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The weakness at the heart of India’s economy

REUTERS/Rupak De Chowdhuri/Files
Waiting for demand revival.
  • Prathamesh Mulye
By Prathamesh Mulye

Writer, banking and economy


A weak banking system has come back to haunt India’s economy during the pandemic.

The country’s recovery has been slow and elusive in the wake of a stringent, months-long lockdown that drove it into a deeper recession than most of the world’s large economies. According to the data released by the government, India’s economy contracted by 24% and 7.5% year-on-year in the first two quarters of the current financial year.

Such a sharp downturn has pushed the authorities into action. India’s central bank has slashed the repo rate (the rate at which Reserve Bank of India lends to banks) to a record low and infused liquidity into the markets through innovative measures. In unprecedented moves, the central bank bought bonds in open market for the first time, and offered money at a cheaper rate to banks for one-to-three-year period. But this hasn’t moved the needle of credit growth.

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