Decreased Business Confidence Among SMEs with Rise in RBI Interest Rates – CII

A CII survey reported that the business confidence of the small and medium enterprises (SMEs) in India declined in the April-June quarter of 2011. The reason was found to be the rise in interest rates by the Reserve Bank of India (RBI). It was decreased by 1.4 points among the SMEs in services sector. This was, however, found to be a lesser decline as the business confidence for SMEs in industrial sector decreased by 4.8 points.

The business confidence for the SMEs for the current quarter (April-June 2011) is estimated at 62.1 with the decline of 3.1 points over the last quarter (January-March 2011). The Indian SME sector struggled with the inflation and interest rates. Furthermore, the key lending and borrowing rates are expected to be increased by the Reserve Bank of India. This would make funds more costly to the industry.

Also, since March 2010, the Central bank of India also increased the repo (short-term lending) and reverse repo (borrowing) rates 8 times to demand of fighting inflation. Headline inflation was 8.98 per cent in March this year. Whereas, the food inflation was 8.76 per cent for the week ended April 16. With these reasons, there has been a decline in the business confidence of Indian SMEs.

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