It has been more than 2 weeks since the announcement of the Union Budget 2011-12 by Finance minister Pranab Mukherjee. However, it is interesting and important to find out the impact it has left on MSMEs.
One of the important provisions given to small businesses in the recent Budget is allocation of Rs 5,000 crore to Small Industries Development Bank of India (SIDBI) for refinancing incremental lending by banks to MSMEs. In this context, Dinesh Agarwal, founder and CEO of IndiaMART.com said, “While we appreciate the allocation of this amount to SIDBI, which in turn would facilitate easier credit access for MSMEs, we expected better increase in the outlay to cover as many of these firms as possible.”
Considering that access to adequate credit is one of the prime issues faced by MSMEs, availability of the same holds a lot of importance for these small units. Moreover, a lot also depends on the time for the money to be passed to banks from SIDBI and subsequently to MSMEs.
Lending rates
One must also take into consideration the fact that the Reserve Bank of India (RBI) has been increasing its key policy rates often in recent times, which can be detrimental to MSMEs’ plans to avail loans from banks, as a high rate of interest would surely be a turn-off for them.
Incidentally, RBI hiked its key policy rates by 25 basis points on March 17, the seventh time in 2010-11. In this context, Shanu Goel, senior research analyst (Equity) at Bonanza Portfolio Limited Ltd, a financial services firm in Mumbai, said, “RBI has increased repo rate from 6.5% to 6.75% and reverse repo rate from 5.5% to 5.75%. The overall liquidity has been improving and RBI is currently comfortable with it.”
The apex bank may be satisfied with the present liquidity system in the country, but MSMEs would certainly be perturbed by the latest increase in RBI’s key policy rates, which is likely to result in hike in lending rates by banks.
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