k c chakrabarty : bank credit to micro, small and medium enterprises ( msmes ) – present status and way forward address by dr k c chakrabarty, deputy governor of the reserve bank of india, at the formal release of the india micro, small and medium enterprises report 2010 of the institute of small enterprises and development ( ised ), kochi, 21 may 2010. assistance provided by smt l vadera in preparation of this address is gratefully acknowledged. * * * 1. dr p m mathew, director, ised, dr k n kabra, chairman, ised, shri t o sooraj, director, industries and commerce, government of kerala, dr yerram raju, senior fellow, ised, senior bankers, msme entrepreneurs, other distinguished guests, ladies and gentlemen. i am indeed very happy to be in your midst today for the release of the 13th issue of the india, micro, small and medium enterprises report series of your institute. the msmes, given their limitations and constraints need professional support, to analyze their own environment, articulate their needs and understand the impact of policies that get shaped there from. i am glad that the institute is endeavouring to provide this support. 2. in a nation ’ s economy, it ’ s the small and micro enterprises which play a vital role. for, they not only give employment to a large number of unskilled and semi - skilled people but also support bigger industries by supplying raw material, basic goods, finished parts and components, etc. the critical role and place of the msme sector in the indian economy in employment generation, exports and economic empowerment of a vast section of the population is well known. there are about 2. 6 crore enterprises in this sector. the sector accounts for 45 per cent of the manufactured output and 8 per cent of the gross domestic product ( gdp ). msmes contributed close to 40 per cent of all exports from the country and employ nearly 6 crore people which is next only to the agricultural sector. msme is the best vehicle for inclusive growth, to create local demand and consumption. msmes cater to niche markets. the msmes of yesterday are the large corporates of today and could be mncs of tomorrow. thus the banks and other agencies should take pride while servicing the msmes as they are playing an instrumental role in the formation of mncs of tomorrow. 3. it was, therefore, only appropriate that the government of india enacted the

fully to economic and financial news. over the coming years, such news could span a wide variety of topics, such as central bank policy in this country and abroad, the ongoing debate over fiscal policy, and the evolution of expectations for the longer - run neutral rate of interest. that said, we do seek to mitigate the risk that our operational actions contribute to unnecessary surprise, disruption, or volatility. there is of course always a risk that events could unfold differently from expectations. in particular, central banks have had little direct experience with the impact of such a reduction in holdings of domestic securities and in reserves. one relevant experience, of course, was the socalled “ taper tantrum, ” in 2013 which showed that markets can have outsized reactions to changes in balance sheet policy even before they happen. more generally, experience with asset purchase programs, both here and abroad, clearly demonstrates that market volatility can ensue from balance sheet policy changes that market participants perceive as surprising, unclear, or rapid, or are not adequately distinguished from short - term interest rate policy intentions. all of this indicates to me that, at policy turning points like these, central banks should carefully and clearly communicate their intentions, provide as much transparency as possible, focus on one tool at a time, and make transitions in policy implementation as slowly as overall macroeconomic policy objectives permit. 4 the rest of my remarks will go as follows. first, i ’ ll provide an in - a - nutshell summary of the structure of the federal reserve ’ s balance sheet. then, i will discuss why it is important that the decline in the balance sheet be gradual and predictable, and explain how the fomc ’ s plan provides this gradualism and predictability. i will then talk briefly about how the federal reserve is ensuring it is prepared for unexpected developments. we will then open things up for questions you may have. the fed ’ s balance sheet, in a nutshell let ’ s begin by reviewing, at a high level, where the fed ’ s balance sheet is today. panel 1 shows a summary of the fed ’ s assets and liabilities, as they are today. substantially all of the $ 4. 5 trillion of assets consist of treasuries and agency mbs. on the other side of the balance sheet, the federal reserve has three main categories of liabilities : $ 2. 6 trillion of bank reserves and other deposits, $ 1. 5 trillion of paper currency,