Govt. Plans Interest Subsidy for Small & Medium Sector

 The small and medium industry could for the first time get credit at lower rates through an interest subvention scheme which the government is considering for the sector. Small and medium enterprises selling both in the domestic and foreign markets would be eligible for the subsidised loans, according to a commerce department proposal. "The small and medium sector faces the toughest time in accessing credit and they get it at the highest rate. With rising interest rates, there is a need to help them out, "a commerce department official told ET. The department is discussing the proposal with the finance ministry and hopes to get a favourable decision on the issue soon. Large exporters, however, will be kept out of the ambit of the scheme. "Exports have been doing quite well. We do not have a case for extension of the scheme for exporters in general, "the official said. This is the first time that a pitch has been made for subvention for the entire SME sector. The subvention scheme for exporters that lapsed on March 31 covered only SME exporters in addition to export sectors such as carpets, handloom and handicraft. The scheme offered a 2% discount on the interest rate charged by banks. The subvention rate for SMEs could be higher. "Banks give credit to SMEs at rates much higher than what is offered to large producers. We have not yet arrived at the subvention rate that would be offered to SMEs,but we are trying to get them a higher discount, "the official said. According to Anil Bhardwaj of the Federation of Indian Micro, Small and Medium Enterprises, interest rate charged by banks from the SME sector ranges between 13% and 15% while it is between 10% and 11.5% for the rest of the industry. "We not only want subvention, but also access to finance, "he said. Although the SME sector is included in the priority sector lending directive by RBI to banks, it is clubbed with other sectors such as housing that is more attractive for banks. "There should be sublimit mark on priority sector lending to the SME sector clearly earmarking funds, "Bhardwaj said. Small exporters say the sop was long due. "We have been saying for a long time that the sector needed special attention. It is good that the government is trying to do something for them, "said S P Agarwal of the Delhi Exporters Association, a forum of mostly small and medium exporters. Large exporters, however, feel that subvention should be offered to all exporters from labour-intensive sectors to help them fight competition from other countries, including China. "In the last nine months, interest rates have gone up by 61%.If labour-intensive sectors like leather and textile are not given some support, it will be very difficult to fight competition, "Ramu Deora, president, FIEO, said. Under the subvention scheme, banks give credit to the identified sectors at lower interest rates (depending on the rate of subvention) which is later reimbursed by the government.


Economic Times, New Delhi,26-8-11