India in depth: Budget must ease credit crunch says Andy Mukherjee
- The right answer to that question has three parts: To recapitalise state-run lenders to the extent the government's meagre resources permit; to hand out new banking licences; and to remove the obstacles that prevent global banks from including India in the list of countries where they would like to deploy more of their shareholders' money.
- Why should Chidambaram be so desperate for more bank capital? The reasons are connected to both demand for credit and its supply. Right now in India, both sides of the equation are equally dire.
- Demand for credit is low because an economy that had become accustomed to growing more than 8 percent a year before the global financial crisis is now expanding only 5 percent annually. Companies that loaded up on debt when India was being hailed as the world's second-fastest-growing economy are now deleveraging to clean up their balance sheets.
- While it's convenient to blame the Reserve Bank of India's aggressive monetary tightening for the slowdown in credit demand, a recent analysis by the International Monetary Fund shows that higher real interest rates only account for about a quarter of the investment slowdown. Besides, the spurt in inflation that prompted the central bank to raise interest rates 13 times between
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