Small and micro industries respond to interest rates just as promptly as large industries do. That is expected. Half of all loans to the sector come from the banking channels, as shown by figures from the ministry of small-scale and micro enterprises. Even more interesting is that almost half of the incremental credit for the sector comes from external funding. This includes private equity and venture capital. Micro finance institutions too are equally keenly rate sensitive.
So one should expect a rather interested look from the parties on how the interest rates would move. It would also seem that in a field where the parties are unable to rustle up adequate level of resonance on issues to engage the voters, this should do the trick as each cluster is potentially a massive vote bank.
The other topic that engages small industry as well is the exchange rate. The corpus of loans from overseas markets contracted dramatically as the rupee dipped badly against the US dollar and most other major currencies. It has been among the worst performers in the Asian zone in 2008 and till now in 2009. Yet the connect between the parties on the rupee debate has again been dismal, so far. While there have been vigorous calls to protect exporters, the role of the currency has not been appreciated at all.
The only issue that seems to resonate well at all times is inflation. Parties have for long used the bogey of inflation to score against ruling formations. But it would surprise them this time to find out that collapsing inflation is not a happy phenomenon for manufacturers, big or small. The fall means that prices of products would have to be cut down, cutting back on employment and resulting in consequent social disturbances. It also means the demand for their products is unlikely to pick up any time soon. Just as real estate companies have sensed, in a deflationary spiral, cutting back on prices does not push up demand; the workers and small time entrepreneurs in hinterland India too are arriving at the same realisation.
... contd.
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