"From the demand side, higher interest rates means a reduction in the number of SMEs to reduce their loans or bank loans. This will have a huge impact on the production and growth in this sector," President Chandrakant Salunkhe SME division warned.
After the monetary policy in the first quarter on July 26, when the bankers said that the Reserve Bank had already seen that the MSME sector, said the funds and warned that it would only increase in coming quarters.
Salunkhe said the industry had expected only about 14% growth in the flow of credit to this sector of the tax. Last fiscal, credit, removal of the MSME sector grew by 17% in RS 4,27,950 crore.
"This year, we see that the flow of funds declined again last year to about 14% of Rs 5,13,550 crore," Salunkhe said.
With the Apex Bank increased interest rates, banks tend to increase interest rates and forward it to the client, making a strong impact on MSME sector, which is extremely sensitive to rising interest rates, he said.
The industry recently prepared by ASSOCHAM said that the sharp 20% drop in profits and a reduction MSME players more than 24% of their production so far this tax, because interest rates forced them from the use of reserves fresh bank lending banks they have developed cold feet in the wake of a growing sector in the default values.
Salunkhe said that the depletion of funds will impact the overall development of the sector, which contributes about 17% of GDP, employs 60 million, generates 1.3 million jobs per year and contributes 45% manufacturing output and 40% of total exports.