ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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CREDIT POLICY-Triumph of Monetarism

Triumph of Monetarism THE Reserve Bank of India in its half- yearly credit policy statement has provided a review of the current and emerging trends in the Indian economy. In 1990-91, as per the Bank's assessment, the economy presented a mixed performance. The agriculture sector recorded good growth. The industrial sector, on the other hand, slowed down perceptibly. Preliminary estimates place overall GDP growth in 1990-91 at 4.5 per cent, down from 5 per cent plus in 1989-90. The slack economic performance did not get reflected in price situation or in the balance of payments position. Inflation touched a double digit level of about 12 per cent for the first time in ten years, as measured by the wholesale price index. The rise in the consumer price index was sharper at 14.1 per cent in the first 10 months of 1990-91 for which data are available, as against a lower increase of 4.8 per cent in the comparable period of 1989-90. Monetary expansion in terms of M3 amounted to 15 per cent over and above a rapid rise of 20 per cent recorded in 1989-90. Growth in M,, the Reserve Bank's narrow concept of money, was also about 15 per cent after a sizeably larger increase of 22 per cent in 1989-90. The deceleration in both these measures was less impressive because it was mainly brought about by the deficit in the balance of payments, while Reserve Bank credit to government continued to surge without restraint and largely contributed to the monetary expansion. Deposit accretion at Rs 24,230 crore was lower than the RBI projected expansion of Rs 27,500 crore. In regard to credit, while food credit rose sharply by Rs 2,500 crore, non-food growth decelerated significantly to Rs 12,200 crore in the context of the subdued performance of the industrial sector; more importantly, the fall reflected the writing off of agricultural and other loans under the Agriculture and Rural Debt Relief Scheme, 1990. As for the outlook, the Reserve Bank forecasts that the economy would grow by about 4 per cent in 1991-92, although the 1991 monsoon and the effect of the difficult of balance of payment position are indeterminate at this stage. The increase in aggregate deposits is expected to be higher at Rs 29,500 crore, divided equally between the two halves of the year. Bank credit expansion has been estimated only for the first half of the year, at Rs 4,600 crore, shared by the food and non-food sectors in the amounts of Rs 1,100 crore and Rs 3,500 crore respectively. The monetary authorities intend to contain monetary expansion in 1991-92 at 14 per cent.

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