About 25 per cent of small units, surveyed by Assocham, have either closed their business or are struggling for survival due non availability of easy credit and delayed payments by large firms.
The main reason for sickness in the SME sector is the absence of time-bound programme for credit dispensation, high raw-material cost, shortage of working capital, marketing problems and power shortage, industry body Assocham said.
The chamber said that it surveyed about 500 small units in different states such as Uttar Pradesh, Haryana, Punjab, West Bengal and Bihar.
Over 70 per cent respondents said that they do not have access to institutional credit to operate competitively, it said.
Also, majority of surveyed people said that banks insist for guarantee for loans and demand interest higher than the base rate. Therefore, SMEs end-up borrowing from other informal sources at high-cost hitting their bottomline, it added.
The survey said delayed payment by big companies is another factor impacting the functioning of small enterprises.
“This further reduce the working capital available with a unit for productive use and thus led to sickness,” it said.
A large number of respondents said that frequent reasons for sickness is also due to bunching of ownership and management functions of these enterprises which are controlled by one or selected few people, the study said.
“There is lack of versatility and professionalism as well as shortage of competency to efficiently manage businesses in the present economic scenario,” it said.
To mitigate these problems, Assocham has recommended the need for an independent body to oversee the efforts of the government and the banking sector to rehabilitate sick industries.