Micro, small and medium enterprises (MSMEs) in Tamil Nadu have raised concerns that the Reserve Bank of India’s (RBI) 25-basis-point increase in the repo rate to 5.50 per cent could raise borrowing costs, pressure cash flows and affect investment and export competitiveness. Entrepreneurs from Chennai, Coimbatore, Madurai and Tiruchy said the decision came when businesses were already dealing with elevated raw material and operating expenses.

Tamil Nadu All Entrepreneurs Federation state general secretary M Jayabal said higher industrial loan rates could weaken manufacturers’ ability to compete with China and the US in global markets. S Surulivel, coordinator of the Federation of Coimbatore Industrial Associations, said industrial loans were already attracting interest of around 10 per cent and that a further increase could slow the sector’s growth.

The Tamil Nadu Small and Tiny Industries Association has asked Union finance minister Nirmala Sitharaman to ensure that the repo rate increase does not lead to higher interest rates on MSME loans. In a letter to the minister, the association sought stable and affordable credit, along with a special support scheme to address the increase in raw material costs linked to the West Asia crisis.

Industry representatives said the higher rate would increase working-capital costs for businesses dependent on bank finance. They noted that MSMEs typically borrow to purchase raw materials and fund daily operations, while customer payments may arrive only after 30 to 90 days, making the financing gap more expensive to bridge. Exporters, they added, had limited ability to pass higher financial costs on to overseas buyers.

Rajappa Rajkumar, treasurer of the Tamil Nadu Boiler and Boiler Components Manufacturers Association, said the decision could affect MSME vendors supplying Bharat Heavy Electricals (BHEL) in Tiruchy, particularly those dealing with non-performing asset-related difficulties. He called for affordable working capital and targeted liquidity support for exporters. R Damodharan, secretary of the South India Hosiery Manufacturers Association, said the rate increase would add to the burden on the garment sector as the festive season begins.