Even if you manage the seed money which has got completely consumed in starting the venture, the real problem crops up in arranging the finances for running operations. And in scaling up the venture. Banks are cagey in financing the new business entities. Their rate of interest too is at par personal loan or even higher than that. Arranging finances from private players is like throwing chicken to the cat.
It was thus not surprising when Union Commerce Minister Nirmala Sitaraman criticised banks for lending to SMEs at very high interest rates. She didn’t stop at that. She came down heavily on the banks as “they have not sufficiently understood the problems faced by small and medium enterprises (SMEs), especially those related to high credit costs”.
She advocated an interest cut of at least two percentage points. She was just stating the reality with such straightforwardness rarely seen among ministers and bureaucrats. Obviously, she realises that the high interest rate is crippling the MSME thereby affecting the exports and resulting in a major dip in foreign exchange the country has.
It is a sad commentary in affairs, an apathetic one to put it mildly considering the MSME sector contribute almost half of country’s GDP. There are no less than 5 crore units in their sector and over 12 crore employees. The Sector through more than 6,000 products contributes about 8% to GDP besides 45% to the total manufacturing output and 40% to the exports from the country. The MSME sector has the potential to spread industrial growth across the country and can be a major partner in the process of inclusive growth.
Nobody has an issue if the Government takes measures to provide succour to big corporate houses – be it by waiving off the loan, or rescheduling it or else cutting in the interest rate or giving subsidies. But, for the reasons best known to the powers that be, it’s the MSME sector which is at the is rendered Hugh and dry for finances.
A decent report by the International Finance Corporation (IFC) calculated that the total financing demand gap in the MSME sector is of Rs 293 thousand crores or 2.93 trillion. It can be easily imagined kind of growth this sector will achieve if its financing demand gap is bridged. Right now the sector is growing at a rate of over 9 per cent where as national GDP’s growth rate is around 7 per cent. That means, MSME sector is growth engine of the country. If this engine is provided enough fuel time to time, there is little wonder that it has would have capacity to pulls national GDP to a double digit growth .