The slowdown in consumption in India started with Prime Minister Narendra Modi's demonetisation drive, the data available with the Reserve Bank of India (RBI) reveals.

The central bank's data shows that the gross bank exposure towards consumer goods loans has seen a steep and constant decline in the aftermath of the abrupt note ban in late 2016.

At the end of March 2017, the gross bank exposure to the consumer goods loans stood at a record Rs 20,791 crore, before which it had witnessed a constant growth for the past six years. Post-demonetisation, the numbers started to head southwards -- it has dipped by 73% till now to a mere Rs 5,623 crore. In fiscal 2017-18, the number dipped by 5.2%, in 2018-19 the number dipped by an astounding 68%. The fall in the loans to the consumer durables has continued to this year, dipping 10.7% year-to-date.

Experts attribute the phenomenon to the fact that post-demonetisation, earnings, especially in the micro, small and medium enterprises (MSMEs) have come down.

"Basically, it works through the income route, so there were two factors that seem to have impacted the dip in Bank's exposure to consumer durables post-demonetisation -- one is that the MSMEs had serious problems in terms of cash crunch, employees' departure which eventually led to their shutdown, and second is inventory pile-up, as people did not have cash to buy, along with increased unemployment and loss of income in the same year," said Govind Rao, member, 14th Finance Commission.

He further said that the government cannot be held accountable as it does not conduct any surveys on MSMEs, which leads to a lack of empirical evidence.

Secular decline

In another indication of the slowdown, the exposure of bank loan across industries has come down by 3% year-to-date (YTD), services by 4.3%. The worst-hit has been the exposure to the shipping industry, which has seen a dip of 24.1% YTD. However, household loans have grown by 2.5%, mainly on the back of a 3.4% jump in housing loans.