The Reserve Bank of India’s recent annual report highlights the macroeconomic developments that moulded how the global economy performed.

In the backdrop of the Covid pandemic, Russia-Ukraine conflict and the ensuing food and energy inflation accompanied by rate hikes in the West, India demonstrated remarkable progress during this period, displaying resilience in the face of global pressures.

The IMF Managing Director Kristalina Georgieva had called India a bright spot in an otherwise dark horizon. The latest figures show that India has outperformed the economists’ expectations, registering a growth rate of 7.2 per cent in the last fiscal year. It has also been helped by RBI’s deft handling of rising inflation, improving the balance sheet quality of the banks, and better governance.

In the wake of the pandemic, the deposit growth rate far outpaced the credit growth rate. The convergence happened around December 2022, and since then, the credit growth rate has beaten the deposit growth rate. The deposit growth rate has been stable from March 2022 to March 2023.

The credit growth rate bounced back as the global economy moved towards normalcy. However, there is concern over the slight dip in credit growth in the last two quarters of FY23.

PSU banks’ role

Private banks have far outpaced their public sector counterparts in the disbursal of credit in the last 10 years.

However, since the pandemic, credit growth in public sector banks has improved touching 16.4 per cent compared to 17.8 per cent of the private banks.

Even though public sector banks still have the largest share of credit, private banks have been catching up. This new data should boost the confidence of the public sector banks and facilitate increased business opportunities for them.

Strong credit growth reflects optimism in the manufacturing sector. The government is actively trying to make India the next big manufacturing hub with schemes like Make in India and PLI and the development of industrial corridors. However, the share of manufacturing in the country’s GDP has still not increased substantially.

A detailed month-by-month analysis of the RBI report on the sectoral credit growth also indicates that the trend for the industry has been opposite to that of other sectors . While other sectors have seen a higher monthly growth rate in the latter half of the year, industry has experienced higher credit growth in the initial part of the year. The only industry to buck this trend has been basic metals and metal products.

These figures show that the government needs to formulate better policies and remove bottlenecks for the industry to realise its full potential.

However, agriculture, services, and personal loans saw a positive growth rate. The demand for credit for these sectors strengthened as the year progressed.

The demand for housing loans remained buoyant throughout the year. India became the globally the third-largest car market in calendar year 2022.

The moderating credit growth for the manufacturing sector in the latter half of the year is a cause for concern. The government must evolve a conducive ecosystem for manufacturing.

Saravanan is Professor of Finance and Accounting, and Banerjee is a doctoral candidate at the Indian Institute of Management Tiruchirappalli