SMEs may face more closures in '09 - official

MUMBAI (Reuters) - More than 100,000 small and medium enterprises (SMEs) shut shop in India in 2008, hurt by falling demand and difficult credit conditions, and the figure is likely to rise in FY09, an industry official said.

"As per my knowledge 114,000 SMEs were sick last year (FY08), this year it may increase to 200,000," said Chandrakant Salunkhe, president, Small and Medium Business Development Chamber of India.

"If 10 companies are closing down in a state, only one is coming up," he said on the sidelines of an industry summit on Tuesday.

SMEs contribute around 8 percent to India's GDP and employ more than 40 million people across the country, A Rameshkumar, Chairman of the SME Chamber of India (northern region), said in the summit.

But the lack of credit and a sharp rise in order cancellations from the U.S. and Europe in the wake of a global recession have put SMEs in a tight corner.

The industry has seen a large number of cancellation of orders from buyers in developed countries in Europe and North America, Salunkhe said.

Cancellations have hurt SMEs particularly in the auto parts, manufacturing and textiles segments, he said.

Auto parts makers have borne the brunt of the slowdown in India, with nearly all of them cutting down production hours in a bid to reduce excess inventories.

Top auto makers Tata Motors and Mahindra & Mahindra temporarily closed plants in December.