BANGALORE, INDIA: Increase in interest costs and availability of bank finance along with power costs is expected to impact the profitability of the Indian Micro Small and Medium Enterprises (MSME) sector significantly, according to a recent MSME CEO's snap poll by Confederation of Indian Industry (CII).

The CII poll also ranks high interest rate to be most important obstacle to accessing finance for growth of MSMEs - as revealed by 66 percent of the MSME CEOs.

The other major obstacles to access finance for MSMEs are delayed suppliers' payment as revealed by 46 percent of the CEOs, cumbersome bank paperwork was revealed by 30 percent of the MSMEs and reluctance to lend by banks and strict collateral requirements of banks were the next two obstacles for accessing finance for growth of MSMEs in India.
 
"Cutting interest rates is of paramount importance to enable MSME sector to borrow at competitive rates and hence cut in repo rates by 1 to 1.5 percent will not only help MSMEs manage their increasing costs but also create investment demand in the economy,"said  Chandrajit Banerjee, Director General, CII.
 
According to CII MSME CEO's snap poll, 78 percent of the surveyed respondents are using private equity for alternate source of finance for medium to long term funding, while 21 percent of respondents are using venture capital funds as alternate source to bank finance.
 
Assessing the impact of increased cost on profitability, 35 percent of the MSMEs polled revealed that their profitability would be eroded upto 10 percent during the current year and 41 percent of the respondents feel that their profitability would be impacted upto 25 percent during the current year.
 
Revealing the outlook for the next six months, majority of the CEOs polled do not expect production and exports to decline. On production, 31 percent of the CEOs polled expect production to increase, while an equal number of them expect production to be at the levels of 2007-08. On exports, only 24 percent of them expects exports to decline during the current year and 29 percent of them expect exports to increase which 47 percent of the CEOs expect exports to be at be at the same level as in 2007-08.
 
On employment outlook for the second half of 2008-09, 29 percent of the CEOs expect employment to increase, while 51 percent of them expect no change in status of employment during the second half of the current year.
 
On capacity expansion, 33 percent of the CEOs expect to increase their capacity, while 56 percent of them respondent do not expect to increase their capacities during the second half of 2008-09.