India's credit crunch: Demand or supply?

Evidence of heightened risk aversion suggests a supply-shock has choked credit offtake

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.
 
A competing hypothesis, however, is the economy faces a “credit crunch” as financial intermediaries