The highest contraction in bank credit is observed in the micro, small and medium enterprises (MSMEs).
After a dreary industrial production in the month of September, now a steep contraction in bank credit too shows that there is no sign of recovery for India’s sagging economy in the coming few months. While the industrial output shrunk by 4.3 per cent in September, the worst in the last eight years, credit given to the industries have contracted by 3.8 per cent in the financial year so far, according to the RBI. Even the bank credit to the services sector has contracted by 2.2 per cent in the financial year so far, coming in-line with the manufacturing sector. The highest contraction in bank credit is observed in the micro, small and medium enterprises (MSMEs).
Other areas such as wholesale trade, consumer durables, and export credit have also witnessed a major decline in the deployment of bank credit in the financial year so far. Despite the big announcement of the corporate tax cut by Finance Minister Nirmala Sitharaman, industries in India have yet not recovered from the effects of the slowdown.
Manufacturing contributes to more than three-fourth of the overall industrial activities in India. However, manufacturing in many important sectors such as motor vehicles, furniture, machinery, has contracted by almost 25 per cent in September, according to the Ministry of Statistics and Programme Implementation (MOSPI).
Looking at the slow pace of India’s economy, Moody’s has recently cut down the country’s credit rating outlook to ‘negative’ from ‘stable’, citing risks to economic growth, prospects of a more entrenched slowdown, weak job creation, and increasing debt. This was the first instance amid the ongoing slowdown, where a foreign rating agency has cut down India’s rating outlook.
India registered a GDP growth of 5 per cent in the first quarter of the current fiscal year, which was at a six-year low. Even for the second quarter, the market expectations are less optimistic. Meanwhile, many organisations including the Reserve Bank of India and steeply cut India’s annual GDP forecast.