There is a large scale capacity underutilization in SMEs in India. The chemical industry has been the worst sufferer owing to multifaceted problems in this segment. This study was undertaken to explore the reasons for under capacity utilization amongst small-scale chemical industries in India. The main objectives of this research paper are to identify the favorable and unfavorable factors affecting the production capacity utilization and to identify the relationship between all the factors of managerial problems i.e. technical and financial with actual utilization of production capacities of industries under survey. The data was collected through primary source. Self-administrative questionnaires were prepared based on four different scale of measurement viz. nominal, ordinal, interval and ratio were used. The data have been analyzed with the help of statistical techniques such as one sample test and two independent sample tests. The targeted sample population was small-scale chemical industries from Mumbai and suburb region. The effect of various factors of the key managerial problems viz. technical and financial over production capacity utilization was studied. The practical implications of the outcome of the present study would be useful for the industry segment as well as for policy makers.