Demonetization, Monetary Policy Review and MSMEs: Experts’ Views

New Delhi, Dec 5 (KNN) The MSME sector, which has been facing the brunt of demonetization directly on its production, credit and labourers, is waiting to hear a good news from the Reserve Bank of India (RBI) in its monetary policy review on December 7, 2016.

Amid the cash shortage and long queues before the ATMs and bank branches, the six-member Monetary Policy Committee (MPC) will start its two-day meeting on Tuesday.

The hopes from the sector and the economists are high from the RBI MPC over reduction in interest rates and improvement in lending to the MSME sector.

Talking to KNN, Manika Premsingh, Economist and Founder of Orbis Economics, said, “RBI has been reducing the interest rate in the recent past. In fact the new governor Urjit Patel, soon after he was appointed, slashed the interest rates which were relatively unexpected.”

She said, “Even in the MPC meeting this time, he is expected to reduce the rates further.

We have seen some reduction in the bank planning rate but it has not been conventional rate with the kind of interest rates we have seen in the RBI interest rate.”

On lending to MSME sector, the renowned economist opined, “It also depends upon how much our MSMEs are willing to borrow at present point of time. So if we look at the credit growth they are showing 6.5 per cent growth which is a declined from over 8 per cent.”

She said this is possibly not only because of the high interest rate but also due to relatively less demand in the system.

Dr. Yerram Raju, Economist and Adviser, MSE Facilitation Council, Government of Telangana, told KNN the lower interest rates will have a positive impact on the MSME sector provided they are passed on to the industry by the banks.

“Presently industries are starved of credit. There is demand for the credit, but banks have no staff to attend the credit queries. They are all busy due to demonetization,” he added.

Abnish  Kumar Sudhanshu, Director & Research Head, Amrapali Aadya Trading & Investments Pvt. Ltd, said, “. Post black currency strike, most awaited and anticipated monetary policy is due on Wednesday, 7th December. We expect RBI to soften its lending rate by 25 basis points, anything above than expected could give boost to the market.”

Now, it is for the industry to wait and watch whether the Policy Review gets some good news for them or not. (KNN Bureau)