New Delhi, Dec 30: Rupee appreciation has ignited attrition in small and medium industries (SMEs) at over 40 per cent, especially in the second half of 2007.
Industry body Assocham said rupee appreciation has eroded the SMEs paying capacities to their employees which has affected manufacturing. Its consequences became more visible and pronounced as SMEs are now reporting huge losses of their human resource. Releasing the assessment, Assocham President Venugopal N Dhoot said ''attrition rate which was more prevalent in knowledge based industries such as ITeS, BPO and services sector like real estate, retail, hospitality industry in the 1st half of 2007 because of opportunity factor, shifted vastly towards SMEs as these succumbed to pressures arising out of rupee appreciation as also slow down in core sector output.''
SMEs engaged in manufacturing of inputs in areas of equipment and heavy machinery and engineering goods including auto and power components as also refining equipment, claimed heavy erosions in their paying capacities which amounted to attrition rate exceeding 40 per cent.
Attrition of SMEs in textiles, leather and plastic products hovered around 30-35 per cent in the period due to lack of technical upgradation, the chamber estimated.
The other factors responsible to multiply attrition factor among most of SMEs include very poor extension of credit by commercial and scheduled commercial banks including cooperatives to SME sector in 2007, as a result of which expansion and upgradation exercise could take off.
Its fall out has been that their machinery and tool processes were not replaced which did not give them an edge to compete not only for larger market share but they lost their market share by at least 20 per cent in all markets.
SMEs contribution, which used to be over 60 per cent in the past so many years in country's manufacturing, fell by at least 15-20 per cent. If the credit flow continues to be neglected by relevant financial institutions, their employment potential would fall significantly and contribution to overall manufacturing dip substantially in the years to come, the Assocham statement said.
The number of SSI units, estimated at 44 lakhs with their output to manufacturing measured at Rs 14 lakh crore, have come down to around 40 lakh their output to manufacturing has come down to Rs 12 lakh crore, Mr Dhoot pointed out.
The Chamber has suggested that the SMEs should be extended credit support to help them restructure and replace their existing R&Ds for higher and qualitatively better produce so that their production make for still better sale and the workforce is encouraged to stay with them.