Easy reimbursement of VAT is necessary for SMEs – FICCI

30 Jul '09

5 min read

• SMEs have to bear undue delay in receiving payments from other companies and public enterprises. This leads to blocking of funds for SMEs which affects their day-to-day operations. Hence it should be made sure that SMEs receive payments on time.

The FICCI Survey received responses from 116 SMEs manufacturing a diverse range of products from 20 locations across the country.

With a large proportion of enterprises facing the brunt of the slowdown, what is actually surprising is the fact that majority of the respondents said that they are not really aware of the steps being taken by the government to help SMEs weather the crisis. Out of the total participating companies, 73 per cent of the respondents said that they do not know of any steps that have been announced under the stimulus packages to support their sector.

Further out of those who were aware of the incentives announced, a majority of them indicated that these measures have not really enabled them to regain the business momentum. This is a cause of real concern as it seems the benefits of the stimulus packages are not percolating and these enterprises are receiving only limited benefit from the government.

What is all the more disturbing is that 87 per cent of the participants reported that they were in general not aware of the different schemes run by the government for the SME sector. This indicates a serious problem with information dissemination at the ground level.

With regard to the factors adversely affecting the business performance, 59 per cent of the respondents indicated that high cost of financing persists to be a problem. This is particularly bothersome as 90 per cent of the participants reported that they were dependent on banks for funding their operations. Further 62 per cent of the participants felt that banks do not encourage financing in the SME sector and 97 per cent of the respondents said that the cost of finance has gone up over the last one year. Amidst the existing situation which is already difficult, the support from banks is most critical.

Among other factors, rising cost of raw materials and lack of buyers for products were reported to be areas of botheration. The reporting companies also indicated that they were witnessing stiff competition from Chinese goods as these products are being dumped in India. This further reaffirms the results of an earlier survey done by FICCI on 'Imports from China & its impact on SME sector', which indicated that a majority of the SMEs are facing heat in the domestic market due to imports of Chinese goods.

Nonetheless, the companies showed some optimism with regard to the expected market conditions six months hence. 66 per cent of the respondents said that they foresee an improvement in the market condition over the next two quarters, while 21 per cent felt that situation would worsen. The remaining 13 per cent expected no change in the situation.

Federation of Indian Chambers of Commerce and Industry

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