Take, for instance, the latest data on non-food credit. The numbers show that the momentum in loan growth that started in February strengthened during the first half of March. Banks have started to lend again. Here’s what the data say: from mid-December to mid-January, the rise in non-food credit was Rs3,047 crore; from mid-January to mid-February it picked up a bit to Rs4,250 crore; and between mid-February to the middle of March, loan growth increased by Rs42,896 crore. It might be pre-election spending or month-end demand or the result of arm-twisting by Big Brother government, but the fact remains that the clogged “credit channel" is opening up again. The numbers show that between mid-February and mid-March this year, growth in non-food credit is a bit more than two-thirds that during the same period of 2008, which fits in with a deceleration in gross domestic product (GDP) growth from 9% to around 6%. But there’s little doubt that we’re bouncing back from the credit crunch of the last quarter.

Also See Bank Lending Recovers (Graphic)

Another bit of recent macro data also adds to the optimism. The infrastructure index of six core industries (electricity, coal, steel, cement, crude oil and petroleum refining), which have a weight of 27% in the Index of Industrial Production, showed a year-on-year growth rate of 2.2% in February, the highest in the last four months. Steel and cement showed good growth, which also agrees with anecdotal evidence of higher cement dispatches by companies and more production at steel plants, particularly of long products.

There is, though, a threat to the recovery in the form of higher bond yields. Banks’ investments in government and other securities that qualify for SLR status fell during the first half of March. The trend of declining bank investments in these instruments continues. Between mid-December and mid-January these investments rose by Rs54,475 crore, between mid-January and mid-February Rs32,166 crore and between mid-February and mid-March Rs10,748 crore. With banks reluctant to put their money in these instruments on the one hand and with the government’s huge borrowing programme on the other, it’s no wonder yields have hardened. If the government wants to keep the recovery on track, it will have to find ways and means of lowering bond yields.

Despite the appearance of some green shoots, a full-fledged recovery is still a long way off. On the domestic front, the uncertainty over the election of a new government looms large, while the global cues, despite some improvement, remain very uncertain—for instance, US consumption spending growth slowed in February.

Markets across the world are celebrating the economy’s rebound from the lows of the last quarter. There’s one caveat though: even if the global economy may have hit the bottom, that doesn’t mean it can’t bounce along there for a very long time—all you have to do is look at Japan.

Graphics by Ahmed Raza Khan / Mint

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