Stressing that small and medium enterprises (SMEs) are the biggest victims of high borrowing costs, commerce and industry minister Nirmala Sitharaman on Wednesday favoured a cut in the benchmark lending rate by as much as 200 basis points and called for the need for a fresh approach on lending to SMEs. Sitharaman’s suggestion comes close on the heels of the government choosing Urjit Patel, who is considered an inflation hawk by analysts, as the next Reserve Bank of India governor.
“I still hold that the cost of credit in India is high. SMEs, which create a lot of jobs and contribute to exports, are all hard-pressed for funds. And for them, approaching a bank is no solution because of the prevailing rate of interest. I would recommend a 200-bps cut, and I have no hesitation to say this,” Sitharaman said. She, however, didn’t give any time frame for her demand for the sharp reduction in interest rates.
Citing inflationary pressure, the central bank has retained the repo rate at 6.5% since April. For the first time, a monetary policy committee is scheduled to hold the policy review on October 4 under a formal inflation targeting framework. The minister, however, acknowledged the fact that even when the RBI lowered the rates, the cut hasn’t been transmitted by banks to customers entirely. While the RBI has trimmed the repo rate by 150 bps since January last year, base lending rates of banks have come down by only about 60 basis points.
Speaking at the Idea Exchange programme of the Indian Express Group, Sitharaman also said she would hold talks with the finance ministry on this issue, and that the “approach to credit facility being provided to SMEs also needs to be looked into afresh”.
The minister also said the government has decided to set up a grievance redressal mechanism online, akin to the “#mociseva” that the ministry already has, to look into complaints against e-commerce players like Amazon, Flipkart or Snapdeal. The latest mechanism will see the involvement of other departments, mainly consumer affairs.
Foreign direct investment rules announced in March bar any e-commerce player running a market place model from “directly or indirectly” influencing the sale price of goods or services. She, however, added that at this stage, a case for violation of FDI rules by them is yet to be established.
The move came following complaints by associations representing brick-and-mortar stores that e-retailers are giving advertisements in media announcing mega sales. These offline retailers also complain that e-commerce players operating a marketplace model are offering discounts and, thus, violating the FDI rules. There are also allegations that e-commerce players are routing discounts through manufacturers or vendors on their platforms to bypass the FDI rule.
The minister said her ministry recently convened a meeting, which was attended by officials with the enforcement directorate, NITI Aayog, consumer affairs and the department of industrial policy and promotion. People can raise their issues on this online platform and the ministry’s team along with the officials of the consumer affairs would respond to those complaints. E-commerce players have been asked to depute at least one official to handle the queries posed to them.
“Some companies responded that they are not giving those discounts. They say they still have a marketplace model, and the vendors whose products are coming on their platform are giving that,” she said.