The recent hike in rates of diesel and kerosene will again add to the woes of the small and medium enterprises (SMEs) as this will result in high input costs.
Industrial areas, where most of the SMEs are concentrated, face frequent power shortages and diesel is used as an alternative fuel for power generation. It goes without saying that the hike in the fuel price will invariably lead to increase in the production costs. Above that, there will be more inflationary pressure since logistic and transport costs will increase because of this price hike. Undoubtedly, this increase in logistic and transport costs will put SMEs in a more disadvantageous position.
Meanwhile, rising inflation has already taken its toll on SMEs in terms of rise in interest cost, and higher cost of raw materials. Even the country's largest bank, the State Bank of India, has lowered its credit growth projections for the current financial because it sees "clear signs of resistance from borrowers" whose "businesses are becoming unviable."
While the Reserve Bank of India (RBI) is trying to control inflation by raising interest rates, I don't see any impact as the rate of inflation still continues to hover around and above 9 percent. Now the question is 'Is RBI overdoing the rate hikes?' considering the fact that it has raised key rates a record 10 times in the last 15 months.
What surprises me the most is the fact that the current rate of run-away inflation is largely due to supply-side bottlenecks. Mere monetary tightening as displayed by the apex bank cannot bring this rate to a comfortable level.
As such the current situation doesn't speak too well about the growth of the SMEs in the country. Tell us what you think of of the current situation. Are you being able to get loans at an attractive rate? If not, how are you carrying out your expansion plans?
|
