Credit Retrogression in the Micro and Small Enterprise Sector

This paper attempts to understand the nature, dimensions and direction of flow of bank credit to micro and small enterprises with special reference to the manufacturing sector in the wake of post-1991 reforms that promised a better play of market forces. It finds that despite substantial increase in absolute credit deployed through the banks, the share of credit to MSES in general, and manufacturing MSES in particular declined, picking up only over the past few years. Within the manufacturing sector, bank credit went mainly to large and medium sized manufacturing units. The evidence is indicative of structural retrogression of credit to MSES and contradicts the notion of price signals in the credit market allocating credit to sectors like MSE at higher interest rates, thereby generating additional income, employment and demand for goods and services, and in turn, supplementing the National Manufacturing Policy's objective of high growth in the manufacturing sector to generate 100 million jobs in the next five years.