Inadequate access to finance has remained a limiting factor to MSMEs for years. Lack of financial information is also hindering for SMEs as they have to depend on promoters’ capital. Also bank finance access is limited which leads to lack of new job creation by SMEs. Access to venture capital (VC) funds is also thin in India despite the fact that ‘Private Equity’ and VC markets have grown considerably in this country.

In this light, the NMP proposals is a welcome step as it is going to help large number of SMEs to raise equity and invest in manufacturing sector apart from boosting employment. Specific measures are also highlighted in NMP that includes setting up stock exchange and implementation of SEBI’s framework for supervising stock exchange platforms for SMEs.

The total number of PE deals signed by SMEs in 2009 stood at 81, while in 2008, it was 187, highlighting a sharp decline.  The fall in PE investments have largely been credit to slowdown, says Mr. D S Rawat, Secretary General ASSOCHAM while releasing findings of the Paper here today.

The report states that in year 2009 was a hard-hitting year for SMEs in India as they not only had to face losses, but also encountered difficulties in accessing adequate equity capital from investors.

The meltdown made PE investors wary of investing in small businesses as there is a great deal of risk involved when it comes to funding cash-strapped companies. Poor returns on investments in the midst of challenging times have forced fund managers to think twice when it comes to putting too much into the sector, added  Mr. Rawat.

Overall, PE deals in India during 2009 numbered 287 amounting to $4.43 billion as against 502 amounting to $ 11.9 billion in 2008. The total value and volume of PE deals reduced by 50% and 40% respectively as compared to 2008.

In the year 2009, 650 Private Equity and M&A deals with a total announced value of $ 26.98 billion compared to 948 deals worth $52.33 billion in the year 2008 and 858 deals.