One of the factors cited as evidence that demand in the economy is still fragile is the low growth in bank credit. The Reserve Bank of India’s (RBI) third quarter review of macroeconomic and monetary developments points out that non-food credit growth up to 15 January 2010 in the current fiscal has been Rs2,31,024 crore against Rs2,83,855 crore over the same period in 2008-09. Much of the growth in credit last year, however, was in borrowing by fertilizer and oil companies because of the high oil prices and their inability to pass on costs to the consumer. Between April 2008 and January 2009, the amounts borrowed by these companies was Rs50,436 crore, while the amounts borrowed by these companies between April 2009 and November 2009 was a negative Rs181 crore, which means they repaid loans. So borrowing by the oil and fertilizer companies is enough to explain the lower loan growth this fiscal.
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Now consider the flows to the commercial sector from non-banks. Between April and January this fiscal, flows from domestic non-bank sources, such as public issues, private placements, commercial paper placements and investments by the Life Insurance Corp. of India were Rs1,94,758 crore, compared with Rs1,66,941 crore during the same period in 2008-09. What’s more, in some categories, recent data is not available—for instance, for gross private placements by non-financial companies the data is only till September 2009. Between April and September 2009, these private placements amounted to Rs81,617 crore, almost double the Rs44,151 crore placed between April 2008 and January 2009. So the updated total for 2009-10 will actually be well beyond the number given above.
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Flows to the commercial sector from foreign sources, such as external commercial borrowings, foreign direct investment and American depository receipt/global depository receipt issues, have also increased to Rs1,63,634 crore in April-January this fiscal, compared with Rs1,43,947 crore in 2008-09. Once again, not all the data is recent, which means the updated figure for the current fiscal will be more.
The RBI numbers show that total flow of financial resources to the commercial sector between April and January this fiscal is Rs5,89,416 crore, compared with Rs5,94,743 crore over the same period last fiscal. But as mentioned above, last fiscal’s figure includes around Rs50,000 crore of loans to fertilizer and oil companies and the figures for many of the sources are till September or November or December rather than January 2010. Moreover, during April-September 2009, the total flows were Rs3,37,291 crore against Rs4,68,211 crore for the same period in 2008. That shows a pick-up in fund flows in the last three months.
In short, the total flow of financial resources to the commercial sector, all things considered, is actually well above that for the same period last year. That shows two things:1) demand in the economy is growing robustly; and 2) RBI now has another reason to start tightening.
Graphics by Yogesh Kumar/Mint
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