Demand slowdown: A coordinated policy response, addressing both structural and cyclical factors, is needed | The Indian Express

Demand slowdown: A coordinated policy response, addressing both structural and cyclical factors, is needed | The Indian Express

Written by Soumya Kanti Ghosh |Updated: August 14, 2019 6:49:42 am

The writer is the chief economic advisor with the State Bank of India.

Demand slowdown: A coordinated policy response, addressing both structural and cyclical factors, is needed

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 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.

There are currently three issues that beg answers from policymakers. First, what are the reasons for the current demand slowdown? Second, whether the current slowdown is structural or cyclical and third, whether banks have stopped lending and are causing a disruption in demand. Let us address them one by one, in the reverse order.