Tamil Nadu - Madurai

Power shortage triggers credit crunch for small units

MADURAI: Power shortage has triggered a credit crisis for small and medium enterprises. Many small units, which have taken loans to increase production during the Deepavali season, are finding it difficult to meet the monthly payments.

“With power supply down by 35 per cent, production has also declined by 30 per cent, hitting our delivery schedules,” says P. Sitaraman, an industrialist and former president of the Kappalur Industrial Estate Manufacturers’ Association.

Textile and garment manufacturing units must run three shifts a day to break even. However, the power shortage has forced the units to run only one shift, says KR. Gnanasambandan, vice-president, Tamil Nadu Small and Tiny Industries Association (TANSTIA).

If the small and medium units default on repayment, their credit rating worsens, making it difficult for them to access finance in future.

As it is, Mr. Sitaraman says, the cost of borrowing from banks has gone up by 35 per cent in the past six months. The power shortage has left many units unable to meet even payments on interest, let alone the principal amount.

Madurai Spinners Association secretary P.S. Sivaprasad is for reducing the margin of working loans to 10 per cent from the present 25 per cent. “While the cost of production has increased by 10 per cent, production has declined by 30 per cent. Also, the rejection rates (wastage) have shot up to 20 per cent from 2 per cent last year due to power fluctuations. With delivery schedules hit, our customers are not paying us on time.”

These problems will lead to many units closing down, resulting in layoffs, Mr. Gnanasambandan warns. Many textile units have started cutting their workforce.

A major demand from industry is that the State supply diesel without customs duty to the small and medium units for operating captive power units, at least till the power situation eases.

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