Rate hikes have thrown SMEs out of business: Assocham

The Associated Chambers of Commerce and Industry of India (Assocham) undertook a survey covering 1,000 small and medium enterprises (SMEs), which were of unanimous opinion that 12 consecutive increase in interest rates have thrown many SMEs out of business. And others are on the brink of it.

There was utter disappointment and serious concern over RBI’s continued strategy of increasing lending rates without attempting to address the issues of high credit cost to the sector.

Some of the respondents even echoed that increased cost of inputs may affect their ability to service loans/interest commitments and may be a major factor for increased NPAs of banks. The serious note directs that the condition as well as the capability of SMEs continue to be challenged and any further rate hike will debilitate their already fledging financial position.

Consequently, SMEs have shared that there has been a decline of around 15% market share, 20% drop in profit margins and 24% reduction in total production capacity.

Releasing the survey, Assocham spokesperson said though increased key rates go well for attempting to rein in inflation with growth a not so important idea, the impact on overall survival of SMEs have been very alarming. The continued increase in fuel prices, ever increasing lending rates have worst hit this sector and could be heading for a serious trouble.

RBI's increased thrust on inflation control by hiking cost of funds, have received a thumbs down reaction from SMEs who feel isolated in their war of survival. Assocham Secretary General DS Rawat says majority of the respondents were drawn from manufacturing as well as auto ancillary sectors including export units.

They also showed deep dissatisfaction on the way the government has failed in combating inflation as well as controlling cost of capital. Few of the larger SMEs, however, cautioned that henceforth, their capacity to absorb the increased input costs may be eroded and face falling topline and compressed bottomline.