Namrata Kath Hazarika | 02 Nov, 2009
Anil Bhardwaj, Secretary General of Federation of Indian Small and Medium Enterprises (FISME) pointed out that there is no liquidity crisis currently but it could come if RBI goes ahead and increase SLR/CRRs.

"The MSMEs sector views the tone of the monetary policy as 'alarming'," he added.

Meanwhile, the cash-strapped Small and Medium Enterprises (SMEs) are witnessing an overall credit growth at present. According to the latest data released by the Reserve Bank of India (RBI), the year-on-year growth up to August 28, the SMEs credit growth accelerated to 27.4 percent this year, as against 21.1 percent in the preceding year.

According to  Bhardwaj, "The pronouncement of RBI makes it abundantly clear that henceforth the central bank would tighten screws on liquidity. The key reason for the shift in policy is spectre of rising inflation to 6.5% than earlier expected 5%."

Bhardwaj also mentioned that to bring in more competition in the banking sector, large banks/ FIs have to play a bigger role to specifically serve MSMEs.

"The government has to manage its finances better, reduce budget deficit and should not bring banks as it leaves scarce funds in banks to lend private sector," he added.

SMEs contribute 35-40% to the nation's GDP and account for more than 90% of all industrial enterprises in India along with its contribution to 45% of industrial employment and 35% of total export.

Bhardwaj also said, "A tight monetary policy and higher rate interest regime would adversely impact the nascent recovery of demand in auto, housing and consumer durable sector. A large number of MSMEs are dependent upon these sectors."

Reacting on the tight monetary policy and higher interest rates, Salil Singhal, Chairman, CII National MSME Council reacted that if the money supply tightens and interest rates go up, it will be a difficult situation for small companies more than for the large ones.

"Don't forget that larger companies have other options of raising funds. Typically, banks consider small companies more risky so interest rates are usually on the higher side," he said to a business daily recently.