NEW DELHI (Commodity Online): The prevalent economic condition characterised by rising inflation and resultant rise in interest rates has proved it difficult for Micro, Small and Medium scale enterprises as pointed out by the Business Confidence Index (BCI) developed by Confederation of Indian Industry (CII).
The BCI is expected to fall back towards 62.1 in scale from 0-100 this quarter, and what is more upsetting is that the outlook of the MSMEs has deteriorated 3.1 percent through the last quarter.
According to the survey report, capacity expansion, credit availability and cost of capital, which are most important to this industry, have declined.
Nevertheless, government initiatives through the Budget 2011-2012 to assist the industry are in place. The measures included allocation of 5000 crore of SIDBI and 3000 crores to NABARD for refinancing incremental lending and to help handloom weaver co-operative societies.
Another issue that has come to the attention of the CII is the gap between the services and industrial sectors of MSMEs.
The outlook of services sector was at 65 as opposed to 59.2 of industrial sector, which might call for a policy intervention. Lesser credit availability and higher cost of working capital of industrial MSMEs as compared to that of services sector has also reduced the profit margin of the former.
The CII monitors 14 outlook indicators, out of which only 5 have done well to reach above 70. The rest of the variables tread between 50 and 75. Whereas, input costs fell to 25.1, recording a 3.7 percentage point decline in the index. This displays the effects of inflation on the MSMEs.
It will be interesting to see how the MSMEs will be performing during this quarter with government measures coming into effect.
Additionally, the Comprehensive Economic Partnership Agreement (CEPA) with Japan and the Comprehensive Economic Cooperation Agreement (CECA) with Malaysia is expected expand the scope for the MSMEs.
