Keep MSMEs outside base rate regime, ASSOCHAM to RBI

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SME Times News Bureau | 07 Apr, 2010
The Reserve Bank of India should keep the country's micro, small and medium enterprise (MSME) sector outside its proposed base rate regime which will be the new benchmark lending rate for banks from July 1, the Associated Chambers of Commerce and Industry urged the central bank on Tuesday.

Keeping MSMEs outside base rate regime would enable this sector access liquidity at relaxed rates since making BS rate regime applicable on such industries would erode their competitive edge, said ASSOCHAM.

While interacting with RBI Governor D Subbarao at a meeting of Indian industry for framing it’s forthcoming Monetary Policy at Mumbai on Tuesday, ASSOCHAM President Swati Piramal stressed that proposed base rate regime shouldn’t be applicable to MSMEs sector.

The RBI intends to bring in base rate regime in vogue from 1 July 2010 to ensure uniformity of lending rates from commercial banks to industry but if it is made applicable to MSME sector, it will stop enjoying benefits of relaxed rates of interest from banking institutions.

In addition, the industry chamber has proposed that the present criteria of investment in plant and machinery to determine status of micro, small and medium enterprises be raised respectively to Rs.50 lakh, Rs. 7.5 crore and Rs.15 crore for manufacturing sector.

Currently investment ceiling in case of micro industries engaged in manufacturing is pegged at Rs.25 lakh as against Rs. 5 crores for small industries and Rs.10 crores for medium enterprises. These ceilings were fixed way back in 2004 and now need revision, feel the industry body.

As regards to increase ceiling of investment in plant and machinery to determine status of micro, small and medium enterprises, Pirmal pointed out that in view of huge inflation in last 4-5 years, limits fixed are not in consonance with present price levels for similar scale of operations.

Piramal also urged that banks should provide capital market service to investors in order to widen the market from present 16 million investor base to at least 100 mn investor base. This will allow more corporate houses to raise capital and also enable for greater wealth distribution across the country.

Secondly, bank limit for holding Open interest in Exchange traded currency futures market should be increased from present $100 million to $250 million and banks should provide more services to their client through the Exchange traded market, ASSOCHAM argued. .

In addition, the chamber stressed that existing policy rates should continue without any upside move as this will impact growth momentum. According to ASSOCHAM, growth in Index of Industrial Production numbers do not reflect uniform growth across sector.

The ASSOCHAM has pointed out that External Commercial Borrowings (ECB) rules should be further relaxed and the government should consider doing away with the minimum average maturity period of 7 Years for debt instruments.