Reserve Bank of India

The extent and nature of intergovernmental transfers to our cities from the higher levels of governments have not been paid adequate attention in the report. International experience from both developed and emerging economies suggests a much higher level of IGT to local governments. The transfers are especially critical in view of the goods and services tax regime, which has left out any provision for the third tier of governments.

The reason for the increase in the current account deficit during first quarter of fiscal year 2022–23 is analysed. One reason for the widening of CAD has to do with India’s growing dependence on fossil fuels. There is also an element of lack of price competitiveness that is hurting exports. India is exporting low-valued technology-intensive goods whereas importing high-valued technology-advanced goods. The Government of India and the Reserve Bank of India are taking adequate measures to control the widening trade deficit. While some of these measures are yielding results in reducing CAD, external factors such as geopolitical tensions and the United States Federal Reserve System’s move of quantitative tightening are making CAD difficult to control.

The non-banking financial companies play a critical part in credit intermediation in India, with an active participation in credit lending to the segments that are largely left out by the formal banking channels. These include micro, small and medium enterprises, agriculture sector, and other unbanked sectors. Hence, they play a noteworthy role in the last-mile delivery of financial services and overall financial inclusion. Against the backdrop of the recent liquidity crisis, the financial health of selected 15 large NBFCs and the capital requirement regulations towards the sector are examined.

The gradual evolution of industrial credit in India in the last three decades is examined against the backdrop of significant structural change in ownership and regulation in the Indian banking sector. The impact of institutional changes in the Indian banking sector during the post-liberalisation phase, especially in the form of the gradual winding up of development financial institutions, on the institutional credit flow to industry is analysed. There is a significant impact of the changing ownership structure of banks on the sectoral allocation of credit. Based on the analysis of sectoral credit flow from the commercial banks and specialised term-lending institutions in India over the last three decades, the need for creating a professional talent pool within the commercial banks for term-lending as well as lending to small entrepreneurs is underscored.