Economic woes to continue in Q2? MSME credit falls in July, rises for this crucial sector instead

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Updated: Sep 02, 2020 4:31 PM

Credit and Finance for MSMEs: Credit offtake by small businesses remained dismal in July -- the first month of the fiscal second quarter, when the economic activity was trying to recover after a prolonged lockdown knocked India’s GDP by 23.9% in Q1.

nitin gadkari, sme, msme, industry, sector, microfinance facility, economic revivalCredit for India’s micro, small and medium enterprises (MSMEs) fell in July 2020, compared with the same month last year.

Credit and Finance for MSMEs: Credit offtake by small businesses remained dismal in July — the first month of the fiscal second quarter, when the economic activity was trying to recover after a prolonged lockdown knocked India’s GDP by 23.9% in Q1. Credit for India’s micro, small and medium enterprises (MSMEs) fell in July 2020, compared with the same month last year. While the government has been pushing for increased credit to MSMEs and other sectors in a bid to revive economic growth, the credit growth for July month has not been promising, according to a report by Anand Rathi. “The sector-specific credit growth trend in July 2020 presents a mixed bag. In line with the emphasis of the government, credit conditions have improved for agriculture and infrastructure (particularly power and roads),” the report said, adding that it remains in negative territory for MSMEs. The credit activity for MSMEs is a major indicator of the business environment which in turn reflects economic health.

India recently released worse than expected GDP numbers for Q1FY21 with a 23.9% slump in GDP. According to the data released by NSO on Monday, this is the worst contraction in GDP numbers in the last four decades. The only silver lining has been agriculture which showed growth despite the headwinds of coronavirus. With credit growth in the agricultural sector in July 2020, it is likely that agriculture may continue to salvage otherwise dismal GDP numbers just like it did for the previous quarter. The agricultural sector clocked 3.4% growth in Q1, beating the general gloom of GDP numbers. The farm sector growth in Q1 FY20 was 3%, and this year, agriculture was in focus as it was the only sector performing well even amid pandemic.

Meanwhile, it is not all gloom and doom for all the sectors in terms of credit. “Some of the most pandemic-impacted sectors such as auto and hospitality also registered improvements,” the report said. Other than agriculture, credit activity has also grown for retail and infrastructure on-year. Banks are now focusing on averting risks as far as giving credits are concerned, the report said.

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