SMEs Badly Hit By High Real Interest Rates, Need RBI, Government Support In Current Scenario: Sanjeev Sanyal

The NDA government’s principal economic advisor and noted economist, Sanjeev Sanyal, has stated that Small and Medium Enterprises (SMEs) are often the worst victims of the structural changes in the Indian economy and in lieu of this, they need adequate support to tide over the challenges, especially in the current economic situation, as reported by BloombergQuint.

He also commented on how real interest rates for Indian SMEs remain extremely high. Real interest rates are arrived at by deducting inflation rates to the nominal (actual) interest rates.

“For a country like us, whose inflation is below 4 per cent, even the sovereign borrows at 400 bps in real terms. SMEs have to borrow at 800 bps. During the period of adjustment, you may have a period where inflation falls, and interest rates don’t fall, but you cannot sustain it for long period of time. Over a period of time, you have to allow adjustment otherwise you will stress the system out. That is something which need to take into account,” the economist noted.

However, there are indeed positive signs with both RBI and the government working to alleviate some of the problems faced by SMEs. In their recently concluded meeting, at government’s insistence, RBI agreed to infuse liquidity to the tune of Rs 8,000 crores into the economy. The central bank also agreed to provide a loan facility of upto Rs 25 crores to restructure the stressed assets of MSMEs.

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