Demonetisation sparked the current consumption slowdown, reveals RBI data
The central bank data points to the gross bank exposure towards consumer goods loans being in a steep and constant decline mostly in the aftermath of the abrupt note ban in late 2016
The consumption slowdown which is mostly responsible for the economic slump we are in is due to the decision of demonetisation; reveals latest RBI data according to the Deccan Herald. The central bank data points to the gross bank exposure towards consumer goods loans being in a steep and constant decline mostly in the aftermath of the abrupt note ban in late 2016.
As of March 2017, the gross bank exposure towards consumer goods was constant at ₹20,791 crore, before which it had been on the rise for about six years. It then started to radically dip downwards, witnessing a landmark 73% fall, standing at a mere ₹5623 crore. From 2017-2018, it stood at a 68% fall and the fall in the loans to the consumer durables has continued to this year, dipping 10.7% year-to-date.
"Basically, it works through the income route, so there were two factors that seem to have impacted the dip in Bank's exposure to consumer durables post-demonetisation -- one is that the MSMEs had serious problems in terms of cash crunch, employees' departure which eventually led to their shutdown, and second is inventory pile-up, as people did not have cash to buy, along with increased unemployment and loss of income in the same year," said Govind Rao, member, 14th Finance Commission, reported the Deccan Herald.
According to this report in the Deccan Herald, post demonetisation, earnings in the Micro Small and Medium Enterprises have specifically dropped, resulting in this phenomenon. Another telling sign for this considerable slowdown is the reduction in the exposure to bank loans across industries by 3% year-to-date, and services by 4.3% year-to-date. The shipping industry has been hurt the most with a whopping fall of 24.1% YTD. The only industry to have a stark contrast to this are household loans, which have grown by 2.5%, mostly on the back of a 3.4% rise in housing loans.