Unless govt resorts to special drive for credit deployment, India may miss opportunity of reviving economy

Bank credit deployment in the economy have been one of the key measures for economic revival of India ever since the outbreak of COVID-19 and announcement of general lockdown on March 24, 2020, but the level of deployment is still lower than one year before when the country was completely shut excepting the emergency services. The present level of deployment of bank credit is clearly insufficient for economic revival in near future. Hurdles in the way need urgent removal to bring the economy back on track in the current fiscal.

The latest report on sectoral deployment of bank credit collected from select 33 scheduled commercial banks and released by the Reserve Bank of India (RBI) shows that on year-on-year basis, non-food bank credit growth was still lower at 5.9 per cent in May 2021 compared to 6.1 per cent in May 2020. It is worth mentioning that these credits account for about 90 per cent of the total non-food credit deployed by all scheduled commercial bank.

It clearly shows that the unlocking of the economy has failed to improve its position, indicating continued disruption due to containment measures and hurdles in the way of loans actually being transferred by the banks to the business, industries, and individuals.

During the second wave of the pandemic, deployment of bank credit suffered in almost all sectors of the economy. At a time when the second wave is hardly over, the third wave is knocking at the door, and both the creditor banks and debtors companies and individuals are very much apprehensive. Unless a special drive for credit deployment is not resorted to, India may altogether miss the opportunity of reviving the economy.

Agriculture and allied activities, on year-on-year basis, seemed to be performing well, registering an accelerated growth of 10.3 per cent in May 2021 as compared to 5.2 per cent in May 2020. However, the variation between March this year to May showed a negative growth of -1.2 per cent compared to 0.6 per cent in the corresponding period last year, i.e. during the peak period of the lockdown.

It should be a matter of great concern that credit growth to industry decelerated to 0.8 per cent in May 2021 from 1.7 per cent in May 2020. During March-May 2021, it went negative at -1.2 per cent compared to -1.5 per cent of the corresponding period last year.

Size-wise, on year-on-year basis, credit to medium industries registered a robust growth of 45.8 per cent in May 2021 as compared to a contraction of 5.3 per cent a year ago. During March-May 2021, the growth rate was only 7 per cent, triggering our concerns even about this sector. Credit growth to micro and small industries, which employs about over 90 per cent of the workers, accelerated on year-on-year basis to 5.0 per cent in May 2021 as compared to a contraction of 3.4 per cent a year ago.

However, the situation in this sector has worsened during March-May 2021 when credit deployment fell to negative -3.4. Credit to large industries also contracted on year-on-year basis by 1.7 per cent in May 2021 as compared to a growth of 2.8 per cent a year ago. This contraction continued during March-May 2021 at 1.3 per cent.

This data shows that the second wave brought down the credit deployment to the large and micro and small industries to negative and to the medium industries over one by sixth.

Within industry, credit to ‘mining & quarrying’, ‘food processing’, ‘textiles’, ‘gems & jewellery’, ‘wood & wood products’, ‘paper & paper products’, ‘glass & glassware’, ‘infrastructure’, ‘leather & leather products’ and ‘rubber, plastic & their product’ registered an accelerated growth in May 2021 as compared to the corresponding month of the previous year.

However, credit growth to ‘beverages & tobacco’, ‘petroleum coal products & nuclear fuels’, ‘vehicles, vehicle parts & transport equipment’, ‘basic metal & metal products’, ‘cement & cement products’, ‘all engineering’, ‘chemicals & chemical products’ and ‘construction’ decelerated/contracted.

Credit growth to the services sector decelerated to 1.9 per cent in May 2021 from 10.3 per cent in May 2020, mainly due to deceleration in credit growth to NBFCs, transport operators and commercial real estate.

The situation worsened during March-May 2021 and the credit deployment in this sector turned negative at -2.3 per cent. Zero growth was witnessed by transport operators in the last one year while during March-May 2021 credit deployment growth turned negative at -2 per cent.

During these three months this year, it was -4.2 in computer software, -0.2 in tourism, hotel and restaurant, -26.0 per cent in shipping, 2 per cent in aviation, -5.4 in professional services, 0 per cent in retail trade, -1 per cent in wholesale trade other than food procurement, -0.8 per cent in commercial real estate, -4.8 per cent in NBFCs, -10.2 per cent in housing finance companies, -5.3 per cent in public financial institutions, and 0.6 per cent in other services.

However, credit to trade segment on year on year basis continued to perform well, registering accelerated growth of 12.4 per cent in May 2021 as compared to 7.7 per cent a year ago. This segment also registered negative growth during March-May 2021 is a matter of concern.

Personal loans registered an accelerated growth of 12.4 per cent in May 2021 as compared to 10.6 per cent a year ago, primarily due to accelerated growth in vehicle loans and credit card outstanding. It shows how bad the conditions are prevailing for households. However, during March-May 2021, credit deployment to the households turned into negative at -0.9 per cent.

At such a level of credit flow, crises of demand and supply cannot be successfully addressed, because neither necessary level of employment could be generated, nor sufficient amount of money be put into the hands of people, which in turn slows the progress in revival of the economy.

(IPA Service)

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