Post-pandemic Credit Allocation and Real Economic Activities: Evidence from Indian Firms

This study examines the borrowing behaviour and the consequent real outcomes of non-financial Indian firms in the aftermath of COVID-19. Using borrower-level data for 2018–2022, the empirical analysis uncovers a substantial reduction in bank borrowings post-pandemic, although the impact was significantly lower for financially vulnerable firms. Specifically, the temporarily afflicted firms received more credit on account of policy support. Expectedly, smaller and younger firms experienced relatively higher drops in bank borrowings, along with the service sector witnessing a more pronounced credit decline in comparison to the industrial sector. Amidst scarce resources, incremental credit was not deployed towards capital expenditure or labour compensation post the pandemic, instead, cheaper funds were utilised in paying off existing current liabilities.