India’s pvt credit-to-GDP ratio lowest among peers

Addressing a virtual event organised by the Global Alliance for Mass Entrepreneurship (GAME), Kant said credit scenario in India in recent years for a greater part has been seen as a drag on the economy.

New Delhi: Niti Aayog CEO Amitabh Kant on Saturday said India’s private credit-to-GDP ratio is the lowest among its global peers and the government is in the process of putting in place a framework for a credit push towards untapped segments.

Addressing a virtual event organised by the Global Alliance for Mass Entrepreneurship (GAME), Kant said credit scenario in India in recent years for a greater part has been seen as a drag on the economy. “India’s private credit-to-GDP is the lowest among its global peers. Countries such as China and South Korea have had tremendous growth, massive improvement in their living standard on the back of high leverage.

“Even Vietnam’s recent development has been partially a result of growth in its private debt,” he said. Kant also said micro, small and medium enterprises (MSMEs) play a crucial role in providing employment but their credit needs are largely unmet by the formal financial sector.

“The government is in the process of putting frameworks and protocols in place for credit to be pushed to segments that have largely been untapped,” he said. Noting that financial inclusion depends on the regulatory environment, Kant said, “While a new business model will be required to fill the current gap in achieving the necessary credit flow, there is a need to change the regulation as and when required.” The entire process will require bringing all stakeholders such as banking and industry professionals, together, he added.

Kant said the MSME sector will have more credit needs going forward. So, more innovative methods will be the key to meet demands of the sector, he added. He said MSME’s credit gap is currently estimated to be Rs 25 lakh crore.

Kant also said the government has been pushing faster formalisation of the economy and on credit fronts, the government has taken several key steps. According to Kant, the financial sector is undergoing a massive change and there has been dramatic change in India’s credit scenario also.

“Over the past few years, there has been a flood of fintech (financial technology) players, which are bringing transformational change in the way financial services are provided,” he said. Kant also pointed out that the government changed the definition of MSMEs to help the sector.