMs,

since the! would have alread! passed the due diligence process of a large

corporate.

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SURVEY ANALYSIS

A total of 272 questionnaires were administered in Faridabad region.

ne !undred and fort" #140$ men and 132 women too% &art in t!e sur'e"( w!i)!

translates into 51(5* and 48(5* res&e)ti'el". ne !undred and fort"+two #142 or 52.4*$

of t!e res&ondents were 25 , 34 "ears old w!ile 81 #29.9*$ of res&ondents were between

t!e ages of 16 , 24 "ears. nl" 48 res&ondents were between t!e age of 35 , 64 "ears.

-!is indi)ates t!at most &eo&le #o'er 80*$ em&lo"ed in / s are "ounger t!an 35 "ears

of age.

2% #+.+ #+.+%7# )#.7 2#.=

## 2.% +$.7#% *.* +2.#

) %.2 %$$.$271 100.0

%&(#7#)(=7=)(7$7%(7+)$(&7Total

Age1re9uenc! 4ercent

,umulative4ercent

Table: Age distribution

-!e largest sam&le #29.4*$ was drawn from t!e retail and w!olesale se)tor w!i)! is t!e

dominant industr" in t!e / se)tor. t!er ser'i)es a))ounted for 16.9* of t!e sam&le.

t!er im&ortant se)tors )o'ered b" t!e stud" are wood &ro)essing #10.3*$( maintenan)e

#9.9*$( trans&ort and )ommuni)ation #8.8*$( and )atering #7.4*$.

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%$ =.*# .*& #.#

#2 %$.=

%= 7.2

* #.&2$ #+.7#$ *.7

#7 2.2

#* +.+= %.%& #.#

7& %&.+#*# %$$.$

gro(processingMineral(processingMetal(processingBood processing

e"ti le < @eather processing-ther processing'etail < wholesale,ateringransport e'elo&ing a definition t!at will be a))e&table to all sta%e!olders in t!e / se)tor and

t!en de'elo&ing a re&li)able assessment tool based on su)! a definition is almost an

im&ossible tas%. -!is stud" ado&ted t!e number of em&lo"ees as a definitional )riterion

and disregarded ot!er equall" im&ortant definitional )riteria su)! as )a&ital em&lo"ment

and turno'er. -!is sim&le definitional a&&roa)! !as &ro'ed to be &ra)ti)al and useful for

t!e &ur&ose of t!is stud"( namel" t!e de'elo&ing of an assessment tool( but we would

)aution against using a similar definitional a&&roa)! for ot!er &ur&oses. ?nless t!e

re&li)abilit" of t!e stud" o'er time is t!e main ob e)ti'e of an" intended stud" into t!e

/ se)tor( t!e in)lusion of )a&ital em&lo"ment and turno'er in to t!e definition of t!e

se)tor is re)ommended.-!e results of t!is stud" ma" not gi'e a )om&lete &i)ture of t!e entire / se)tor but it

&ro'ides an indi)ation of )urrent salaries and em&lo"ment )onditions. -!is assessment

)an be re&eated o'er time t!us enabling t!e measurement of trends w!i)! will be useful

for &oli)" &lanning and inter'ention.

e did not e &erien)e an" diffi)ult" in a&&roa)!ing res&ondents or obtaining information

from t!em. -!erefore( t!e )ontinued random sele)tion of res&ondents in t!e field is

re)ommended.

-!e establis!ment of a trend regarding growt! or de)line of / em&lo"ment is )ru)ial

to an assessment of t!e / se)tor. -!is stud" did not su))eed in establis!ing an" su)!

trend and it is t!erefore &ro&osed t!at su)! a tas% be in)luded in future assessments.

-!e / se)tor seems to &ro'ide a signifi)ant number of obs( mostl" on a full+time

basis. -!e se)urit" of su)! fulltime obs )an be formalised and strengt!ened b"

en)ouraging em&lo"ers in t!e se)tor to e tent em&lo"ment )ontra)ts to t!eir em&lo"ees.

&e)ial targeting strategies s!ould be de'ised w!i)! for instan)e ta%e )ognisan)e of

wor%ers@ inse)urit" due to t!e la)% of em&lo"ment )ontra)ts( low edu)ational le'els( and

t!e rat!er informal labour relations atmos&!ere t!at &re'ails in t!is se)tor. -!e targeting

and ser'i)ing of wor%ers in t!is se)tor s!ould not ust be turned into one of t!e man"

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union a)ti'ities but t!ere s!ould be s&e)iall" designed &rogrammes w!ose &rogress )an

be re'iewed regularl".

>es&ite wor%ers satisfa)tion wit! t!eir obs and bosses( most / wor%ers would want

to wor% in t!e &ubli) se)tor or in a large &ri'ate firm. :n ot!er words( :ndian /

wor%ers are in t!e se)tor be)ause of a la)% of alternati'e em&lo"ment.

Begarding gender( our stud" re'ealed t!at no real differen)e between men and women

e isted regarding t!e t"&e of em&lo"ment #i.e. full+time$( t!e duration of em&lo"ment( ob

satisfa)tion( salar" in)reases and &romotions( &a"ment &un)tualit" and number of

de&endants.

m&lo"ment in t!e / se)tor seems to be of a s!ort to medium term duration as more

t!an !alf of t!e res&ondents !a'e been wit! t!eir em&lo"ers for a few mont!s to two

"ears. -wo reasons )an &ossibl" e &lain t!is. First( most of t!e inter'iewed wor%ers arerelati'el" "oung and seem not to !a'e wor%ed elsew!ere before ta%ing on t!eir )urrent

obs in t!e / se)tor. A se)ond &ossible e &lanation is t!at &eo&le onl" ta%e obs in t!e

/ se)tor as an interim measure and lea'e as soon as t!e" find obs in t!e &ubli) or

&ri'ate se)tor in line wit! wor%ers &referred o&tion of em&lo"ment. !ate'er t!e

reasons mig!t be( t!ere are a number of &ositi'e trends and &ra)ti)es w!i)! if )ulti'ated

)an ensure staff retention in t!e se)tor. ne su)! trend( w!i)! )an form t!e &illar of staff

retention( is t!e friendl" and )ondu)i'e em&lo"er , em&lo"ee relations!i& t!at &re'ails in

t!e se)tor. :f )!allenges su)! as low salaries and la)% of benefits are attended to( t!e

&ositi'e relations!i& is li%el" to grow and it )an ser'e as an in)enti'e for wor%ers to %ee&

t!eir obs in t!e se)tor. -!e regular salar" in)rements and &romotions in t!e se)tor )an be

anot!er in)enti'e if &ro&er salar" s)ales and in)rement guides )an be de'elo&ed. u)!

salar" s)ales s!ould ta%e into a))ount t!e 'alue of women s obs as women seem to

re)ei'e most &romotions )om&ared to men but ironi)all" )ontinue to re)ei'e salaries t!at

are lower t!an t!ose of t!eir male )ounter&arts. A t!ird im&ortant &illar to build on is t!e

training of wor%ers in t!e se)tor. :t mig!t be wort!w!ile e &loring t!e lin% between more

s"stemati) training for / wor%ers and in)reased out&ut better wor%ing )onditions

w!i)! in turn would en)ourage wor%ers to %ee& t!eir obs.

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-!e findings of our stud" indi)ate t!at t!e earnings of wor%ers in t!e / se)tor are low

and &ose t!e biggest )on)ern for / wor%ers( es&e)iall" if t!e" are 'iewed in lig!t of

t!e de&enden)" ratio &er wor%er in t!is se)tor. -!is is e a)erbated b" t!e fa)t t!at t!e

ma orit" of wor%ers in t!e se)tor do not !a'e an" ot!er sour)e of se)ondar" in)ome.

;enerall" wor%ers in t!e / se)tor seem not to !a'e real )on)erns about t!eir

wor%&la)e safet". owe'er( t!e few business )lusters or industries su)! as )onstru)tion

and t!e trans&ort and )ommuni)ation se)tors in w!i)! wor%&la)e safet" was a )on)ern

s!ould not be ignored. -!ese se)tors are male dominated and t!is e &lains w!" men(

more t!an women !a'e wor%&la)e safet" )on)erns. -!e &ro'ision of safet" equi&ment at

t!e wor%&la)e is found to be inadequate and t!e stud" re)ommends t!at labour ins&e)tors

and t!e !ealt! and safet" de&artments of unions &a" &arti)ular attention to t!is issue.

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SME Report Questionnaire Analysis