Punjab Pradesh Beopar Mandal slams RBI for gradual increase in repo rate

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Amritsar, February 26

Members of the Punjab Pradesh Beopar Mandal (PPBM) slammed the Reverse Bank of India (RBI) for gradually increasing the repo rate and claimed that it was adding to the economic pressure on micro small and medium enterprises (MSMEs). A majority of the units in the city fall under the MSME sector.

Last year, the RBI hiked the repo rate by 0.4 per cent in May, 0.5 per cent in June, 0.5 per cent in August, 0.5 per cent in September, 0.35 per cent in December and 0.25 per cent on February 8 this year. An average increase of 2.50 per cent in the repo rate in the last 10 months, which made the interest rate for MSMEs expensive, is directly affecting the expenditure of MSMEs.

PPBM president Piara Lal Seth said the Centre had reduced or hiked the interest rate in small fractions to escape people’s attention. To equalise the price of diesel with petrol, it had hiked the rate of the former in little proportions. Similarly, the rate of interest on small savings was reduced some years ago.

He said the government claimed that repo rate had been increased to prevent rising inflation, but its opposite effect was being seen on the economy. The situation is resulting in stagnation of economy, rise in unemployment and inflation. On the other hand, consumption is declining, adversely affecting the factory output.

Taking immediate cognizance, the government should give special relief to MSMEs in interest rates so that the pace of industrial activities in the country can accelerate. It is noteworthy that the scheme of two per cent interest subvention proposed to MSMEs should be implemented again, which would prove to be a milestone for the progress of the country.

Deepak Khanna, who is operating an MSME unit, said the decision was casting a bad effect on MSMEs. An increase in the repo rate will require banks to pay more interest, which will make it difficult for enterprises to get loans from banks at a reasonable rate of interest. This would require them to pay more for their businesses to pay more interest. Already due to global recessionary trends, the MSME sector is not receiving enough orders from overseas.