FM is confident of 8% growth, credit expansion

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“If the Prime Minister’s Economic Advisory Council pegs (GDP) growth at 7.7%, I can confidently say that it will be close to 8%,” said finance minister P Chidambaram on Wednesday, after a marathon four-hour meeting with the chiefs of public sector banks. While industrial growth for the first quarter has slowed and interest rates are running high after monetary policy was tightened to contain inflation, Chidambaram stressed that “there is no slowdown in demand for credit”.

“There is some slowdown in consumption credit, or personal loans, but there is no slowdown in any other sector. Banks may be exercising some restraint, but demand for home loans continues to be very high,” the minister said.

Expressing confidence that “credit growth will still be brisk and productive sectors will not be starved of debt,” the FM reiterated: “One of the intentions of the current monetary policy is that the aggregate demand must be moderated. While non-food credit seems to have moderated very slightly, there is no sign of any slowdown as far as the infrastructure, project expansion, and new projects are concerned.”

While advances and deposits in the first quarter grew faster than last year, Chidambaram admitted that banks’ margins have come under pressure due to deterioration in their treasury portfolios. “Most banks have taken a hit on their treasury operations because the rise in the interest rates on bonds. They had to mark-to-market... As the market sentiment changes, there is a possibility that a substantial part of this may be written back.”

Dismissing concerns about a slowdown in agricultural credit, the FM said, “There was no growth in agriculture advances in the first three months because of the debt relief and debt waiver package and the delayed monsoon in Maharashtra, AP, Karnataka, MP and western Rajasthan. But it has picked up in the month of July and we will only see the comparable and meaningful number only at the end of the second quarter.”