Businessmen running micro, small and medium enterprises (MSMEs) in the industrial hub expressed shock over Reserve Bank of India’s decision to increase repo rates (the rate at which Central bank lends short-term funds to commercial banks) from 40 basis points to 4.4%, and said the hike will adversely affect the sector.
In a surprise media briefing on Wednesday, The RBI had announced that the new rates will come into effect immediately. Industrialists said, “Under the new rates, the cost for consumable durables, two-wheelers, cars, and commercial vehicles (95% of which are sold through financing routes) will be severely impacted as the increase in rate will adversely affect demand.”
Repo rates have been increased for the first time since 2018. “The demand for these goods is already low as compared to previous years. The post-Covid market has not recovered, and the low demand will further affect MSMEs,” said Upkar Singh Ahuja, president, Chamber of Industrial and Commercial Undertaking (CICU).
“Hike in raw material and commodity prices amid the ongoing Russia-Ukraine war, and the spread of Covid in China and other countries has created scarcity of metals and minerals. Import-export have been severely affected due to unavailability of containers,” he said.
“MSMEs are largely dependent on finance from banks and other financial institutes, and they also get fiscal support under the Emergency Credit Line Guarantee Scheme (ECLGS) scheme. Rise in interest rate will adversely affect MSMEs, and their profitability will be reduced. Around 60% MSMEs are already in stress,” Ahuja said, adding that Sensex and Nifty were also down by 3%, which indicate investors were also unhappy with the development.
{{/usCountry}}“MSMEs are largely dependent on finance from banks and other financial institutes, and they also get fiscal support under the Emergency Credit Line Guarantee Scheme (ECLGS) scheme. Rise in interest rate will adversely affect MSMEs, and their profitability will be reduced. Around 60% MSMEs are already in stress,” Ahuja said, adding that Sensex and Nifty were also down by 3%, which indicate investors were also unhappy with the development.
{{/usCountry}}CICU, in its letter to finance minister Nirmala Sitharaman and minister of commerce and industry Piyush Goyal, urged the government to take steps to reduce price of steel, raw material, and commodities to bring down the inflation rate.