Non-financial companies’ Q1 debt more than 1.6x of India’s GDP; suffer humongous loss in lockdown months

The outstanding debt of India’s non-financial companies climbed to 1.6 times of India’s GDP, after rising as much as over 9 per cent from the previous year. Indian non-financial are reeling under severe stress due to the disruptions led by the coronavirus pandemic. The firms’ outstanding debt stood at Rs 322 lakh crore or 167.3% of GDP in Q1 FY21, compared to Rs 312 lakh crore in the previous quarter and Rs 295 lakh crore in Q1 FY20, according to the EcoScope report of Motilal Oswal Financial Service. Within the non-financial sector, the general government (center + states) debt grew at a 30-quarter high pace of 14.3 per cent on-year. 

Non-financial companies suffered humongous losses in the first quarter. While the net profit of all listed companies plunged 38.6 per cent in Q1, the same for non-financial companies fell by 57.1 per cent during the quarter, according to the Centre for Monitoring Indian Economy (CMIE). The income and expenses of non-financial companies also dropped by nearly 38 per cent in the quarter. It is to be noted that the fall was steep as those companies registered a fall of 8.9 per cent in expenses and 4.9 per cent in income in the previous quarter.  

The financial sector got a boost amid the lockdown months as the government put efforts to increase lending through various means, however, the non-financial sector faced a major disruption in their operations, led by a demand shortage and logistic restrictions. Business sentiment plunged to record level and major economic indicators clearly showed the adversity in Indian business. 

Meanwhile, the business conditions gradually improved in the second quarter as the lockdown restrictions were lifted and remained restricted to local lockdowns. India’s services sector improved for the fifth straight month in September as economic activity picked up pace and stood at 49.8 in the month, compared with 41.8 in August. On the other hand, India’s manufacturing sector jumped to the highest level in over eight years in September as manufacturers saw a sharp pick-up in new orders. The manufacturing PMI rose to 56.8 in September 2020, from 52 in August.