Reinstate interest subvention to help SMEs

Namrata Kath Hazarika | 30 Jun, 2011 The Small and Medium Enterprises (SMEs) have urged the government to reinstate the interest subvention of minimum 2 percent to tide over high interest rates and get better financial help from banks.

"The higher interests will have negative fallout on the economic growth as a whole. MSMEs being a part of the economy will also be impacted though the impact would be uneven across sectors," Anil Bhardwaj, Secretary General, the Federation of Indian Small and Medium Enterprises (FISME) told SME Times recently.

He added, "FISME is requesting government for interest rate subvention of minimum 2% till we return to a more benign regime of interest rates. That will help MSMEs tide over the current difficult times."

The interest subvention scheme administered by the Commerce Ministry expired on March 31.

The recent hike on key rates by the Reserve Bank of India (RBI) has also made things worse for small and mid-sized companies as borrowing money from banks has become very challenging these days, said D.K.Nair, Secretary General, Confederation of Indian Textile Industry (CITI).

Nair opined that the interest subvention will be an effective way to address the issue of high interest rates. Even if the rates keep on increasing, the subvention will soften the blow and therefore will be welcome.

He mentioned that the recent hike on rates by RBI has been a major setback to the export efforts of the country.

Also, the textile sector will be affected seriously because a vast majority of manufacturers and exporters in this sector are SMEs, who do not have the financial clout to handle such additional burden, he added.