The Indian economy is at an interesting stage with a capital market that has expanded so rapidly that it’s largely seen as overheated and set to cool. Borrowings are slowing amid high but steady interest rates that are starting to wear down economic growth, which has been above 8% each year in the five-year period leading up to fiscal 2008. That poses a challenge for policymakers who have keep inflation down, credit affordable and the currency from appreciating to unattractive levels. And, as the world come to terms with volatility in commodity prices, especially high foodgrain and oil prices, commodity trading is gaining some momentum in India as well.
Banks should find ways to make credit (loans) affordable to productive sectors so as to keep the economy growing even as policymakers and the central bank try to rein in inflation.