'MSME exports to suffer from RBI's wait and watch stance'

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SME Times News Bureau | 18 Dec, 2012
Exporters' body FIEO expressed concern about the Reserve Bank of India's decision to maintain status quo on key policy rates in its mid-quarter review of the monetary policy today.

For the MSME export sector stagnating bank credit, which in absolute terms was Rs 40.11 lakh crore ending march 2012 as against Rs. 39.42 lakh crores ending march 2011, is a ominous sign of things to come if real time measures are not taken fast enough, said FIEO president M Rafeeque Ahmed, in a press statement.

He viewed that a package to revive the MSME export sector across the board may be considered.

For ECBs for MSME export sector, he suggested waiver of withholding tax to make ECBs to the sector more attractive Under the existing guidelines, withholding tax on interest payments is 5% for 3 years.

In addition, Ahmed urged the government to incentivize entrepreneurs investing in towns of excellence identified by the FTP, investment linked incentives for setting up effluent plants as in the case of leather sector in Agra; warehousing cold chain; testing facilities may be provided.

"Alternatively, since Town of Excellence are skill based clusters weighted deduction of 150% for expenditure incurred (excluding cost of land or building) as available since 2012-13 may be extended to units in these clusters," he added.

Ignoring pleas from industry, the Reserve Bank of India (RBI) today kept all key policy rates and reserve ratios unchanged in its policy review but said there is a possibility of policy easing in the fourth quarter, if the core inflation continues to decline.

Commenting on this, the FIEO chief stated that while inflation may moderate as it appears to be doing , what is a grave concern is that investment in the economy is shying away due to costs/ business environment from a high of 25% of GDP in 2007-2008 (gross fixed capital formation, private sector as a percentage of GDP) to levels below 20.78%.

He also viewed that revival in the Western economies seems to be grim as for the coming 2 years envisaging dimming prospects for Germany which is better positioned compared to the rest of Europe financially.

Meanwhile, Minister of Industry and Commerce Anand Sharma said that the Centre is also concerned about RBI move.

"It's important that cheap credit is available to industry. We were hoping RBI will be less conservative after number of positive steps taken by government. (But) RBI has its constraints. We are concerned about RBI maintaining a status quo," the minister said.