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India’s credit growth, despite high interest rates, bodes well for the economy

India's GST collection continues to be strong

India, with a credit growth of 19.7 per cent as of July 28, is among the highest in the world, reflecting buoyancy in the economy even as rising global challenges have dampened sentiments the world over. According to analyses, India’s credit growth, despite high interest rates, is likely to remain robust for the rest of the year as well. Importantly, India’s credit demand has surged even in the rural areas.

This will give policymakers some relief as consumption remains the thrust. Besides, healthy credit growth reflects consumer confidence.

As per latest data, China’s credit growth rate was at 11.1 per cent, while Saudi Arabia’s was at 9.55 per cent. Japan recorded a credit growth of 2.9 per cent and the Euro area 1.7 per cent, Trading Economics data revealed.

Credit growth for India’s scheduled commercial banks has been accelerating since last year.

“Overall India’s growth trajectory is on course and though it is likely to slow down in the second quarter onwards, there is no cause for worry,” Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India (SBI) told India Narrative.

According to the SBI, India is poised to register a growth rate of 8.3 per cent in the April-June quarter of the current financial year. An SBI report also noted that credit growth to the micro small and medium enterprises (MSME) sector increased by Rs 52,800 crores by mid-July while loan expansion had de-grown during the same period last year.

S&P Global added that India’s economic momentum is primarily driven by domestic demand. Not only did the country’s steel production increase by 11.9 per cent year on year during the April-June quarter, consumption of the metal too rose by 10.2 per cent, it added.

Credit growth in China on the other slowed down in July though it showed a satisfactory growth in the current year. “While the advance growth has been quite good, the overall economic indicators are giving mixed signals unlike India’s as of now. However, in these changing times, all nations need to remain agile and cautious,” an analyst said.

As global growth is slowing down, all eyes are on India, China and other BRICS nations. One of the key talking points in the just concluded BRICS summit in South Africa was economic cooperation among the member nations which will eventually support growth in the emerging markets. As India now gets ready to host the G20 summit next month, the BRICS members will play a critical role in outlining the world’s economic framework.

Also read: Is BRICS set to change world energy order after top oil producers queue up to join grouping?