The business confidence of small and medium enterprises ...

The hindu businessline

18 July, 2011

SMEs’ biz confidence index down 4.9% in Q2

The business confidence of small and medium enterprises (SMEs) has declined for the July-September quarter due to high inflation and fears of a further hike in interest rates by the RBI, industry body CII has said.

The Business Confidence Index (BCI) of SMEs for the second quarter stood at 57.2, a decline of 4.9 points vis-a-vis the April-June period, it said.

“Inflation and rising interest rates have certainly affected the way MSME sentiments regarding credit availability for capacity expansion and credit cost,” CII said.

The Reserve Bank of India is scheduled to undertake a quarterly review of the credit policy on July 26, when it may undertake a rate hike of 25 basis points.

The central bank has hiked interest rates by 250 basis points since March 2010 in 10 tranches to curb inflationary pressure.

Overall inflation rose to 9.44 per cent in June from 9.06 per cent in May, while weekly food inflation rose to 8.31 per cent for the week ended July 2 against 7.61 per cent in the previous week.

Within the confidence index, respondents expected the services sector to outperform the industrial sector. The BCI for services stood at 61.3 during July-September compared with 53.1 for the industrial sector.

The industry chamber also indicated that discontinuation of the Duty Entitlement Passbook (DEPB) Scheme from October 1 will make exports uncompetitive.

In this regard, the chamber urged the Government to continue with the tax rebate scheme till an alternative is put in place.

Under the scheme, exporters are given a refund of tax incidence on the import content of their export products. The 14-year-old scheme is the most popular among exporters, especially in the engineering and automobile sectors.

The MSMEs provide employment to about six crore persons through 2.6 crore enterprises.