Credit and finance for MSMEs: Industry body FICCI’s latest quarterly (Q1 FY24) survey on manufacturing on Monday drawing responses from over 400 manufacturing units across nine major sectors proposed the need for easy and affordable credit access for micro, small and medium enterprises (MSMEs).
For further growth of sectors particularly capital goods and construction equipment, electronics and white goods, machine tools, metal and metal products, the survey called for cheaper availability of finance for manufacturers including providing working capital loans to MSMEs at lower interest rates.
“Currently banks are hesitant to implement Govt. scheme of CGTSME and no bank is willing to give credit under CGTSME scheme,” the survey said among suggestions to boost the growth of the electronics and white goods sector.
The average interest rate paid by manufacturers remained more and less the same as last quarter at a little over 9 per cent and the highest rate at which credit has been raised was 16 per cent per annum.
It also suggested an extension of the moratorium for Emergency Credit Line Guarantee Scheme (ECLGS) loans of the MSME sector and a reduction in compliances for MSMEs for enhancing ease and reducing the cost of doing business.
The survey drew responses from large units and SMEs in automotive & auto components, capital goods & construction equipment, cement, chemicals fertilizers and pharmaceuticals, electronics & white goods, machine tools, metal & metal products, textiles, apparel & technical textiles, toys & handicrafts and miscellaneous.
Importantly, after experiencing revival of Indian economy in the FY22, momentum of growth continued for the subsequent quarters of FY23 as well with 55 per cent of the respondents reported higher production levels in the Q4 of FY23, the survey noted.
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Further, over 57 per cent of the respondents expected a higher level of production in Q1 FY24 with an average increase in production in single digits. This assessment was also reflective in order books as 58 per cent of the respondents in Q1 have had a higher number of orders and demand conditions continued to be optimistic in Q2 as well.
However, high raw material prices, increased cost of finance, cumbersome regulations and clearances, high logistics cost due to high fuel prices, low global demand, high volume of cheap imports into India, shortage of skilled labour, highly volatile prices of certain metals etc. and other supply chain disruptions were some of the major constraints affecting expansion plans of the respondents, the survey said.
As a result, there seemed to be an upward trend in the cost pressures on manufacturers in Q1 FY24. “The cost of production as a percentage of sales for manufacturers in the survey has risen for 77 per cent of respondents, which was higher than 73 per cent as reported in the survey for the previous quarter.”