Economy & Policy
| 08 April 2021
A financial year that tested endurance at various
FY2020-21 started on a disastrous note, with uncertainty regarding the spread
of the virus and severe economic lockdowns, it appears to have closed in a
far better place. This is reflected not just by hard core numbers but by business
sentiments as well.
Firms engaged in
manufacturing, services and infrastructure polled by the Reserve Bank in March
2021 were optimistic about a pick-up in demand and expansion in business activity
into 2021-22. Consumer confidence, which was gradually increasing, has dipped
once again, however, with the recent surge in COVID infections in some states
and the measures announced to contain it.
his 7th April, 2021, MPC speech, the RBI Governor observed that urban demand
has been gaining strength on the back of normalisation of economic activity and
should get a fillip with the ongoing vaccination drive. He also pointed out
that the fiscal stimulus from increased allocation in the Union Budget 2021-22,
expanded production-linked incentives (PLI) scheme and rising capacity
utilisation should provide strong support to investment demand and exports.
FY2020-21, growth data from Q1 and Q2 was disheartening; the economy shrunk by
24.4% and 7.3%, respectively, in the first and second quarter. However, in the
third quarter of FY2020-21, the light at the end of the economic tunnel shone
through as growth came in at 0.4%, officially signaling that India is out of a
recession after two consecutive quarters of degrowth.
India Quarterly GDP Growth
The growth in Q3
was led by Agriculture, Forestry & Fishing, which expanded by 3.9%. Results from a survey by the World
Bank affirmed the importance of the agricultural sector in keeping India’s
rural economy afloat in the year of the pandemic. In addition, Manufacturing, Electricity, Gas, Water
Supply & Other Utility Services, Construction and Financial, Real Estate
& Professional Services also demonstrated growth in various magnitudes
between September and December 2020.
current situation, the RBI has projected that real GDP is expected to growth at
10.5% in 2021-22, posting an increase of 26.2% in Q1, 8.3% in Q2, 5.4% in Q3
and 6.2% in Q4.
time to remember
All in all,
2020-21 has been a difficult financial year, especially for the most vulnerable
segments of society. But it has presented numerous learnings as well and tested
the endurance of individuals, enterprises and governments. Technology came to
the forefront as not just a ‘good-to-have’ but a core component of business
strategy for most businesses. Side by side, the importance of inter-personal
skills and emotional equanimity were underlined as remote work formats became
the norm. Most importantly, it highlighted the need for crafting and constantly
upgrading a Business Continuity Plan, which protects both human resources as
well as business growth, from exogeneous disasters. There’s a sentiment within
thought-leading circles that the trends which emerged in FY 2020-21 will only
gain significance in future as the world stays alert and ready for other
microfinance sector ended the previous financial year - FY2019-20 - on a high
note, registered a 31% jump in its loan portfolio to Rs 2.36 lakh crore,
demonstrating that it was completely over the liquidity crisis. However, its
performance was severely impacted during the last week of FY2019-20 and the
first two months of FY 2020-21, when the nationwide lockdown was most
stringent. Both collections and disbursements came to a standstill, and by May
2020, nearly 98% of accounts were under moratorium.
and regulators responded rapidly with supportive measures. At one level, MFI borrowers
were facilitated through government transfers of cash, food essentials and
relief from debt repayments through moratorium, interest subvention,
restructuring, and ex-gratia schemes (waiver of compound interest component).
At the same time, there were efforts to buoy NBFC-MFIs through moratorium on
borrowing and financing support via SIDBI, NABARD, and TLTRO, so that they
could tide over liquidity issues. NBFC-MFIs were also included in the list of
essential services, to enable them to resume essential operations.
On their part,
NBFC-MFIs, also responded to the crisis with agility and empathy to customers,
using a blend of human relationships and technology to safe-guard their
customers’ financial and broader well-being. Many NBFC-MFIs accelerated their
digital transformations to reach out to customers virtually and facilitate
According to credit bureau CRIF High Mark, after witnessing a shrinkage in the two quarters of FY2020-21, the
Gross Loan Portfolio of MFIs rose sequentially by 1.18 per cent to Rs 2,26,660
crore in December 2020. During the third quarter (Sept 2020 to Dec 2020),
disbursements approached pre-pandemic levels.
According to Microfinance
Institutions Network’s Micrometer (36th issue released in March 2021), the
microfinance industry was slowly inching towards pre-Covid levels, both in
terms of disbursements as well as the quality of portfolio, by the third
quarter of FY2020-21. Disbursements in Q3 FY21 were around 96% of the same
period in the previous year. MFIN also suggested that disbursements were
expected to reach normal levels by the end of Q4 FY2020-21 on the back of
increased demand for loans.
credit bureau CRIF High Mark pointed out, “While sequentially, things on the disbursement
front showed a better picture, the dues on older loans continue to be a
challenge. The loan with dues between 30-180 days shot up to 12.7% in December
2020 from 2.6% in September 2020 and 1.4% in June 2020.” The pandemic is
perhaps the biggest test of the MFI sector as it involved both health and
economic threats. Micro-enterprises were
one of the worst hit sectors of the economy and accordingly, the MFI sector
will require time to demonstrate a deep and sustained recovery as it handholds
micro-entrepreneurs through their darkest days.