Home Minister P Chidambaram today said the country was facing only a slowdown and not a recession and the government, along with the Reserve Bank of India (RBI), was planning to announce stimulus packages for the manufacturing industry.
“India is facing a slowdown, with the manufacturing sector facing a sharper slowdown. It is important that we take counter and corrective measures to ensure that demand remains very high. While the government has taken a number of fiscal measures and the RBI monetary measures, perhaps more measures are necessary,” he said.
Chidambaram was speaking after launching a $2-million (around Rs 10 crore) BYST Growth Fund to promote grassroot entrepreneurship in the country.
Chidambaram said about 75 per cent of India’s enterprises were medium, small and micro enterprises (MSMEs) and the sector, which contributes 40 per cent of India’s exports, had a huge growth potential.
He urged Sidbi to scale up lending so that MSMEs get credit with ease. He said some small business failures were bound to happen but that should not deter lending to the segment as the current financial turmoil had proved that failures could happen in big organisations as well.
Chidambaram, who was till recently the country’s finance minister, said the economy suffered a “monetary shock,” following which overseas and non-banking credit “virtually” dried up in the country.
“The entire burden of providing credit has fallen on banks, and within the banking system, a large proportion has fallen on public sector banks,” he said. “Thanks to our policies, our public sector banks are strong, very sound and continue to lend,” he said, adding that lending must be increased to stimulate domestic demand.
“I hope that the Reserve Bank of India and the government can and will work together to ensure there is fiscal stimulus and a supported monetary policy to ensure that the aggregate demand does not fall too much,” he said.
The BYST growth fund, which is a group initiative of IFC, a member of the World Bank, VenturEast, a private equity fund manager, and Bharatiya Yuva Shakti Trust, will provide financing and mentoring to young Indian entrepreneurs who have been deprived of resources and prevented from growth opportunities in the country due lack of easy funds.
Initially, IFC would contribute $7 lakh (Rs 3.5 crore) while state-owned Small Industries and Development Bank of India (SIDBI) will provide Rs 5 crore assistance to the fund. The fund will also have individual contribution including Infosys CEO Krish Gopalakrishnan and Bajaj auto chairman Rahul Bajaj. The fund would augment to $5 million (Rs 25 crore) in the next two years.
Speaking to reporters, Sarath Naru, managing partner of VentureEast, said initially this fund had been launched in Hyderabad and Chennai and would will be expanded all over the country.
The target is to promote 50 entrepreneurs in the next two years. It will provide financing of Rs 5-50 lakh depending on the viability of the business model.
Initially, we have set up this project for two years. Our return on investment would be percentage share in sales and profit, said Naru.
