MSMEs benefit from increased bank credit amid economic slowdown, study shows

By Puja Sharma

The recently released SIDBI-Transunion-CIBIL report for the period July-September 2023 revealed improved lender confidence as the credit supply to MSMEs grew by 20% in volumes year-on-year during that quarter. Improved access to credit will help the sector combat the headwinds stemming from the concerns mentioned above.

The growth in the sales performance of the MSME sector, as tracked by Jocata Sumpoorn, has been in sync with the national growth trajectory and has been slowing down over the past year.

This year has begun with the index showing a mild pace of expansion in the sales activity of small businesses. A similar picture comes through in the national income data – while the Indian economy has been holding its own amidst a global slowdown, there is a slowing down over the four quarters of 2023-24. The Second Advance Estimates put GVA at constant prices, growing at 6.9% for the full year, with the first three quarters estimated at 8.2%, 7.7% and 6.5 %, respectively – this implies that the January-March quarter will have growth at 5.4%.

Do note that there is a large discrepancy in the national income estimates between the third quarter’s growth in constant prices of GVA at 6.5% and GDP at 8.4%. This divergence is due to the impact of subsidies drawing down rather than any fundamental growth spurt.

In fact, there are significant causes of concern in the national income estimates that also have an impact on MSME growth. The first is the continued slowdown in Private Final Consumption Expenditure (PFCE), which forms a large part of the demand for output from small businesses. PFCE, which forms the largest component of GDP, is estimated to account for 55.6% of GDP, which is the lowest share since 2010-11. More importantly, the growth in PFCE in 2023-24 has been revised downwards from 4.4% in the First Advance Estimates in January to 3.02% in the Second Advance Estimates. Barring the year of the pandemic when PFCE contracted due to the impact of the COVID-19 restrictions, this growth is the slowest since 2002-03.

Bank credit to MSMEs continues to grow robustly, currently at 19.3% year-on-year at the end of January 2024. The share of bank credit to MSMEs was 15.1 % of total non-food credit, indicating that the MSMEs have improved access to capital. The recently released SIDBI-Transunion-CIBIL report for the period July-September 2023 revealed improved lender confidence as the credit supply to MSMEs grew by 20% in volumes year-on-year during that quarter. Improved access to credit will help the sector combat the headwinds stemming from the concerns mentioned above.

Key Highlights:

• Bank credit to MSMEs continues to thrive, currently at 3% YoY at the end of January 2024. The share of bank credit to MSMEs was 15.1% of total non-food credit, indicating that the MSMEs have improved access to capital.
• The Second Advance Estimates put GVA at constant prices, growing at 6.9%for the entire year, with the first three quarters estimated at 2%, 7.7% and 6.5 %, respectively -this implies that the January-March quarter will have growth at 5.4%.
• One of the concerns is contraction in the agricultural sector, whose growth has been estimated at a minus 0.8% in 2023-24. The above-normal temperatures in February have impacted the wheat crop in the northern belt, and the IMD has also predicted a hotter summer this year.
• Non-petroleum exports grew by 2.1% YoY, standing at  $28.71 billionin January 2024, compared to $28.1 billion in January 2023.