Some of these drivers are self-liquidating, though. Credit-led consumption is cooling off rapidly and the central bank has sought higher provisioning for retail loans to avoid concentration. GoI’s capex cycle will likewise taper off, having crowded in private investment. This will have an effect on the public sector’s capex plans alongside a greater demand for credit from the private sector. Public sector banks will also have to become more aggressive with deposit mobilisation, which may divert some of the household savings that are flowing into the stock market.
The public sector has delivered during an economic downturn by reinforcing higher government spending. It has used the extended slowdown in demand for commercial credit to its advantage. Improved valuation pushes this advantage further through enhanced access to credit. As the investment cycle turns, the critical role played by state-owned enterprises may be diluted. But that does not detract from their role as economic ballast, a role they can fulfil better with improved corporate governance. The dividends from a strong public sector are substantial.