Is GSP+ really driving textile credit?

It is true that loans to private sector business are up. The recently released central bank data shows that in the seven months ending February 2014, businesses took fresh loans of Rs259 billion (on a net basis), which is up nearly 50 percent over the same period of last year. Net borrowings to private sector on the whole—that includes consumer financing—were up 53 percent in the same period.
What isn’t true is that the growth in private sector loans is being led by the textile sector.
The incremental amount borrowed in 8M FY14 over what was borrowed in the same period of last year is about Rs86 billion. Of this, the sector that added the most to the tally was food products and beverages followed by electricity gas and water supply. Textile borrowing, 96 percent of which was in fact by spinning, weaving and finishing of textiles stood third.
One wonders: if GSP+ would in fact trigger an increase in textile sector borrowings! The space and scope of this column limits detailed analysis, but a look at historical 8-month loans obtained by the sector shows that this year’s numbers are the highest since FY11. In fact the numbers for FY11, however, can be ignored because it was the year of cotton price bonanza, which led spinners and weavers to borrow more and more. And by the account, this year’s numbers are highest since FY08.
This means that this year’s textile borrowings may in fact be reflecting an increase in credit demand on account of GSP+. But, there are limits to this growth, simply because the biggest beneficiaries of GSP+ are in the value-added textile sector that hardly obtains loans from the banking sector.
According to the central bank’s textile credit database 90 percent of annual textile sector borrowings since 2008 have been for working capital purposes. Of the loans obtained for fixed investment, 80 percent have been taken by the manufacture of textile, i.e. spinning, weaving, finishing.
In other words, there are limits to the growth impetus that textile sector can offer to banking credit with or without GSP+. And especially when you consider the sector’s high infection ratio (26 percent by Dec 2013), the hype that textile credit growth led by GSP+ will push private sector credit to new highs, seems far from reality.