The accompanying chart shows the steep fall in real (after adjusting for inflation) growth in bank credit to micro, small and medium enterprises (MSMEs) during the last four years. Real credit growth by banks to these units started tapering off from 2015, went into negative territory in the beginning of 2016 and then was practically driven into a coma by demonetisation. Thereafter, it limped along, before starting to recover from the beginning of this year, aided by a low base and a rebound from the travails induced by the introduction of the goods and services tax (GST).
The real reason behind giving ‘MSME loan in 59 minutes’
In recent months, however, growth in bank credit to the sector seems to have picked up. Why then the angst in government circles? After all, during the disruption in the aftermath of demonetisation, when the sector was crying out for relief, their appeals fell on deaf ears.
After four years of tepid growth, why the sudden concern for small enterprises now?
One reason is the worry that the impact of the Infrastructure Leasing and Financial Services Ltd’s (IL&FS) contagion will inhibit lending by non-banking financial companies (NBFCs) to the sector. A bigger reason is the proximity of the elections and the rather belated realisation that the sector is a major source of jobs. It is probably also a nagging concern that credit growth real rates to MSMEs are nowhere near the levels they were at the time of the last general election.