Will the RBI Hold or Cut Again? What India’s MSMEs Need to Know

As the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) concludes its crucial three-day meeting on August 6, all eyes are on Governor Sanjay Malhotra’s next move. With the repo rate currently at 5.50%—following back-to-back cuts earlier this year—India’s small businesses and MSMEs are waiting anxiously: Will another cut arrive? Or will the central bank choose to pause?

For India’s 63 million+ MSMEs, which are still navigating high input costs, volatile global demand, and a fragile post-pandemic recovery, the RBI’s decision is more than a policy signal—it directly affects borrowing costs, investment plans, and survival itself.

The MSME Dilemma: Hope for Relief, Fear of Pause

In the past six mo

As the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) concludes its crucial three-day meeting on August 6, all eyes are on Governor Sanjay Malhotra’s next move. With the repo rate currently at 5.50%—following back-to-back cuts earlier this year—India’s small businesses and MSMEs are waiting anxiously: Will another cut arrive? Or will the central bank choose to pause?

For India’s 63 million+ MSMEs, which are still navigating high input costs, volatile global demand, and a fragile post-pandemic recovery, the RBI’s decision is more than a policy signal—it directly affects borrowing costs, investment plans, and survival itself.

The MSME Dilemma: Hope for Relief, Fear of Pause

In the past six months, the RBI has shown an aggressive pro-growth stance. A 50-basis-point rate cut in June, on top of earlier reductions, brought much-needed optimism to the MSME sector. Cheaper credit translates into easier access to working capital, smoother export operations, and lower EMI burdens. However, even as core inflation dipped below 4% and liquidity remained ample, MSMEs haven’t felt a full revival.

That’s because interest rate transmission—the mechanism through which banks pass on the RBI’s rate cuts to customers—has been sluggish at the grassroots. Many small businesses report that bank loans remain expensive, disbursement is delayed, or collateral requirements are rigid. For these enterprises, another rate cut would be symbolic unless it comes with stronger nudges for banks to ease credit norms for the unorganised and informal segments of the economy.

Global Headwinds: Why the RBI May Hold Steady

Despite the optimism, there’s a growing belief among analysts that the RBI may pause its rate-cutting spree in this meeting. The reasons are largely global. The recent imposition of 25% tariffs by the United States on Indian exports—particularly on textiles, gems, and auto parts—has injected uncertainty into India’s trade outlook.

Additionally, global oil prices are volatile, and the dollar is strengthening. In such conditions, central banks prefer to be cautious. The RBI is no exception. Even with inflation under control (CPI at 2.1% in June), a “wait-and-watch” approach could help the RBI assess whether past cuts are working or not.

What MSMEs Should Prepare For

Whether the RBI cuts or not, MSMEs must plan for both scenarios. If the rate remains unchanged, businesses should explore alternative financing sources like fintech lending platforms, co-lending with NBFCs, or government credit guarantee schemes. Tight cash flow management and digital invoicing can also help maintain liquidity in a flat-rate regime.

If the RBI surprises with a further cut, it’s an opportunity. MSMEs should restructure existing high-cost loans, prepay wherever possible, and invest in productivity-enhancing tech upgrades, as long as the credit conditions on the ground actually improve.

A Sector That Still Needs Handholding

Even as policy discussions unfold in air-conditioned boardrooms, on the ground, many micro and small entrepreneurs are still recovering from last year’s monsoon shocks, weak rural demand, and inconsistent export orders. These enterprises are not asking for miracles—just consistency in policy and real accessibility to the support being promised.

For the RBI, the challenge lies in balancing macro stability with inclusive growth. And for MSMEs, this week’s policy announcement might be another chapter in their fight for survival—but it could also be a turning point, if the decision filters down to the last-mile entrepreneur.