HAS CREDIT CRUNCH LED TO INDUSTRIAL STAGNATION - A DISEQUILIBRIUM APPROACH

Industry has contended that the slow down in industrial growth is a co nsequence of a (supply side) credit crunch. The government and the Res erve Bank of India have, in turn, responded with an expansionary credi t policy led by significant reductions in the CRR. The empirical findi ngs of this paper contest the position of industry. They show that for a significant part of the first half of 1996-97 the credit market has witnessed lack of demand for credit, as opposed to credit rationing b y banks. It is unlikely, therefore, that isolated (expansionary) credi t policies, ushered in through the use of CRR and SLR, will work. The focus should rather be on the real sector: transparent and reform-orie nted policies which would boost the confidence of both consumers and p roducers.