What SMEs expect from the new government

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Bikky Khosla | 25 Mar, 2014
The general election is ahead and a new government is to be formed at the center within a few weeks. What measures do you expect from the next government to promote the small and medium enterprise sector? I asked this question to some entrepreneurs I met recently and almost all of them viewed that high credit cost is the biggest concern for them. While rising input costs are eating up their profits, high costs of borrowing have worsened the situation for them. In this scenario, they feel the new government should make an immediate and arduous effort in this direction.

According to latest data published by the Reserve Bank of India, bank credit grew at 14.65 percent year-on-year to Rs 5,937,249 crore in the fortnight ending March 7, as against Rs 5,178,577 crore in the same period last year. In contrast, deposits stood at Rs 6,657,109 crore during the same period last year. During the previous fortnight ending February 21, deposits grew at 16 per cent year-on-year to Rs 7,605,171 crore while credit grew at 14 per cent year-on-year to Rs 5,861,736 crore. This data clearly shows lack of business opportunities and support the concern of the industry regarding lack of finances.

Although our overseas shipments had witnessed several months of growth before falling for the first time in eight months in February, the exporters are suffering no less due to lack of finances and high borrowing costs. Exporters' association FIEO has repeatedly pointed out the need to take some urgent measures to address this issue. Recently, it has also recommended the RBI to consider providing export credit in foreign currency at LIBOR + rates in the background of the recent decline in exports and rupee's return to a volatile mode. I feel this suggestion is worth consideration.

Besides a solution to high credit costs, what our SMEs have long been asking for is reduced regulatory burden on the sector. Here, what I think most required is political will and efficient administration. In addition, the new government to be in place after the general elections should make every effort to materialize the implementation of the proposed Goods and Services Tax (GST), which alone, if implemented, will make a big difference in drastically lowering the red tape and tariff hurdles the industry has to deal with at present.

Considering the current economic situation and dull global demand, I also hope that the next government would provide some kind of incentives to the manufacturing companies to facilitate their growth. The sector has not been performing well for quite some time now and it requires urgent nourishment. At the same time they should also pay attention to the long-term needs of the sector, particularly in terms of infrastructure and investment. Of course this will take time, but the earlier the process begins the better it is. Roads, ports, distribution channels, power supply, land -- all these must be made available for the sector to keep our economic growth intact in the long-run.

I invite your opinions and suggestions.