Date:06/12/2008 URL: http://www.thehindu.com/2008/12/06/stories/2008120650780100.htm

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Recession hits small traders, rising defaults cause concern

Sharath S. Srivatsa

Economic downturn sees revenues plunge by 35 to 70 per cent

Those running the show without debt may survive a little longer
The downturn has been the worst in the computer accessories trade

— PHOTO: G.R.N. SOMASHEKAR

HARD TIMES: Traders in the Central Business District have been severely affected by the downturn in the small- and medium-scale sector.

BANGALORE: Bangalore’s Central Business District (CBD), usually a bustling trading hub, is now facing a serious slowdown. Traders say the severe economic downturn has resulted in their revenues plunging by 35 to 70 per cent, depending on the nature of the business.

Businesses, especially those dependent on small and medium-scale industries, are the worst hit. Many traders complain of rising defaults and cancelled or deferred orders. While traders who have not run up debts may be able to stay afloat a little longer, those with heavy borrowings are likely to find it difficult to repay their loans, say trade analysts.

“Traders have been badly affected since the supplies have been hit since the recession began,” Federation of Trade Associations of Central Bangalore secretary B.K. Goyal told The Hindu.

The CBD has nearly 20,000 traders involved in the steel, building hardware, electronics, machine tools, steel and other businesses, he added.

According to Deepak Ramnane of Raman Engineering Corporation, which sells machine tools, “Defaults and deferred payments by small- and medium-scale industries to traders have increased in the past two months. Trading will be affected severely by March if the trend continues.”

The machine tools business has fallen by 50 to 70 per cent in the past four months.

Slump

A machine tools trading company dealing in lathes sold machines worth Rs. 4.5 lakh in September 2008; it sold lathes worth Rs. 9.8 lakh in September 2007.

Trading in cutting tools supplied to the engineering and automobile industries has declined by over 50 per cent in this period.

Nagaraj Katti, Chief Executive Officer of Industrial Accessories, which deals in cutting tools, said, “Defaults have increased, especially by small- and medium-scale enterprises, and we are witnessing a liquidity crunch. We don’t know when or whether we will ever be paid by our customers.”

C.P. Singh, senior vice-president of the Karnataka Hardware Allied Merchants’ Association, said, “Cancellation of orders has become common, even by those who have made advance payments. An industrialist who paid Rs. 10,000 advance for a product worth Rs. 2 lakh cancelled the order after the consignment was ready. These are specific products that do not find easy buyers later.”

“Business has come down by about 35 per cent. Requests are coming to hold back cheques that were issued in August,” said Mr. Singh, who deals in conveyor belts, pressure pipes and other industrial equipment.

Bounced cheques

For traders in computer accessories the downtrend has been sharp and sudden. While corporate orders for peripherals have dried up, instances of bouncing cheques have increased.

Traders now have to make do with small and sporadic orders for servicing and maintenance.

Pankaj Sethi Jain of ACME Computers said, “We have stopped giving credit to customers, and all transactions are now cash-based. We have lost almost 70 per cent of the business and recoveries are getting delayed.”

Said another dealer, “We have put on hold all our expansion plans and are trying to cut costs.

“While we recorded a business of more than Rs. 2 crore in November 2007, we have been able to do business worth only about Rs. 65 lakh this November.”