New Delhi: The Finance Ministry is set to hold a review meeting on Monday with public sector banks (PSBs) to assess the adverse impact due the 50 per cent tariff hike imposed by the US on the micro, small, and medium enterprises (MSME) sector and take stock of their credit requirements, a senior official confirmed.
The objective of the meeting, to be chaired by Department of Financial Services (DFS) Secretary M Nagaraju, is to understand how external trade pressures are affecting MSMEs and to ensure that adequate credit support continues under existing government initiatives. The high-level meeting will review the flow of funds through financial inclusion initiatives such as MUDRA and credit guarantee schemes of the government.
MSMEs in the engineering sector had recently met RBI Governor Sanjay Malhotra to highlight the vulnerability of the sector in the wake of recent US tariffs and sought assistance in reducing borrowing costs for exporters. "India’s engineering exports to the USA average around $20 billion, which constitutes approximately 45 per cent of the total exports from India that are exposed to US tariffs.
This underscores the vulnerability of our sector and the urgent need for government support. To mitigate this loss, the industry needs urgent government intervention in certain areas," according to EEPC India chairman Pankaj Chadha. Chadha also flagged the challenges faced by MSME exporters regarding collateral-free loans for export financing. MSMEs continue to face difficulties when seeking finance from banks and financial institutions, where high collateral requirements persist.
Additionally, the credit rating system used by banks to determine collateral and interest rates disproportionately affects MSMEs. As a result, MSMEs end up paying higher interest rates besides providing substantial collateral, he added. said. The EEPC India chairman also noted that the US exposure of engineering exporters has impacted their credit rating and suggested that rating agencies should not consider US exposure when calculating credit ratings, at least for this year.
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