Credit growth to industry, both MSME as well as large industries, witnessed a significant decline in recent months: Economic Survey

New Delhi, Jan 31 (KNN) The Union Minister for Finance & Corporate Affairs, Nirmala Sitharaman presented the Economic Survey 2019-20 in the Parliament today.

Prepared by Chief Economic Advisor Krishnamurthy Subramanian, the Economic Survey gives a review of the developments in the economy over the previous 12 months and also gives an outlook for the next financial year.

The Survey revolves around the theme of enabling markets, promoting 'pro-business' policies and strengthening 'trust' in the economy. It maintains a balanced optimistic stance and makes an attempt to put to rest any skepticism about the benefits accruing from a market economy, both in economic thinking and policy-making.

The Economic Survey states that the deceleration in GDP growth can be understood within the framework of a slowing cycle of growth. The financial sector has acted as a drag on the real sector.

The Survey says that the uptick in second half of 2019-20 would be mainly due to ten positive factors like picking up of NIFTY for the first time this year, an upbeat secondary market, higher FDI flows, build-up of demand pressure, positive outlook for rural consumption, rebound of industrial activity, steady improvement in manufacturing, growth in merchandize exports, higher build-up of foreign exchange reserves and positive growth rate of GST revenue collection.

The Survey says, on a net assessment of both the downside/upside risks, India’s GDP growth is expected to grow in the range of 6.0 to 6.5 per cent in 2020-21 and it asks the Government to use its strong mandate to deliver expeditiously on reforms, which will enable the economy to strongly rebound in 2020-21.

The Survey points out that the year 2019 was a difficult year for the global economy with world output growth estimated to grow at its slowest pace of 2.9 per cent since the global financial crisis of 2009, declining from a subdued 3.6 per cent in 2018 and 3.8 per cent in 2017. Uncertainties, although declining, are still elevated due to protectionist tendencies of China and USA and rising USA-Iran geo-political tensions.

Amidst a weak environment for global manufacturing, trade and demand, the Indian economy slowed down with GDP growth moderating to 4.8 per cent in first half of 2019-20, lower than 6.2 per cent in second half of 2018-19. A sharp decline in real fixed investment induced by a sluggish growth of real consumption has weighed down GDP growth from 2nd half of 2018-19 to 1st half of 2019-20.

The growth of  bank credit which was picking up in 1st half of 2018-19, started decelerating in 2nd half of  2018-19 and further in 1st half  of 2019-20.  The deceleration was witnessed across all major segments of non-food credit, save personal loans which continued to grow at a steady and robust pace. The deceleration in credit growth was most in the services sector.

“Credit growth to industry also witnessed a significant decline in recent months, both for MSME sector as well as large industries. Agriculture and allied activities benefitted from a higher growth of credit,” says the Survey.

Despite muted growth of services exports, the trade balance on the services account continued to be positive in 2019-20. The trade surplus on services account has been estimated at US$ 40.5 billion in 1st half of 2019-20, as compared to US$ 38.9 billion in 2018-19.

Lower Current Account Deficit (CAD) reflects reduced external indebtedness of the country making domestic economic policy increasingly independent of external influence, says the Economic Survey.

The CAD, which was 2.1 per cent of GDP in 2018-19, has improved to 1.5 per cent in H1 of 2019-20 on the back of significant reduction in trade deficit. In the first eight months of 2019-20, both gross and net FDI flows to the country have been more than the flows received in corresponding period of 2018-19. Net FPI inflow in 1st half of 2019-20 was also robust at US$ 7.3 billion as against an outflow of US$ 7.9 billion in 1st half of 2018-19.

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