The business confidence of small and medium enterprises (SMEs) has declined for the July-September quarter due to high inflation and fears of a further hike in interest rates by the RBI, industry body CII has said.
The Business Confidence Index (BCI) of SMEs for the second quarter stood at 57.2, a decline of 4.9 points vis-a-vis the April-June period, CII said.
"Inflation and rising interest rates have certainly affected the way MSME sentiments regarding credit availability for capacity expansion and credit cost," CII said.
The Reserve Bank is scheduled to undertake a quarterly review of the credit policy on July 26, when it may undertake a rate hike of 25 basis points.
The central bank has hiked interest rates by 250 basis points since March, 2010, in ten tranches in its bid to curb inflationary pressure.
Overall inflation rose to 9.44% in June from 9.06% in May, while weekly food inflation rose to 8.31% for the week ended July 2, as against 7.61% in the previous week.
Within the confidence index, respondents expected the services sector to outperform the industrial sector. The BCI for services stood at 61.3 for the July-September period, compared to 53.1 for the industrial sector.
The CII also indicated that discontinuation of the tax rebate scheme Duty Entitlement Passbook (DEPB) Scheme from October 1 will make exports uncompetitive.
In this regard, the chamber urged the government for continuation of the scheme till an alternative is put in place.
Under the scheme, exporters are given a refund of tax incidence on the import content of their export products. The 14-year-old scheme is the most popular among exporters, especially in the engineering and automobile sectors.
The MSMEs provide employment to about 6 crore persons through 2.6 crore enterprises.
