Why has India proved so resilient to the financial crisis? The government has been quick to say that its management of the economy was the answer. Others have credited the central bank for its resistance towards opening up the banking system to foreigners. A third section believes the reason is that the crisis originated in the West, so much so that Rakesh Mohan, former deputy governor of the Reserve Bank of India (RBI), said at a recent Mint debate that it should be called a “North Atlantic crisis”. All these points of view are true. But perhaps the real reason is India’s insularity and a huge hinterland dependent on a domestic economy whose rhythms are very different from the global one. In contrast, the cities most linked to the outside world have felt the impact of the crisis most keenly.
RBI data on bank credit growth in the year to end-September 2009 (i.e., the 12 months after the collapse of Lehman Brothers Holdings Inc. and the most critical period for the world economy) for the top 200 cities in India in terms of size of bank deposits/credit show that credit growth for Greater Mumbai was a mere 4.8%. Mumbai is the city most exposed to the global economy and its economy was severely affected. During the previous 12-month period, between September 2007 and September 2008, credit in the Greater Mumbai area grew by 25.1%.
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Delhi did even worse, with credit growth down to a mere 2.2% year-on-year at end-September 2009. During the previous 12-month period, bank loans had grown by a very high 39.2%. Bangalore had also been badly hit by the crisis, with year-on-year credit growth at end-September 2009 down to 9% from the 27.1% growth it had posted during the previous 12 months. Note that all-India credit growth during the year to end-September 2009 was 12.3%, so it’s clear that these big cities showed lower than average growth during the period.
Credit growth in Kolkata was hardly affected. Bank credit in the eastern city increased by 18.9% for the year to end-September 2009, lower than the 27.1% growth it had notched up during the previous 12 months, but nonetheless a higher rate of growth than the other big cities. Hyderabad, with bank credit almost the same size as Kolkata’s, saw an increase of 27%, a reflection perhaps of the importance of infrastructure growth in Andhra Pradesh.
Graphic: Yogesh Kumar/Mint
There are other contrasting stories. Pune, largely an industrial town, saw its credit growth slow to 12.4% in the year to end-September 2009. Ludhiana’s was 12.2%. In sharp contrast, credit in Jaipur increased by 37.8%, while in Chandigarh it increased by 32.8%. Despite the low credit growth in Delhi, credit in Noida on the outskirts rose by a high 48%. Panchkula, Bhubaneswar, Bhopal and Bidhan Nagar (Kolkata) also had very high rates of credit growth.
Perhaps the clearest confirmation of the fact that the hinterland was unaffected by the crisis lies in the fact that the credit growth of 10.5% in the top 200 cities was outpaced by the all-India average of 12.3%. During the year to end-September 2008, credit growth for the top 200 centres was higher at 28.3% compared with the all-India figure of 25.7%.
That said, it’s interesting to compare how credit growth has increased in the cities in the last 10 years (till September 2009, the latest quarter for which RBI data is available). In September 1999, the 10 biggest cities in terms of bank credit were—in order of size—Mumbai, Delhi, Chennai, Kolkata, Bangalore, Hyderabad, Ahmedabad, Chandigarh, Pune and Coimbatore. Ten years later, the order is Mumbai, Delhi, Chennai, Bangalore, Kolkata, Hyderabad, Ahmedabad, Pune, Jaipur and Chandigarh. Bhubaneswar has moved up from No. 32 in 1999 to No. 17 in 2009. Patiala has moved up from being ranked No. 40 in 1999 to No. 21. Raipur has moved up from No. 53 to No. 25. On the flip side, there have been cities that have fallen behind in the league tables. These include Srinagar, at No. 16 in 1999 and at No. 32 in 2009; Patna from 31 to 38; Jamshedpur from 38 to 46.
And finally, here’s another statistic—the top five cities accounted for 49% of total credit in India in 1999; in 2009 they accounted for 52% of total credit. Mumbai’s position has become stronger, with its share in total credit rising to 26.5% from 21.3%.
Manas Chakravarty takes a weekly look at trends and issues in the financial markets.
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