High economic growth is the best solution to narrow the differences in interests and prospective between entrepreneurs and bankers when it comes to SME financing, said Sunil Kumar Sinha, Director - Public Finance & Principal Economist, India Ratings & Research, a Fitch group company, in an exclusive e-mail interview with SME Times.

"The best remedy is higher GDP growth. It has been observed that during the high growth phase typically the SME sector thrives, enjoys better access to funds and bank also encounter lower NPAs," Sinha said.

"It is like a chicken and egg situation. In a competitive world on the one hand banks would not like their NPA's to bloat and on the other SMEs would like better access to funds to remain afloat," he added.

Sinha also pointed out that major portion of bank financing provided to small and medium enterprises is under significant stress.

"As we are currently passing through a growth slowdown India Ratings & Research (Ind-Ra) has found that 46.3% of the bank loans provided to SMEs is under significant stress," he said.

The economist also stressed on more effective execution and implementation of the existing government policies and schemes designed for SMEs.

"There are enough policy and schemes in the country to support and nurture the SMEs. What is absent is its proper and effective execution and implementation. By this we are not suggesting that there is no need to modify and improve the current policy environment or formulate new strategy to support SMEs. All we are saying is that we often end up making more policies and strategies and schemes but overlook the most crucial part which is effective execution/implementation," he said.

Sinha is also of the view that India needs to focus on removing bureaucratic and infrastructural hurdles. These hurdles pinch SMEs more than they do to the large enterprises. They enhance transaction costs and erode the competitiveness of SMEs.