Ludhiana: The Reserve Bank of India’s decision to raise the policy repo rate by 25 basis points to 5.5% has raised concerns among businesses, particularly micro, small and medium enterprises (MSMEs) and exporters, over higher borrowing costs. According to them, this comes at a time when the industry is already facing multiple challenges.Industry representatives said the rate hike could increase financial burden on businesses and consumers, while affecting working capital availability and fresh investment.Federation of Indian Export Organisations (FIEO) president SC Ralhan said monetary tightening could constrain working capital availability for export-oriented businesses.“Exporters are currently operating in an exceptionally uncertain global environment. Geopolitical tensions, volatile energy prices, supply-chain disruptions, longer transit times and delays in payments are extending the export working-capital cycle,” he said.Ralhan said RBI should provide greater flexibility in export finance by extending the period of pre-shipment and post-shipment export credit from the existing 270 days to 450 days.He said longer shipping and transit periods, logistical disruptions and delays in the realisation of export proceeds had considerably extended the working-capital cycle for exporters. Such an extension would provide exporters with much-needed breathing space and enable them to meet international commitments without facing undue financial stress, he said.Badish Jindal, president of the Federation of Punjab Small Industries Associations (FOPSIA), said the govt must immediately review the impact of the rate hike on MSMEs, middle-class families and economically weaker sections.He said higher interest rates would raise the cost of borrowing for industries, businesses and consumers. He pointed out that the rate increase had come at a particularly sensitive time as the country was entering the festive season.Higher interest rates during this crucial period could push up EMIs on home and vehicle loans, besides increasing the cost of MSME loans and working capital facilities, which might impact consumer spending.A slowdown in consumer spending could, in turn, adversely affect manufacturing, trade and employment, he added.Former CII Ludhiana chapter chairman Ashpreet Singh Sahni said the rate hike would add to the challenges faced by the industry.“The industry is already dealing with extended shipment timelines and elevated raw material costs. In such a situation, higher borrowing costs will further increase the pressure on businesses,” he said.Box: What is Repo Rate?The repo rate is the interest rate at which the Reserve Bank of India lends money to commercial banks. It is one of the RBI’s key tools for influencing borrowing costs and controlling inflation. When the RBI raises repo rate, borrowing generally becomes more expensive for banks, which can pass on higher interest costs to businesses and consumers. This can dampen borrowing and spending. When the repo rate is lowered, borrowing generally becomes cheaper, potentially encouraging businesses and consumers to take loans and spend or invest more. The RBI has raised the repo rate by 25 basis points to 5.50% in the latest move.What the hike means– Repo rate: 5.50%– Hike: 25 basis points (0.25 percentage point)– Likely impact: Higher borrowing costs for banks and, potentially, businesses and consumers– MSMEs: Costlier loans and working-capital facilities– Consumers: Potential increase in EMIs on floating-rate loans– Exporters: Greater pressure on working capital amid longer payment and shipping cyclesBox: Why MSMEs are worried– Higher cost of loans– Costlier working capital– Pressure on cash flows– Potential delay in fresh investment– Possible impact on production and employment– Festive-season demand could be affected if consumer borrowing becomes costlierBox: How rate hike can affect consumersA higher policy rate can increase the cost of borrowing, particularly for loans linked to floating interest rates. Home and vehicle loan EMIs could rise, potentially leaving households with less money for discretionary spendingBox: Challenges faced by industry– Geopolitical tensions– Volatile energy prices– Supply-chain disruptions– Longer shipping/transit times– Delayed export payments– Elevated raw-material costs– Extended shipment timelines
