New Delhi, Nov 16 (KNN) There should be a key source of funds for micro, small and medium enterprises (MSMEs), as small businesses are the lifeline of the country’s economy, said S Gurumurthy, RBI board member while delivering a lecture at the Vivekananda International Foundation. 

He added that in-spite of MSMEs accounting half of the country’s economic output and 90% of employment and 70% of exports; the sector is starving due to lack of funds.

Ahead of the Reserve Bank of India’s board meeting on Monday, he asserted that almost 50% of economy is starved of money.

He mentioned that a key challenge today is access to credit for small businesses, which play a crucial role in the economy.

He said that all listed companies contribute only 5% of India’s economic output. All unlisted and listed entities put together account for only 15% of the country’s gross domestic product (GDP).

“Once money is released to this sector, growth rate, consumption, and investment will pick up because it is a bottom-up economy. A new thinking is needed. We have to be rooted on the ground,” said Gurumurthy.

Rules that limit access to finance for small businesses will have serious implications for the Indian economy, he said.

Imposition of tight provisioning norms for bad loans in one go created problem for the banking system, said Gurumurthy.

Gurumurthy asserted that India should not go beyond what has been prescribed in the Basel capital adequacy norms.

“Indian banks have less money to lend. Some people say IMF feels happy if we have 9% capital. We don’t have original thinking today,” he said. “In Japan, for the internationally active banks, capital norm is 8% and for domestic banks, it is 4%. In India, it is 9% for both,” he pointed out.

Gurumurthy said the stand-off between the RBI and government “is not a happy thing at all.”

He said, “Some policy has to be worked out. As far as my understanding goes, the government is asking for formulation of a policy as to how much reserve the central bank must have. Most central banks do not have reserves of this kind at all.”

Gurumurthy also backed the government’s stance on issue of improving liquidity for non-banking finance companies.