The Finance Ministry has expressed confidence
that India’s economy is poised to become the
world’s third largest within the next three years,
with a projected GDP of USD 5 trillion, up from
the current USD 3.7 trillion. India’s consistent
outperformance against market expectations
has firmly established it as one of the fastest growing economies globally. The banking sector
is integral to maintaining the country’s stability,
which is pivotal for economic growth. However,
recent years have witnessed a significant decline
in year-on-year (y-o-y) credit growth in India,
largely attributed to the economic impact of the
pandemic. Despite strong credit demand, deposit
growth has not kept pace with loans, leading to a
notable increase in the overall loans-to-deposits
ratio.

In January 2024, credit to the industry expanded
by 7.8% y-o-y, down from the 8.7% growth
recorded in January 2023. Similarly, non-food
bank credit grew by 16.2% y-o-y in January 2024,
compared to 16.7% in the previous year.
On the other hand, credit to Micro, Small, and
Medium Enterprises (MSMEs) experienced a
notable surge, with a y-o-y growth of 20%,
indicating improved lender confidence and
increased credit availability to this sector.

GST has significantly driven two key outcomes:
an increase in MSME registrations and a positive
rise in credit extended to MSMEs. The number of
new MSME registrations has surged from 0.5
million in the fiscal year 2017-18 to an
impressive 15 million in the fiscal year 2023-24
(Year-to-Date as of December 2024). While GST
was introduced to streamline a convoluted tax
system and unify businesses under a single tax
framework to enhance national tax compliance,
its implementation has particularly benefited
MSMEs. This is largely due to adopting a fully
online GST compliance module, which has
regulated a significant portion of the previously
unorganized sector, thereby fostering a favorable
environment for MSME growth.