High inflation and rising fear that the Reserve Bank may further hike key rates making borrowing costlier for the industry has dented the confidence of MSMEs.
The CII Business Confidence Index (BCI) for MSMEs for the second quarter stood at 57.2 points which represents a decline of 4.9 points from the previous April-June quarter and a decline of 8.4 percentage points on a (Y-o-Y) basis.
This decline represents the biggest (and sharp) decline in the last 12 months, that the index has suffered, CII said.
The industry body added that the fall in MSME confidence is attributable to continuous and persistently high inflation and the anticipation that the interest rates may be further hiked by the Central bank.
Other issues such as a credit rating system which does not offer any advantage to the MSMEs as they have to deal with delayed payments which leave their financial options stretched, have also resulted in their confidence spiraling South.
The survey shows that services sector enterprises, on an average are expecting to perform better than their industrial counterparts. BCI value of MSMEs in services stood at 61.3 compared to 53.1 for MSMEs in Industrial sector. Out of 14 mentioned variables, the survey found that services have done better in 13 parameters.