Another dose of fiscal stimulus package holds the key to rekindle animal spirits in the economy at this juncture as monetary policy has little headroom, an SBI Ecowrap report advocated on Tuesday.

According to the research report, there is a distinct slowdown in bank credit growth in India with the trend starting with the onset of pandemic last year continuing well into FY22.

What this means is that India Inc appetite for fresh investment is still not there. And in the absence of fresh fiscal stimulus package, the investment climate would not improve.

The Ecowrap report suggested that low bank credit growth was a direct fallout of corporates rapidly deleveraging by repaying high cost loans through funds raised through bond issuances.

An SBI analysis showed that top 15 sectors, from more than 1000 listed entities, reported more than Rs 1.70 lakh crore of debt reduction in the pandemic year 2021. Refineries, Steel, Fertilizers, Mining & Mineral products and Textile alone reduced debt by more than Rs 1.50 lakh crore during FY21.

Simultaneously, primary issuance of bonds increased by 9 per cent. This trend is continuing in FY22 also, the report said.

The trend is indicative of the fact that fresh investment in projects during the time of the pandemic is not coming through while corporates are using this period to replace their high cost debt with low cost funds through bond issuance and prepare ground for future investment when economy picks up with highly deleveraged operations.

“Interestingly, corporate willingness for new investments remains low currently as the economy is still recovering from the devastating second wave. Investment scenario is tepid as gauged by new investment announcements which saw 67 per cent decline in FY21 as per CMIE. However, the same is reported flat as per Projects Today, where new announcements of Rs 10.7 lakh crore were reported in FY21 as compared to Rs 10.8 lakh crore in FY20,” the SBI Ecowrap report said.

However, it is true that order inflow position of two leaders L&T and BHEL declined during last year. While L&T reported decline in order inflow by around 6 per cent, BHEL reported a decline of 61 per cent (up to Dec’20) as compared to FY20. However, Dilip Buildcon, KEC, Kalpataru reported growth in order flow position during FY21, Dilip Buildcon majorly because of orders from Road sector (NHAI) and Kalpataru’ s growth largely driven from orders in T&D business.

“Against this background, only fiscal policy can rekindle animal spirits at this juncture – monetary policy has little headroom,” the report suggested.