For All Seasons

LETTERS TO THE EDITOR

This is with reference to your report of January 22, referring to the possibility that the Reserve Bank of India (RBI) might discontinue the practice of dual credit policy announcements. This is the revival of an old proposal. The dichotomy in policy making is no longer relevant and the economy is busy throughout the year, unlike in the past when there were busy and slack seasons.

This dichotomy was appropriate when the economy was predominantly agricultural and its ebbs and flows affected the banking system. Thus, the busy season coincided with harvesting, and marketing of crops generated demand for bank credit. (Till a few years ago, finance dominated the portfolios of banks). Later, there was a return flow of funds as traders realised the sale value of crops and returned the loans. This characterised the slack season. These features no longer predominate the operations of banks.

 

The share of agriculture and related sectors in gross domestic product has come down to 30 per cent from 56 per cent in 1950-51. The economy has diversified with the development of many sectors not related to agriculture (e.g. petroleum, gems and jewellery, machinery, etc.) and they have their own patterns of cash flows and credit requirements. Credit has also been flowing increasingly to these sectors.

What is more important from the point of view of seasonality of agriculture is the fact that there is activity throughout the year due to diversification of crops. The share of kharif season in total annual production of, say, foodgrains, has come down to a little more than a half in contrast to a proportion of three-fourths to two-thirds in the past, with the rabi and summer crops accounting for the balance. The seasonal factors published by the RBI in its monthly bulletin substantiate my views in relation to variables like deposits and credit.