Credit to industry, services, priority sector contract despite govt’s attractive measures

Financial Express
October 15, 2019

Despite lowering the interest rates by linking the repo rate, credit flow to industries and services sector are shrinking, according to an RBI report.

Finance Minister Nirmala Sitharaman has been taking extensive measures to boost credit growth in the economy, but the credit flow continues to remain tepid. Despite lowering the interest rates by linking the repo rate, credit flow to industries and services sector are shrinking, according to an RBI report. To review the credit growth in the economy, the minister has met the heads of PSU banks yesterday for the second time since the past 30 days. As an outcome of the meeting, the bank representatives said that there is sufficient liquidity in the system. However, despite the availability of liquidity, the credit growth in almost all the quarters of the industry, including construction, infrastructure, petroleum, and food processing, are negative in the current financial year so far.  

Credit growth in textiles contracted by 8.5 per cent; petroleum, coal products & nuclear fuel (17.7 per cent); basic metal & metal product (6.2 per cent); construction (3.5 per cent); and the credit growth in infrastructure shrank 4.8 per cent so far in this financial year.   

Even the services sector and the priority sector saw a contraction in credit growth. Credit growth in the services sector contracted by 2.7 per cent while that in the priority sector contracted by 0.6 per cent in the current financial year. Trade is an area that has supposedly suffered the maximum hit with the credit growth contracting by 11.8 per cent in the wholesale trade; and 15.6 per cent in the export credit. 

The export credit empowers the exporters to export more to get maximum benefits but the contraction here may further pull down India’s trade. “The government should work at facilitating export credit to the exporters and faster processing of the GST returns to leave more cash in the hands of exporters,” Sharad Kumar Saraf, President, FIEO, said Financial Express Online recently.    

Businesses run on credit and its crisis slows down the entire operation. The contraction in the credit growth despite the availability of liquidity with the banks also indicates the slump in demand from the businesses and the theory that the credit will be taken when there will be a requirement, not when the interest rates are comparatively lesser.


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