The first business confidence survey on small and medium enterprises (SMEs) shows buoyancy in business confidence in the sector with many firms recording higher sales and increased capacity utilisation, says Confederation of Indian Industry (CII).

To help various stakeholders, including businesses and policymakers, track the sentiments of Indian SME sector regularly, CII has launched a quarterly survey on SME Business Confidence Index (BCI).

The overall BCI compiled for SMEs for the July-Sep 2010 stood at 65.6 on a scale of 0-100, the industry lobby said in a statement.

The quarterly outlook, which was based on a list of 14 indicators, showed that the services segment of the SMEs have a BCI of 66.1, while that of industrial SMEs stood at 65.6. The SMEs are, however, wary of the rise in input prices.

Commenting on the new survey, Chandrajit Banerjee, Director General, CII said that by gauging the mood of the SMEs in advance, the confidence index will provide an outlook for the forthcoming quarter and facilitate the necessary policy interventions, when required.

In the CII survey, credit availability, credit cost and net profit margin held the value of BCI in the rage of 55-70. Much of the buoyancy in credit availability has been attributed to the growing confidence of financial institution in SMEs, which had touched a low during the financial crisis. But the survey cautioned that there is a little scope for complacency in promoting greater bank credit access to the sector, given that around 14 lakh SMEs, forming about 90% of the country’s industrial units, are able to access less than 10% of bank loans.  

Further, SME firms are found to expect favorable impact on credit cost front, even in the milieu when interest rates at the economy level have an upward bias. This, among other reasons, has been linked to the implementation of Base Rate policy by RBI from 1st July 2010, which is stated to benefit the small and medium businesses significantly. Improvement in credit ratings with strengthening of the recovery process is given another major reason for SMEs being spared from the rising interest cost burden as of now.

On the negative side, CII survey has found SME firms expecting unfavorable movement in costs of inputs during the current quarter, as the BCI for overall input costs stood at a low of 29.2. Yet, this failed to dampen the mood of the SMEs as the net profit margin recoded an impressive BCI of 66.5, thanks to the robust demand prospects.

As regards the major difference shown by the industrial and services sectors of SMEs, CII survey has found the former to be more optimistic about new orders and export prospects, whereas latter to generate more revenues and net profit. More importantly, SMEs in industrial sector are expecting lesser increase in employment than their counterparts in services sector, which offers a scope to investigate how we can make employment intensive industrial SMEs do better, given the imperative to create mass employment.