Credit Growth Slows To 10.4%, Raise Concerns Over Economic Momentum

(MENAFN- KNN India) New Delhi, Jul 29 (KNN) India's economic growth momentum may face constraints from declining credit expansion and weakened private investment, according to the finance ministry's assessment released Monday.

The ministry also highlighted concerns over potential trade disruptions stemming from ongoing uncertainty regarding United States tariff policies.

Credit growth among scheduled commercial banks registered 10.4 percent annually as of June 27, marking a significant decline from the 13.9 percent recorded in the corresponding period last year.

This deceleration occurs despite monetary easing measures and robust bank balance sheets, indicating cautious sentiment among both borrowers and lenders.

The ministry's monthly economic review attributed the slower credit growth to risk-averse behavior from financial institutions and hesitant borrowing patterns.

Corporate entities have increasingly turned to bond markets, particularly commercial paper instruments, seeking lower borrowing costs compared to traditional bank credit facilities.

India's merchandise export performance reflected broader economic challenges, with shipments totaling $35.14 billion in June, representing a modest year-on-year decline.

Export figures have remained either stagnant or negative across most recent months, with notable exceptions in April 2025 and October 2024.

The April export surge primarily resulted from exporters accelerating order fulfillment to avoid a proposed 26 percent reciprocal tariff by the United States.

This additional levy has since been suspended, replaced by a 10 percent baseline tariff alongside existing Most Favored Nation rates for US-bound exports.

Despite these challenges, the finance ministry noted that strong domestic demand and robust services sector activity sustained economic growth momentum during the first quarter of fiscal year 2026.

The ministry emphasised the importance of corporate participation in government initiatives, particularly the Employment Linked Incentive scheme, to stimulate economic activity.

Multiple forecasting agencies, including S&P, ICRA, and the Reserve Bank of India's Survey of Professional Forecasters, project India's GDP growth for fiscal year 2026 to range between 6.2 and 6.5 percent.

These projections reflect expectations that India will maintain its position among the world's fastest-growing major economies, supported by domestic demand, fiscal discipline, and accommodative monetary policy.

However, external factors pose potential risks to sustained growth. The ministry's economists warned that global economic deceleration, particularly a 0.5 percent contraction in the United States during the first quarter of 2025, could further reduce demand for Indian exports.

While geopolitical tensions have not intensified, the combination of global slowdown and trade policy uncertainty continues to present challenges for India's export-dependent sectors.

(KNN Bureau)

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