An SBI research report has revealed that credit to micro and small enterprises has increased five times in the post-GST period. The credit amount now stands around Rs 1.23 lakh crore in the period following GST rollout in July 2017. Before the 15-month period, credit to MSEs under priority sector lending was Rs 25,700 crore.
The deceleration in credit in pre-GST period was partly due to overall slowdown in economic activity, rising NPAs and reclassification of food and agro-processing units from MSME category to agriculture sector (as per revised priority sector lending guidelines, 2015), said the report. The current jump in credit to the micro and small businesses is a good sign towards formalisation of the Indian economy and consequent benefits, according to the SBI Ecowrap report.
However, there is still a financial gap of $230 billion, according to International Finance Corporation (IFC) estimates. The potential demand for India's MSME finance is about $ 370 billion but current credit supply is $139 billion, it added. Additionally, the report indicated that despite credit growth, it is slowing down and that there is concern over a “growth slowdown”.
The report comes a month after Prime Minister Narendra Modi announced a 59-minute Rs 1 crore loan. He had also said that GST-registered MSMEs would get two percent rebate in interest on new or incremental loans. In correlation with better prospects for MSMEs, Modi had placed emphasis on India’s recent 23-place jump on the World Bank’s ‘Ease of Doing Business’ ranking. In the past four years, India has moved up from 142 ranking to 77.