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Marking the 7th anniversary of the launch of the PMMY Mudra Loans scheme last week, Finance Minister Nirmala Sitharaman said, “It is noteworthy that more than 34.42 crore loan accounts amounting to Rs.18.60 lakh crore have been opened under the Scheme for the creation of income generating activities.” The government had claimed in newspaper ads in Chennai that in seven years it had given Rs 1.8 lakh crore loans to 4 crore loan accounts in Tamil Nadu.

Launched in 2015, the Pradhan Mantri MUDRA Yojana (PMMY) provides loan amounts up to Rs 10 lakh to non-corporate, non-farm small/micro interprises. Loans are given by banks, Micro Finance Institutions (MFI) and Non Banking Finance Companies (NBFC). Three types of loans are given: Shishu is upto Rs 50,000; Kishore is Rs 50,000 upto Rs 5 lakh; and Tarun is Rs 5 lakh to Rs 10 lakh.

An earlier article in inmathi.com showed that the government’s claims on loan disbursals and loan accounts are misleading.

PMMY loans are described by some policymakers as all loans going to micro and small enterprises for whom the norms for grant of these loans were relaxed under the PMMY scheme. But annual reports of the Reserve Bank of India show that the actual growth in credit to small businesses from banks fell after the Narendra Modi government took power in 2014, putting into question the publicity by the Union government for achievements in giving loans to small businesses.

Loans to micro and small enterprises are given by public sector banks, private banks, regional cooperative banks as well as non banking financial companies (NBFC) including micro finance institutions (MFI). Banks lend to NBFCs and MFIs and this lending becomes the source of loans to micro and small enterprises. NBFCs raise funds in the market too besides from banks.

Every year since 2007, the Reserve Bank of India, in its annual report, has been giving the total outstanding credit to micro and small enterprises given that year and previous year by Scheduled Commercial Banks. This category of banks includes all public sector and private sector banks which account for the bulk of banking transactions in the country. Foreign and regional cooperative banks do not come under this category. Before 2007, the RBI reports were using a nomenclature called Small Scale Industries and the differentiation between micro, small and medium enterprises was not there.

In 2014-15, when the BJP came to power, the increase in outstanding credit to small and micro enterprises from scheduled commercial banks fell sharply to 13% and then never quite recovered barring 2020.

The annual report measures the increase in credit. In any year, the actual loans given will be more than the increase in credit since some of the outstanding loans from previous year would have been paid off that year. But the increase in credit can give a good idea of the increase in loans being given.

The credit increase to micro and small enterprises in 2007-08 was 55.5%. It fell to 20% next year and jumped back to 41% in 2010. In 2012, the increase fell to 9% but again rebounded. In general, between 2008 and 2014, the increase in credit to small and micro enterprises every year was 20% and above, indicating the total loans disbursed were also increasing at high proportions. For the year 2013-14, it was 24%.

The next year, 2014-15, when the BJP came to power, the increase in outstanding credit fell sharply to 13% and then never quite recovered barring 2020. The increase was 3.6% (2015-16), 7.5% (2016-17), 7.4% (2017-18), 14.3% (2018-19), 2% (2019-20) and 5.6% (2020-21). The Mudra scheme was launched in 2015, financial year 2015-16.

It can be argued that as the denominator, ie total outstanding credit, keeps increasing every year, the percentage increase in credit flow is bound to fall even if the same amount of loans were being distributed. But, conversely, it also means that the total loans being disbursed to small businesses did not really see big jumps like were seen before 2014.

Two shocks did have an impact on economic activity: demonetization in 2016 and the pandemic between 2019 and 2021. Since the GDP calculation methods have changed, many economists have doubted economic growth claims. Other parameters such as electricity consumption increase show that economic growth has been rather sluggish since 2014. These would have had an impact on demand, production and hence the need for credit. But, overall, the numbers do indicate that contrary to Mudra increasing credit flow to micro and small industries significantly, the percentage increase has only fallen.

The data on the exact amount of loans disbursed by banks to micro and small industries each year is not known. In 2021, for instance, the total outstanding credit by scheduled commercial banks to micro and small enterprises end of that financial year was Rs 14.15 lakh crore. The increase in credit was Rs 80,000 crore over the previous year. Industry data show that MFIs and NBFCs gave loans of some Rs 53,000 crore in 2020-21. The Mudra website claims Rs 3.3 lakh crore of PMMY loans were given that year. This shows that all loans to small and micro enterprises were counted as Mudra loans with likely multiple counting of loans.


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