MUMBAI: The chief of the central planning body Niti Ayog thinks more credit to small businesses can help lift the low credit to GDP ratio of 53-55%, which is only a third of the average levels in the developed economies and tapping the vast UPI data will be a better way to address the gap.
“The low credit-to-GDP ratio of just 53-55%, as against the 150-170% in the developed world, leaves formal lending base too shallow, especially for small businesses.
Banks and fintechs should tap the country's vast pool of UPI transaction data to assess risk and bring more and more small businesses into the formal credit system, Niti vice-chairman Ashok Lahiri said here Wednesday addressing the ongoing global fintech summit.
Noting that with increasing deployment of technology, credit appraisal and risk assessment can be done much more efficiently these days," Lahiri said better use of transaction data is the key to widening credit access for small businesses.
Stating that the multi-decadally high asset quality in the banking system may be forcing banks to be overcautious, he said, "we need more credit to creditworthy people with risk evaluation," arguing there is headroom to extend credit without compromising asset quality.
Also frowning up on the low share of manufacturing in GDP, which has been stagnating at around 16% for decades, Lahiri said the country lacks the scale enjoyed by China or even Korea, calling this the biggest structural challenge that the country faces.
“The share of manufacturing in the overall economy has to rise much more, for the nation to truly prosper,” he said.
He also flagged the low investment as a proportion of GDP at around 30-34%, which in China and Korea are about 10 percentage points higher. “Much of this investment has to be financed by domestic rather than foreign savings, while exports provide an additional and important source of demand,” he said.
On the falling FDI inflows, Lahiri said we need foreign direct investments not merely for capital, but also for access to global value chains, to achieve proper scale in manufacturing, and for technology.
He also flagged weaponisation of tariffs, and the breakdown of the WTO system, and the disruptive effects of AI technology as sources of uncertainty.