As reveal from the data from the Reserve Bank of India, over the last two years, there has been a noticeable contraction in bank lending to infrastructure sector. The government is at this time creating fresh capacity in infrastructure like roads, railways, telecom or irrigation.
Growth rate has fallen from 12.8% year-on-year in January 2014 and by 2015, the growth rate was trickling down to single digits. The biggest contraction was seen in the power sector and then telecom.
New power generation projects are not on the cards as there is surplus thermal capacity with plants operating at around 60-65% capacity utilization. Apart from this, transmission and distribution projects are also being awarded by the government.
In the process to rekindle the economy, a push in key infrastructure sectors, such as roads and railways is in an attempt. In November, bank credit to the infrastructure sector has recorded its sharpest contraction of 6.7 per cent, which otherwise had been steadily sliding.
There has been a slip in credit outstanding to infrastructure sector and the latest data released by RBI shows the number from Rs 9,64,800 crore in March 2016 to Rs 9,00,700 crore in November 2016.
In October and November, bank credit slipped to a low of 2.9 and 1.3 per cent, respectively, suggesting a decline in private sector demand for credit. The decline in infrastructure credit growth has also pulled down the overall bank credit to the industry as it contracted by 3.4 per cent in November, which is the worst in at least a decade.
Finance Minister Mr Arun Jaitley, in his budget speech 2016-17, had announced a total outlay of Rs 97,000 crore for the road sector. But there is a less involvement of private sector.
The bank’s credit outstanding for the road sector rose by only Rs 2,700 crore from Rs 1,77,500 crore in March 2016 to touch Rs 1,80,200 crore in November 2016. There has been in news from economists that the environment for private sector investment is “very weak” as of now and may remain out of the system for some time.
There are several factors, with government investment being one major factor to crowd in private sector investment. There is too much debt in the books of infrastructure companies and even the banks are not very keen on lending to the sector as they have a lot of bad loans in the sector.