High interest rates likely to hit MSMEs: CII

New Delhi, Oct 19 (UNI) Increase in interest rates, banks' reluctancy to lend and rising power costs are likely to impact the profitability of domestic Micro, Small and Medium Enterprises (MSMEs) sector significantly, a CII MSME CEOs snap poll said here today.

The CII poll also termed the high interest rate as the biggest hurdle for accessing finance for MSMEs growth, as revealed by 66 per cent of the MSME CEOs.

Nearly 46 per cent respondents felt the other major obstacles to access finance are delayed suppliers' payment, while 30 per cent said cumbersome bank paperwork is to be blamed.

Banks' reluctancy to lend and their strict collateral requirements are the next two obstacles for accessing finance for growth of MSMEs in the country.

''Cutting interest rates is of paramount importance to enable MSME sector to borrow at competitive rates and hence cut in repo rates by 1-1.5 per cent will not only help MSMEs manage their increasing costs, but also create investment demand in the economy,'' CII Director General Chandrajit Banerjee said.

About 78 per cent of the surveyed respondents are using private equity for alternate source of finance for medium to long-term funding, while 21 per cent of the respondents are using venture capital funds as alternate source to bank finance.

Assessing the impact of increased cost on profitability, 35 per cent of the MSMEs CEOs polled revealed that their profitability would be eroded up to 10 per cent during the current year and 41 per cent of the respondents said their profitability would be impacted up to 25 per cent during the current year.

Revealing the outlook for the next six months, majority of the CEOs polled do not expect production and exports to decline.

On production, 31 per cent of the CEOs expect production to increase, while an equal number of them expect production to be at the levels of 2007-08.

On exports, only 24 per cent of them expect exports to decline during the current year and 29 per cent of them feel exports to increase, while 47 per cent said exports would be at the same level as in 2007-08.

On employment outlook for the second half of 2008-09, 29 per cent of the CEOs expect employment to increase, while 51 per cent of them expect no change in status of employment during the second half of the current year.

On capacity expansion, 33 per cent of the CEOs expect increase in capacity, while 56 per cent of respondents do not expect to increase their capacities during the second half of 2008-09.

UNI SBA SG BST1311