Government measures to infuse liquidity into the financial system have helped only the equity markets while the manufacturing sector is still reeling under a credit crunch, say owners of small-scale industries in Gujarat.
According to them, even after the Reserve Bank of India slashed key interest rates Nov 1 to infuse an additional Rs.400 billion into the system, funds are not flowing into the manufacturing sector, a development that has hit the small-scale engineering and machine tool clusters most.
"The outlook is very bleak not just for third and fourth quarter of the current fiscal but also beyond. Our apprehension is that it is going to be a long drawn-out affair," Rajkot Engineering Association (RCA) president Bhavesh Patel said.
RCA has 900-odd small enterprises as its members which are engaged in the production of agricultural equipment, forgings, electric motors, alloy castings, air compressors, industrial fasteners and textile machinery.
Patel said many major industries had cut back their orders for engineering products from these small-scale units, leaving the clusters in deep crisis.
The cutback in orders is to the extent of 40 per cent. "We have never faced this kind of situation before. We are trying to assess the impact of the cutback but finding it difficult as order cuts are continuing," Patel said.
Small industries in Ahmedabad, Vadodara and Bharuch are facing similar problems, entrepreneurs said. Gujarat has more than 300,000 small enterprises with an estimated production value of about Rs.150 billion.
Rupesh Mehta, former president of the Rajkot Machine Tool Manufacturers Association (RMTMA), said if the capital goods industries did not get enough funds from the banking system to augment capacities, the industrial sector would plunge into crisis.
"Since they are facing a tight money situation, cutback in orders will be the obvious outcome. We are only hoping that the situation will improve sooner than later," Mehta said.
Naveen Nakra, chief financial officer of the Ahmedabad-based Electro-term (India) Ltd, spoke in a similar vein.
Asked if the company faced any difficulty in getting funds from the banks, he said: "We are facing a situation in which the working capital cycles are getting longer which could have an impact. Earlier this was not the case."
He added that the company was unlikely to meet the targets set for the current fiscal in the current economic situation.
In spite of the difficult situation, however, Electro-term has not given up its plans to make a foray into the transformer and power generation business.