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Journalism of Courage
Reserve Bank of India figures reveal that credit growth for the micro,small and medium enterprises from the banking sector slowed to 10 per cent for the last financial year. This growth rate is far slower than the rate of credit growth for all sectors. Which means that this omnibus sector,ranging from enterprises with a capital of Rs 5 lakh to those with Rs 10 crore,and employing most of Indias organised sector labour,is starving for capital. The data from the RBI also shows that 93 per cent of this sector does not have access to any bank finance. Since most of them cannot access the equity markets,borrowings remain their only option to raise finance.
The RBI analysis is also candid about the fact that for the miniscule section of small enterprises that gets bank finance,prime lending rates start at 16 per cent. In other words,they have to generate returns of at least 20 per cent or more to service their loans. With such a high cost of capital,it is obvious the units regularly make the choice to either bleed their labour or their capital instead of attempting a fresh loan,even when they want one. The way out is to either fall back on the moneylenders market to survive or tap the banks only for working capital needs. From both directions,the high cost of capital asphyxiates the sector. This is one of the reasons why the growth in the industrial sector has come down to a mere 0.4 per cent in the current fiscal.
