New Delhi, July 18 At a time when global supply chains are getting rejigged, if India can do the right reforms, it could become a meaningful producer and exporter of goods, which could spur investment, credit and GDP growth, an HSBC report said on Friday.
In the chicken-and-egg debate of who rises first, GDP growth or credit growth, we thankfully, have a new contender -- reforms, said the report by HSBC Global Investment Research.
“The reforms include lowering tariff rates, signing trade deals, welcoming FDI inflows, and improving ease of doing business. A start has been made. But for impact, reforms need to run deep,” it added.
The report said that market memory can be short.
“Same time last year, we were fretting about weak deposit growth. Today, we are fretting about weak credit growth. We believe one thing is common across both episodes. That while all eyes are on the RBI to resolve the situation, the central bank can only partly address the problem using the monetary policy levers at its disposal," it further stated.
Instead, the root of the problem, and the real solution, in both instances, lies elsewhere - the real economy and the composition of GDP growth.
Last year's deposit drag was a two-fold problem - concerns on tepid deposit growth and compositional shifts (too few sticky deposits). Once inflation started to fall, the RBI loosened monetary policy, pushing base money growth up.
“Real deposit growth started to rise in early 2025. But did the RBI solve the entire problem? Perhaps not. Some rise in deposits would have happened anyway (the credit-deposit ratio tends to mean revert). And the deposit composition problem persists,” the report mentioned.
Can the RBI help? Yes, it can, and it has, by cutting the repo rate by 100bp, and infusing large amounts of domestic liquidity.
“Will it solve the entire credit slowdown problem? Likely not. Because just as the deposit composition issue had its roots in the real economy, the credit softness issue does too,” said the report.
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