Further highlighting the extent of the economic slowdown in the country, flow of funds from banks and non-banking financial companies (NBFCs) to commercial sector has dipped significantly, an RBI report revealed.
An article by The Indian Express quotes the RBI report to suggest that the fund flow in first six months of this fiscal (April to mid-September) has been Rs 90,995 crore, as compared to Rs 7,36,087 crore in the same period last year.
The commercial sector consists of all industries apart from farming, manufacturing and transportation.
Reverse Flow of Funds
What appears to be an even graver concern is that instead of fresh funds coming into the commercial sector, they have in fact gone back to the banks and NBFCs.
In the April to mid-September period in 2018, non-banking financial companies lent Rs 41,200 crore to the commercial sector, but this year, the flow reversed – Rs 1.26 lakh crore moved from the commercial sector to the NBFCs.
Non-food credit flow from banks also reversed, from Rs 1.65 lakh crore going to the commercial sector to Rs 93,688 crore going to the banks.
The reverse flow of funds indicate lack of investments in the sector.
‘Govt Should Move Beyond Piecemeal Approach’: Congress
Taking cue from the report, the Congress on Monday, 7 October, attacked the Modi government over the state of the economy, saying it must acknowledge the "acute slowdown" and move beyond piecemeal approach to put the "economic mess" in order.
Congress spokesperson Supriya Shrinate said the RBI report cited points to an “acute economic slowdown”, adding that collapse of credit indicates stalling of economic activity.
"This is happening despite (the fact that) RBI cut repo rates. Repo rate is down by 1.35 percent from January to now. Despite that, people are not taking credit because they're not convinced that they can do economic activity with this credit because people are insecure about their jobs," Shrinate said.
The ‘piecemeal’ approach continues but the government does not have a comprehensive solution to put the economic mess in order, she said.
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