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2011-01-18

Interest rates hit MSMEs

Confidence of the Micro, Small and Medium, Enterprises (MSMEs) about their business outlook for the January - March quarter has slipped, on fear of rising input costs and interest rates in the coming

Confidence of the Micro, Small and Medium, Enterprises (MSMEs) about their business outlook for the January - March quarter has slipped, on fear of rising input costs and interest rates in the coming months, according to a new survey conducted by the Confederation of Indian Industries (CII).

The CII MSME survey, which shows the confidence index slipping 1.8 points to 65.2 points from 67 points for the previous quarter October-December 2010, says, "Persistent and high inflation is going to adversely affect the raw materials and other commodities that are to be used by MSMEs. Additional impact would be that the increasing input costs are also going to eat into the net profit margins of MSMEs."  

The survey adds that interest rates are also expected to stiffen up in the coming quarter, which is going to adversely affect the credit cost and the credit availability for proposed/planned capacity expansion of the MSMEs.

In addition, the survey reveals that the MSMEs are concerned over credit cost and credit availability for working capital during the current quarter. Also, Inventory levels have shown a decline of 5.5 points against the previous quarter, with the current value being 55.2 points. Surprisingly, however, the survey shows that MSME units are optimistic about their gross sales for the January - March period, which, according to CII Director General, Chandrajit Banerjee, on account of domestic demand.  

"Given the optimistic outlook in gross sales it is hardly surprising that selling prices and new orders/contracts are reflecting an upward trend over the previous quarter. The much expected and awaited notification about the Procurement policy, may also be a reason for buoyancy expected in the gross sales," Banerjee said.

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