Rising Interest Rates Raise New Risks for Small and Mid-Sized Indian Firms

India’s SMEs Face Uncertain Future as Interest Rates Climb

Imagine your business suddenly costs more to run overnight – that’s the reality for India’s small and mid-sized firms as interest rates rise. For many, it’s a matter of survival.

What’s Happening?

India’s small and medium enterprises (SMEs) are grappling with stress as rising interest rates make borrowing more expensive, squeezing their resources during a crucial growth phase. Economic analysts warn this could lead to job cuts and slower economic expansion. The Reserve Bank of India hints that further hikes may be on the horizon, adding to the uncertainty.

Where Is It Happening?

The impact is being felt across the nation, but regions with high concentrations of SMEs, such as Maharashtra, Tamil Nadu, and Gujarat, are feeling the pinch most acutely.

When Did It Take Place?

The situation escalated this month following the latest interest rate hike, with economists predicting more boosts in the coming quarters.

How Is It Unfolding?

• Lending costs are on the rise, reducing SMEs’ working capital.
• Many firms are struggling to pay back existing loans, with defaults rising.
• Some small businesses have already announced hiring freezes or layoffs.
• Industry groups are calling for government intervention to ease the burden.

Quick Breakdown

• Interest rates have increased by 0.75% over the past year.
• Over 63 million SMEs contribute to 30% of India’s GDP.
• 80% of firms surveyed report rising costs as their top concern.
• Analysts predict a 5% drop in new business registrations by year-end.

Key Takeaways

For many SME owners, rising interest rates are like an unexpected tax – money they simply can’t afford. With job creation already dropping, the SME crisis will ripple through India’s economy, affecting everything from consumer spending to GDP growth. If the central bank continues tightening, the coming months will be make-or-break for thousands of businesses.

This rate hike cycle is coming at the worst possible time for SMEs, which are still recovering from the pandemic.

– Priya Kapoor, Economist at Mumbai Financial Review

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Final Thought

India’s SMEs are the backbone of the economy, and their struggles now could lead to broader economic fallout. Urgent policy measures are needed to prevent a storm from brewing.

Source & Credit: https://www.bloomberg.com/news/articles/2025-08-21/india-market-buzz-rising-yields-may-put-pressure-on-stock-bulls