In the last few months, Neetee Clothing, a small manufacturer and exporter of fashion apparel based in Gurgaon, has cut back its working capital loan from its bank by a whopping 80 percent as India’s central bank has hiked interest rates twice since May in an effort to tame soaring inflation.
While the company is dipping into its cash reserves for now, managing director Animesh Saxena told Al Jazeera he is worried that that may not be a sustainable strategy in the months ahead when the peak season for his business kicks in.
“We are worried about the peak season again, which is October-November, when we will have to buy a lot of raw material and by the time shipping happens and payment starts coming there is a delay of four to five months,” he said.
Saxena is not alone. Rapid hikes in loan rates in India are prompting many medium, small and micro-businesses (MSMEs) across the country to cut back their dependence on institutional loans as they are unable to bear the increased interest cost.
That is the latest challenges to these companies, which, for the past couple of years have already seen their profit margins shrink with a rise in raw materials costs and a slowdown in demand on the back of the pandemic and the Ukraine-Russia war.
Credit: Aljazeera.com
