Key rates unchanged: SMEs disappointed with RBI stand

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Saurabh Gupta | 18 Jun, 2013
Reacting to the Reserve Bank of India's (RBI) move to keep its key rates unchanged in the monetary policy review released Monday, Indian small and medium enterprise (SME) sector has viewed the move as disappointing.

"SMEs were expecting a rate cut of 0.5 percent, which is mainly required to remain competitive in the international market due to higher interest rate," Chairman, Apparel Export Promotion Council (AEPC), Dr. A. Sakthivel said Monday.

"The median lending rates on pre-shipment Rupee export credit upto 180 days ranged between 10.55 - 13 percent in end 2012 as compared to 10.75 - 12.88 percent in March, 2012. These remain high in same range," he added.

At the beginning of the 12th Plan period, the outstanding credit gap for the SME sector is estimated at 62 percent, which is estimated to reduce to 43 percent in March, 2017 with the assumption of minimum 20 percentyear-on-year credit growth to MSME sector.

"Thus rate cut is necessary to achieve this and reduce gap. The figures truly reveal that the SMEs are reluctant to avail the credit due to higher interest rate apart from market conditions," he added.

The garment exporting units are expected to invest in product development and also replace the old machineries to remain productive and therefore, the credit needs are required to be replenished at a flat rate of interest.

AEPC has proposed a flat rate of 7.5 percent on pre and post shipment export credit under a separate chapter for exports.

Meanwhile, the apex exporters body, Federation of Indian Export Organisation (FIEO) also said that the RBI's policy review has also not enthused the exporters.

In his statement, President, FIEO, M Rafeeque Ahmed said, "The status quo in RBI Mid Quarter Monetary Policy Review for June has also not enthused the exporters who are plagued by high cost of credit."

While recognizing the macro parameters affecting RBI decision, Ahmed said that growth should be given a precedence over inflation as growth alone can keep economy on track.

Out of Rs.70000 crores of garment exports, approx. Rs. 52000 crores exports is from SME sector (75 percent). The Industry is not able to take credit at such high rates and losing its competitiveness in the world market.