Loans worth ₹5 lakh cr, rise in income tax refunds may push up spending

Data released on Tuesday suggested that the government has continued to increase credit and liquidity in the system to tackle an economic slowdown, distributing loans of ₹4.91 lakh crore across two months, and issuing income tax refunds of ₹1.46 lakh crore till the end of November.

State-owned banks loaned ₹2.39 lakh crore to individual and corporate customers, including small companies, in November, continuing the customer outreach initiative announced by finance minister Nirmala Sitharaman for the festive season, which saw them loan ₹2.52 lakh crore in October, the finance ministry said in a statement.

The income tax department has also issued refunds to the tune of ₹1.46 lakh crore till November 28, a 23% increase over the corresponding period a year ago, senior finance ministry officials said, adding that the magnitude of the refunds and the growth indicates the streamlining of the refunds process.

Industry and retail consumers have borrowed a total of ₹4,91,834 crore in just two months, the statement showed. Of this, home loans account for ₹27,254 crore, vehicle loans, ₹11,088 crore, education loans ₹1,111 crore, and agricultural loans, ₹78,374 crore.

The loans push is part of the government’s efforts to revive demand in a slowing economy. Data released on Friday showed that the economy expanded by 4.5% in the second quarter (ending September 30) of 2019-2020, the lowest rate of growth since March 2013. However, finance ministry officials said at the time that the economy has bottomed out. The economy grew by 5% in the three months ended June. Over the past few months, the government has announced a series of measures to address the slowing economy. These include a cut in the corporate tax rate, especially for new manufacturing units; a real estate fund; and easier access to credit. The loans push is part of the last.

According to the finance ministry statement, state-owned banks loaned ₹35,775 crore to small enterprises in November, raising the total amount loaned to the sector to ₹72,985 crore in two months. The disbursal to non-banking finance companies rose to ₹25,005 crore in November from ₹17,163 crore in October, taking the total amount loaned over two months to ₹42,168 crore.

All told, state-owned banks have extended total support “in the form of credit (including co-origination and on-lending) and pooled buyouts” of ₹4.23 lakh crore to the non-banking finance sector since “ the IL&FS default in September 2018, the statement added.

Banks are adequately capitalized and have sufficient liquidity to support credit growth even in coming months, officials said.

Meanwhile, the income-tax department said that it had processed 21 million refunds for the current assessment year 2019-20 as on November 28, 2019, a 20% year-on-year jump due to enhanced digitization and improvement in its processes.

“FM Sitharaman took several measures to boost the economy and spur demand, including ease of doing business since August 23, that have now started showing results. The outcome of these measures will be more prominent from the third quarter of the current financial year,” one of the officials quoted above said,requesting anonymity.

The government is also making efforts to boost the Goods and Services Tax (GST) revenue collections and further streamline its processes and its impact will be visible in coming months, the officials said. “The GST Council’s meeting will be held in the second half of this month, which will consider various key issues related to the indirect tax, including revenue collections,” another official added. GST collections bounced back above the ₹1 lakh crore benchmark in November after contracting for two consecutive months.

Commenting on administrative measures, particularly on GST, PwC India partner and leader-indirect tax Pratik Jain said, “Over last year or so, government has taken steps in the right direction by simplifying the compliances, going after the tax evaders by more efficient use of technology/data analytics and not falling for temptation of increasing the tax rates. All these measures should help in augmenting the revenue collection.”

Other experts said they would like to wait and see whether the credit push continues. “Relying on two months’ numbers for credit outreach may not be right,” said a consultant with a multinational financial advisory who asked not to be named.