Rate hike playing havoc with SMEs: FISME

BANGALORE, INDIA: An increase in 375 basis point in the repo rate by the Reserve Bank of India (RBI) over the last 20 months or so and the consequent sharp increase in the cost of credit is playing havoc with micro, small and medium enterprises, feels Federation of Indian Micro and Small & Medium Enterprises (FISME).

This is the 13th such hike in the basic interest rate since early 2010 and since then the repo rate has gone up by a whopping 375 basis points.

“The indecisiveness of the central government on supply side reforms coupled with its fiscal profligacy has rendered the RBI’s interest-rate hikes more or less ineffective in containing inflation,” said FISME President Shri V.K. Agarwal.

“Under the circumstances,” he said, “we would like to bring to the RBI’s notice that out of the top 200 items produced by MSMEs, the demand for nearly 60 per cent of these items are critically dependent on the healthy growth of three sectors — buildings and construction, transportation, and the white goods sector.”

He added that while the rate hikes have adversely impacted investment decisions in all three areas and thereby the top line growth of MSMEs producing items meant for final consumption in these sectors, the increased cost of credit has become quite unbearable for many MSMEs as this is also eroding their margins and rapidly pushing them towards insolvency.

“In view of this situation, and the fact that interest rate hikes have adversely impacted investment in housing, automobiles and white goods due to a sharp weakening of demand as higher financing costs are forcing consumers to defer their purchase decisions, FISME would like the RBI to consider an interest subvention scheme for the MSME sector so that they can survive even as RBI continues to maintain its anti-inflationary stance.”