Ease Of Doing Business: Access To Capital Still A Major Hurdle For Indian Manufacturing
Indian manufacturing companies still find it tough to access capital.
Lack of finance is a “major or a very severe obstacle” for nearly a third of India’s manufacturing companies, according to a joint survey by government think tank Niti Aayog and IDFC Institute.
The report, which is centred around the ease of doing business in the country, found that 59 percent of over 3,300 companies and industry bodies surveyed do not turn to banks and instead rely on retained earnings and personal savings to finance their business.
The average share of banks in the total borrowings was less than one-third of the total.NITI Aayog-IDFC Report
The findings come at a time when Indian lenders are hit by slow credit growth amid a pile-up of bad loans. Loan growth in the country is hovering near multi-year lows while non-performing assets in the banking system have soared up to over Rs 8 lakh crore.
This suggests that enhancing access to low-cost capital could be an important vehicle for improving India’s business environment, the report said.
Nearly half of the respondents said that the situation pertaining to financial access has remained unchanged over the past year. Only 30 percent thought there was an improvement, while 18 percent said the situation was worsening.
There is also a fair amount of variation in getting access to finance in different states. For instance, 53 percent of the firms in Gujarat did not feel getting loans was a problem, but 74 percent of enterprises in Bihar thought of it as a “very severe obstacle”. Banking regulations are largely national in nature, and hence this reflects “differences in implementation across states”, the report said.
The study stresses the need for improving access to finance as it would, in turn, result in better productivity and more jobs. The findings provide support to the existing evidence of the “virtuous circle between a favourable business environment, and greater economic activity, higher productivity, and creation of high-wage jobs”, it said.
(The report's analysis is based on survey responses from 3,326 manufacturing enterprises, five experts and 25 industry associations across all Indian states and union territories)