Slowdown in capital goods hits SMEs: RBI | SupportBiz

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Slowdown in capital goods hits SMEs: RBI

The small and medium enterprises (SMEs) have been severely affected by the slowdown in the capital goods industry’s order book position, which has happened due to decrease in inventory levels resulting in production cuts and staff lay-off, said the Reserve Bank of India at its advisory committee meeting.

The minutes of the meeting of the Technical Advisory Committee (TAC) of India’s apex bank on Monetary Policy, held on October 23 read, “Members were unanimous that growth impulses in the Indian economy were weakening, especially in the industrial and services sectors. In particular, the capital goods industry’s order book position has stalled with inventory levels having come down and along with production cuts, staff lay-off have also started. Small and medium enterprises (SMEs) have been severely affected.”

The meeting was chaired by Dr. Raghuram G. Rajan, Governor, in the presence of Dr. Urjit R. Patel (Vice-Chairman), Dr. K.C. Chakrabarty, Shri Anand Sinha and Shri Harun R. Khan, Deputy Governors; Dr. Shankar Acharya, Prof. Ashima Goyal, Deepak Mohanty, Dr. Michael D. Patra, and so on.

In the meeting, the members felt that the overall global economic outlook is tilted towards the downside. However, weaker global recovery is unlikely to translate into softening of international commodity prices, including oil. While activity in the second half of 2013-14 could be a little better than in the first half, Members believed that the overall momentum of growth would be low. Some Members were of the view that the risk of slippage on the fiscal deficit remains, while others felt that the government might contain the deficit to committed levels by cutting down expenditure, but this could have an adverse impact on growth.

Some members said that, aggressive expansion of the service tax net has kept services price inflation elevated. Wages have over-corrected since nominal rural wage growth has been faster than food price inflation. Other members believed that, despite being a good year for agricultural production, food price pressures might persist due to increases in the minimum support price, excess procurement and large stocks. The beneficial impact of a good monsoon on food inflation, especially on fruits and vegetables, was so far not in evidence; any positive impact might get offset by real wage growth.

On monetary policy measures, all members unanimously wanted to restore symmetry in the policy corridor - with the MSF rate at 100 basis points above the policy repo rate. Expressing concerns on inflation as also on the external front, four members supported raising the repo rate by 25 basis points while bringing down the MSF rate by the same amount. The members also emphasised the need to ease access to working capital loans for SMEs so as to support exports, in particular, and growth, in general.