RBI Monetary Policy | Impact on MSMEs with the continued policy rate support

“Financial inclusion and technological transformation of MSMEs is now a priority. As of Q1 2020, MSMEs faced a credit gap of ₹16 lakh cores. In May 2020, when the repo rate was reduced to historic lows, India was just starting to confront the challenges of the pandemic era. In 2022, the primary challenges facing the Government and RBI, are that of uneven growth and inflation. This combination, if untamed, can lead to a double-whammy for MSMEs, especially for MSMEs producing price-sensitive products, such as textiles.

Global trade in 2021-22 was defined by fluctuating costs of commodities, materials, and logistics. In India, MSMEs had to confront the rising costs of inputs, and also ensure consistent demand for their products. This resulted in the inability of MSMEs to pass on these rising input costs. As part of the Budget, the Government has extended the term of the ECLGS with an additional corpus of ₹50,000 crores, and capped the surcharge from LTCG at 15%. More importantly, MSMEs are now permitted to use surety bonds, which has lowered barriers to access credit.

In this context, we welcome the RBI’s decision to maintain an accommodative stance with regards to the repo rate. A lower interest rate on loans will not only will it mean cheaper access to credit for MSMEs, it will also allow consumers to make larger purchases. These initiatives will enable MSMEs to invest their working capital for business requirements and growth, and not bridge credit deficits.”