Economic growth during the December 2016 quarter hasn’t been backed by growth in bank credit. While gross bank credit increased by 3.3% year-on-year as at end-December 2016, the year-on-year growth in nominal gross value added (GVA) during the quarter was much higher, at 10.1%. The lack of bank lending doesn’t seem to have dampened growth, if the Central Statistics Office’s numbers are correct.

Even more interestingly, bank loans outstanding to industry showed a year-on-year contraction of 4.3% at the end of December 2016, yet industrial growth (including the construction sector) was up 9.5% in nominal terms for the quarter. Industry seems to have no difficulty growing even when bank credit to it is coming down. In short, economic growth in India during the December quarter seems to have become creditless growth. Chart 1 has the details.

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Economists have said that the demonetisation of high-value currency notes has been a monetary shock to the economy. The effect on money supply (M3) has certainly been dire. M3 includes both currency with the public as well as demand and time deposits with banks. M3 growth (year-on-year) almost halved from 12.1% at the end of September 2016 to a mere 6.5% by the end of December, according to Reserve Bank of India numbers.

But that doesn’t seem to have imparted a similar shock to nominal GDP (gross domestic product) growth, which came down modestly from 11.8% in the September quarter to 10.6% in the December 2016 quarter. Chart 2 shows that growth in nominal GDP during the December quarter was totally out of sync with growth in the money supply. The data suggests that growth during the December quarter was not just creditless but also moneyless. And, of course, it was cashless as well.

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