Given a large jump in household leverage, monetary policy is unlikely to retain the effectiveness through large rate cuts in the current scenario. Only a counter cyclical fiscal response might address the core of the current problem.
The slowdown in demand is a fact, but the consensus that banks are not extending enough credit to help us navigate through the current slowdown is misplaced. This is a false narrative as Economics 101 suggests a bi-directional causality between economic growth and credit off-take.
The figures on the expenditure side of GDP do not foretell a promising picture. The decline in private final consumption expenditure is a matter of concern, though an increase in government final consumption expenditure has been able to offset it.
Around 70 per cent of farm land is being cultivated by tenant farmers who have no access to bank loans. So the move to grant them access to bank credit will significantly reduce rural debt. The idea of ‘Operation Green’ is also a welcome step