How can the recent rate hikes, to tackle inflation, affect MSME sector? Citing the importance of MSMEs, discuss how India can protect its small businesses?

The inflation in India is on the rise due to various domestic and global factors. The Reserve Bank of India is trying to manage inflation by increasing the interest rates. However, this move by the RBI has raised concerns about its impact on the MSME sector.

Impact on MSMEs:

• The COVID-19 pandemic has hugely affected the MSME sector, but the availability of cheaper loans helped them revive their businesses.
• However, the unavailability of working capital has threatened their survival.
• Those MSME industries, which provide their products to large Enterprises and original equipment manufacturers, have been facing delay in getting their payments.
• The government’s emergency credit line guarantee scheme and to revive pandemic hit industries, mostly benefited large players.

Importance of MSMEs:

• The MSME sector is the backbone of the Indian economy with 7.9 million units across the country.
• It is the largest employment opportunity provider especially in underprivileged areas.
• High job-creation potential with low capital investment.

Way forward:

Given the important role played by the MSMEs in the Indian economy, the government should address these problems on a priority basis. An interest subvention or additional export incentives may be done by the government to help the sector. A healthy MSME sector will help achieve the objectives of inclusive development, employment generation, GDP growth and poverty eradication.

Topics: GS-III: Indian Economy Issues Relating to Planning • GS-III: Changes in Industrial Policy and Their Effects On Industrial Growth