The world over, it is the SMEs which play a major role in innovation, revitalization of economy and creation of new jobs. Hence, it is high time governments realized that adequate and timely availability of working capital is vital for the growth of SSI units.

The ratio of SSI bank-credit to GDP at current prices declined from 3.0% as at the end of financial year 1998 to 2.6% as at the end of the financial year 2004 whereas the overall bank credit to GDP ratio increased from 21.3% to 30.5% and SSI production at current prices nearly doubled from Rs. 187217 cr to Rs. 3,57,733 cr over the same period. SIDBI's loan portfolio size declined from Rs. 15,194 cr as of end-March 2000 to Rs. 10,064 cr as of end March 2004. Increasingly net assistance from SFCs and SIDCs to the sector had been negative since the financial year 2000. In fact, precarious financial position of many SFCs and virtual stoppage/ scant lending by a number of them impact availability of term credit to the sector. Weaknesses in the functioning of Urban Cooperative Banks since the late 1990s have also adversely affected the credit availability to the sector. Further, sudden and en-mass meltdown of NBFCs in the financial year 1998 had also severely affected the fund flow from them to the sector. Low capital accumulation affects employment generation, long-term competitiveness, production capability and SSIs' access and integration into globalized supply chains which require substantial investment.

Share of SSI credit in the net credit flow from Scheduled Commercial Banks (SCBs) declined from 14.6% as of end March 1998 to 8.6% as of end March 2004. There is declining trend in net bank credit to the sector since the financial year 1999, despite liberalization in the definition of SSI-credit in the recent years. Banks' SSI credit data includes investment made by banks in special bonds issued by SIDBI, SFCs, SIDCs, NSIC, bank loans to venture capital funds and NBFCs, deposits by private banks with SIDBI etc. If these indirect assistance is excluded, net direct credit flow to the sector from banks would not be very significant. This, inter alia, explains drastic fall in number of SSI accounts with Public Sector Banks (PSBs) from about 32 lakh in mid-1990s to 16 lakh in the financial year 2004. Further, there is no surety that all these indirect credit counted by banks as SSI credit, would have led to corresponding increase in SSI credit flow from these non-bank institutions.

Professional Banker Magazine, SSI Credit, Supply-Side Constraints, Gross Domestic Product, GDP, Urban Cooperative Banks, Scheduled Commercial Banks, SCBs, Liberalization, Public Sector Banks, PSBs, Non Banking Finance Corporations, NBFCs, Non-Bank Credit Channels, Working Capital Management, Economic Globalization, Knowledge Management, Credit-Risk Management, Financial Sector Policies.