Economic Survey - Slowdown likely in bank credit growth

The Economic Survey for 2006-07 has indicated that bank credit was "unlikely" to grow as fast as it had in the recent past.

It has however predicted that bank credit would continue to outpace the gross domestic product (GDP) in terms of growth in years to come.

This may imply that bank credit growth this fiscal would be lower than the 30 per cent levels recorded in the last two years. In 2005-06, bank credit grew by 30.8 per cent.

At the same time, the Economic Survey has also highlighted that both credit as well as money, as a proportion of GDP, are low in India by international standards.

Rural outreach

It The Economic Survey also said that the inflation-related supply side problem of primary commodities requires a continuation of the move to integrate the rural sector in general and agriculture in particular with the organised financial sector. "Increasing the outreach of the banking system to these hitherto neglected sectors remains a major unfinished task of economic reform," the Survey added.

With buoyant capital flows through the balance of payments, monetary and credit policies would have to steer a careful path of maintaining the international competitiveness of domestic economic activities.

Non-food credit growth

The Economic Survey has noted that higher-than-expected GDP growth, particularly in manufacturing, appears to be driving the demand for non-food credit.

Non-food credit by scheduled commercial banks (SCBs) expanded by Rs 2,59,435 crore during the current year up to January 19, 2007. This represented 22.27 per cent increase to the non-food credit of Rs 2,12,176 crore observed during the corresponding period of the previous year.

In 2005-06, the growth in non-food credit extended by SCBs was 31.8 per cent. This was higher than the growth of 27.5 per cent in 2004-05.

As regards agricultural credit, the Survey has noted that the total flow of institutional credit up to December 31, 2006, stood at Rs 1,49,343.16 crore (provisional). This constituted 85 per cent of the annual target of Rs 1,75,000 crore for the current fiscal.