India's credit crunch: Demand or supply?

India’s slowdown has continued unabated for six quarters. There’s clearly a demand element at play because core inflation has fallen sharply in tandem. If supply constraints had been responsible, output gaps wouldn’t have opened up, and core inflation wouldn’t have collapsed. But why has demand slowed so sharply? Is it that households have become risk averse as the slowdown has extended because the consumption that drove recent growth was driven by leverage? With consumption slowing, and global uncertainty elevated, it’s understandable why firms would retrench. &.....

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