The dip in India’s GDP growth rate in the third quarter (October-December) to 6.2 percent came as a great disappointment to monitors of the Indian economy and citizenry. This disappointing performance against earlier forecast of 7.5-8 percent has prompted the World Bank and IMF to revise their forecast for fiscal 2024-25 to 6.2-6.5 percent.

Although government spokespersons maintain that India’s economic growth rate remains the highest worldwide, given that it was stuck in the 3.5 percent per year rut for over 30 years (1960-1990), there is a lot of ground to make up and 6.5 percent per year is insufficient. India’s GDP needs to grow at more than 8 percent per year if the country is to break out of the ‘middle income trap’ (per capita income of $12,500 cf. $2,500 currently) and attain Prime Minister Modi’s Viksit Bharat and $30 trillion GDP (cf. 3.5 trillion currently) goals for the year 2047 when the nation will celebrate its century of independence.

Numerous reasons have been advanced by critics and independent economists for slowdown of the economy from 8.2 percent growth in 2023-24 despite an upsurge in agriculture output because of a good monsoon this year. Among them: slow pace of economic liberalisation; weaponisation of tax enforcement agencies; GST tax law complications; continued unease of doing business which has discouraged private sector investment.

Yet the dismal record of the banking sector dominated by the country’s nationalised banks to advance adequate credit to industry, agriculture and services hasn’t been sufficiently highlighted. Especially to MSMEs (medium, small and micro enterprises) that account for 40 percent of India’s GDP, 70 percent of industrial workforce, and 50 percent of exports.

It’s shocking but true that annual credit advanced by India’s ultra-conservative banks to private industry aggregates a mere 50 percent of GDP against the global average of 148 percent, 192 percent in the US, 180 percent in China, Korea’s 176 and 126 percent in fast-track Vietnam. Heavily bureaucratised banking has stymied the growth of India’s all-important MSMEs.

As an antidote, there is urgent need to permit promotion of High Street banking. In essence, high street banks are deposits-taking and lending institutions promoted by successful local businessmen. They tend to be well-informed about their local communities, about which small businesses are doing well and need capital to expand and grow. They proactively reach out to high-potential businesses and offer loans and assistance. India’s registered NBFCs are halfway there, but they aren’t permitted to accept deposits. Therefore, awaiting denationalisation, there is urgent need to permit deposits-taking and lending high street banks promoted by well-established businessmen who have the trust of their communities, to fund MSMEs. American industry and its globe-girdling banks were built this way.

Also read: Budget we need & budget we’ll get