The growth of Indian micro, small, and medium enterprises (MSMEs) has slowed to 5.4% for the December to June period, according to a recent report by CareEdge Ratings. This marks a decline from 7.0% growth during the same period the previous year. The report indicates that if the impact of recent mergers were excluded, the growth rate would have been even slower, at 7.7% in June 2024.

The broader industry growth also showed signs of deceleration. It dropped to 8.1% year-on-year (YoY) in June 2024 from 9.4% in May 2024. Despite this, it represented an increase from 7.4% YoY in June 2023, partly due to the growth in MSMEs offsetting the slower growth in large corporates.

Notably, certain sectors saw accelerated growth. Chemicals and chemical products, food processing, and infrastructure experienced improved performance in June 2024 compared to the previous year. Conversely, credit expansion for basic metals, petroleum products, and textiles moderated. The credit to large industries grew by 6.9% YoY in June 2024, up from 5.4% in June 2023.

The Reserve Bank of India’s (RBI) Financial Stability Report for June 2024 highlights a continued rise in credit offtake driven by strong economic demand, particularly in the services and personal loan sectors. Despite this, medium-term prospects suggest a potential slowdown in credit growth due to reduced corporate stress, a decrease in inflation, and challenges related to the Credit to Deposit ratio and new liquidity coverage ratio norms.

The services sector’s growth slowed to 7.6% for the December to June period, compared to 11.8% the previous year. This deceleration is attributed to a slowdown in advances to non-banking financial companies (NBFCs) and the trade sector. Credit growth in the services sector fell to 15.1% YoY in June 2024 from 26.8% a year earlier.

Overall, while there are signs of growth in specific industries, the overall slowdown in MSME and sectoral performance reflects a complex economic environment with mixed signals for future growth.