Credit and finance for MSMEs: Over 300 SME and large units across major sectors in the latest quarterly survey on manufacturing by industry body FICCI on Monday have suggested more credit to SMEs and interest rate caps among measures required for manufacturing growth. For instance, respondents in the metal and metal products sector asked for “more credit availability to the MSME sector through rate of interest caps on MSME loans, extension of moratorium for ECLGS loans of MSME sector, reduction in compliances for MSME sector, thereby enhancing ease and cost of doing business.”
On average, the metal and metal products sector reported interest rate close to 8.6 per cent per annum while 54.5 per cent of respondents reported an increase in lending rates because of the increase in repo rates in the last few months with an average increase of around 0.4 per cent in the rates.
Likewise, manufacturers of capital goods, chemicals and fertilizers, machine tools, and textiles also called for affordable credit access at lower interest rates to SMEs to enhance their production capacity, according to the survey that assessed the sentiments of manufacturers for the second quarter ended September of the current fiscal across 10 key sectors including automotive & auto components, cement, electronics, paper products, and miscellaneous.
However, the average interest rate paid by manufacturers decreased to 8.37 per cent per annum as against 9.3 per cent during the last quarter while on the other hand, the cost of production as a percentage of sales for manufacturers increased for 94 per cent of respondents in Q2.
Reduced availability and high raw material prices especially that of steel, increased transportation, logistics and freight cost, and rise in the prices of crude oil and fuel were the main contributors to the increasing cost of production, the survey added. Other factors responsible for escalating production costs included enhanced labour costs, high cost of carrying inventory, and fluctuation in the foreign exchange rate.
Even as the cost of production jumped for a number of manufacturers, 61 per cent of respondents reported higher production levels in Q2 with an average expectation of an increase in production by over 14.86 per cent. “This is significantly more than the percentage of respondents experiencing higher growth in Q2 of last few years including pre-covid years too.”
In terms of workforce availability, which became a major challenge during Covid, 81 per cent of respondents mentioned that they do not have any issues with labour availability. The outlook for exports was also positive as over 42 per cent of respondents said they expect a high increase in exports in Q2 vis-a-vis Q2 of FY22.