Posts 4.7% Growth In First Quarter

The first quarter of the current fiscal ending June 30, 2000, ended on a reporting Friday and consisted of seven reporting Fridays.

This is worth mentioning because the corresponding previous quarter also ended on a reporting Friday on June 18, 1999, and it consisted of only six reporting Fridays. Therefore, in order to compare the data of equal periods, the quarters are June 30, 2000, and July 2, 1999(of 1999-2000).

The year-on-year (YOY) M3 growth rate decelerated to 15.2 per cent as on 30 June 2000 from 16.3 per cent (net of Resurgent India Bonds) on July 2, 1999.

This sharp increase in the M3 maybe explained by the impact of the end-March 2000 bulge in deposits which largely took place in the first reporting fortnight of the current fiscal of 2000-01 (fortnight ending April 7) as there was a full week difference in the last reporting Friday of the fiscal and the last date as per the balance sheet.

 

Reflective of this, the aggregate deposits increased by 4.5 per cent (Rs 41.749 crore) during 2000-01 compared with 2.3 per cent from the corresponding period of the previous fiscal year of 1999-2000. Currency with the public decelerated to 4.7 per cent (Rs 8922 crore) during 2000-01 from 8 per cent during the same period in 1999-2000, partly reflecting the slackening of cash demand on account of subdued agricultural activity since the latter half of 1999-2000.

On the sources side, net bank credit to the government increased by 6.5 per cent (Rs 28,912 crore) during the first quarter of the current fiscal as compared with 7.3 per cent during 1999-2000.

Bank credit to the commercial sector rose to 3.5 per cent (Rs 20,068 crore) during 2000-01 from 0.5 per cent during 1999-2000. This sharp increase was driven by an increase in scheduled commercial banks' non-food credit (2.9 per cent).

Reserve money declined by 2.1 per cent in the first quarter of 2000-01 in contrast to the increase of 0.7 per cent in the corresponding quarter of 1999-2000, partly due to cash reserve ratio reductions.

The net reserve bank credit to the center recorded a higher increase of Rs 14,412 crore during the first quarter of the current fiscal compared to Rs 11,279 crore in 1999-2000. The credit to commercial banks and primary dealers declined by Rs 3,936 crore.

The central bank's foreign currency assets declined by Rs 4,683 crore (adjusted in revaluation) in a sharp contrast to the increase of Rs 4,986 crore (adjusted for revaluation) over the same period reflecting net foreign currency sales to authorised dealers.

The M3 income velocity is expected to decrease on an average of 3.5 per cent in the 1970s to 2.4 per cent in the 1980s to 2.1 per cent in 1990s.

The income velocity is expected to decline with increased monetisation of the economy , especially with the spread of bank branches and implementation of financial sector reforms with consequential financial reforms.