Even though bankers want to see the central bank occupying the driver's seat and announcing spate of measures to spur the growth engine, Jalan is likely to remain unmoved as the country's chief moneyman does not have any arrow in his arsenal which can trigger growth.

Although the GDP growth has been pegged at 6.1 per cent, with the industrial slowdown intensifying, it appears that the secondary-sector growth would not exceed 5 per cent. The Index for Industrial Production has averaged 3.5 per cent in the current fiscal, with the manufacturing index growing at just 3.2per cent. Trade numbers are also discouraging. Exports have declined 2.9 per cent on a year-on-year basis during the April-August period, while trade deficit has widened to $3.87 ($2.55 billion in the corresponding period last year).

The country has had for the 11th year recorded a good monsoon. However, damage owing to floods has washed away most of the grains, and the crop output is expected to grow at just 2-3 per cent. Prices of food articles shot up and consequently the Wholesale Price Index inflation rose to 8.1 per cent on October 10, while the Consumer Price Index rose to 15 per cent during the same period.

Monetary developments indicate that M3 at 19.3 per cent (16.9 per cent excluding RIBs) is moving above the projected trajectory of 15-15.5 per cent during 1998-99. Aggregate deposits of banks have continued to grow strongly, while the non-food credit has shown signs of pick-up in the recent period, with banks' investment in commercial papers, bonds, debentures, shares of public sectorundertakings and private corporate sector showing an uptrend. The flow of resources from banks to the commercial sector in fiscal 1999 has so far been quite substantial. Forex reserves have gone up by a marginal $98 million in the first six months of the current financial year to touch $29.46 billion. The main reason for the accretion has been an inflow of nearly $3.5 billion on account of the Resurgent India Bonds.

Monetary and credit development: Money Supply (M3) has showed an increase of Rs 70,329 crore (8.5 per cent) during the current financial year up to September 25, compared with an increase of Rs 48,804 crore (7 per cent) in the corresponding period of 1997-98. The increase is mainly on account of the rise in the Reserve Bank credit to banks and the commercial sector which went up by 23.2 per cent. The M3 figure includes Rs 17,945 crore worth of the proceeds of the Resurgent India Bonds. (Excluding these proceeds, the year-on-year M3 growth will be to the tune of 16.9 per cent.)

Astriking feature in the current financial year so far has been a quantum jump in the net Reserve Bank credit to central government. In contrast to a decline of Rs 5,964 crore in the first half of the previous year, the net Reserve Bank credit to centre has jumped by Rs 10,189 crore this fiscal. This is due to a higher degree of monetisation on the part of the Reserve Bank.

Aggregate deposits of scheduled commercial banks recorded a strong increase of Rs 58,596 crore (9.7 per cent) during the current financial year up to September 25, 1998, compared to an increase of Rs 40,949 crore (8.1 per cent) during the corresponding period of 1997-98. Food-credit increased sharply by Rs 3,594 crore during the period under review of 1998-99 as against a growth of Rs 1,306 crore in the same period of the previous financial year.

Non-food credit has gone up by Rs 450 crore in the first half, compared with a rise of Rs 27 crore in the same period of the previous year. The trend of rising investments in corporate papersas borrowers are avoiding the traditional cash-credit route continues with rates of commercial papers for top corporates veering around 200 basis points below banks' prime- lending rates.

Investment in corporate papers in the first half of the current fiscal has gone up by Rs 2,330 crore as on September 25, 1998, which is marginally lower than the previous year's growth of Rs 2,948 crore in the corresponding period. However, banks' subscription to bonds, debentures and preference shares issued by public-sector undertakings has increased by Rs 5,255 crore in the first six months of the current fiscal, compared with a rise of Rs 4437 crore in April-September 1997.

With easy liquidity and no signs of corporate rush to raise bank funds, investments by scheduled commercial banks in government securities during the first six months of the current fiscal has been substantially higher at Rs 32,944 crore, up from Rs 22,616 crore in 1997.

Over 70 per cent of the central government's gross borrowing programme--Rs 79,000 crore--has been completed in the first of the fiscal year and the balance is likely to be completed without any hiccup, as the banking system has enough liquidity.

In reponse to the various policy initiatives undertaken by the Reserve Bank over the past year, the declining trend in interest rates--which started in 1996-97--continued in the first four months of the current fiscal. However, short-term interest rates have been firming up since August, following Jalan's announcement of a rupee-support package. Interest rates in the short- and medium-end of the market have firmed up by 100 and 50 basis points, respectively. However, long-term rates have remained relatively unaffected and banks' prime-lending rates continue to be in the range of 12.27-13 per cent. Bank rate--re-activated in April 1997--has been acting as an instrument to transmit signals of monetary measures and a reference rate.

A new dimension to this year's "busy season" credit policy is the unprecedented uncertainty about thefinancial sector. Concerns about the fragility of the financial system loom large in the minds of central bankers the world over, from the crisis-affected countries of southeast Asia and Russia to Japan and even the United States.

In India, the prolonged slump has raised fears about the health of the country's financial sector, concerns which have been exacerbated recently by the Unit Trust imbroglio and the calls for the banking sector to bail out the institution. Banks are also likely to come forward--along with financial institutions--to bailout the government's disinvestment programme as well. All these bailing-out operations will affect banks. Add to that the concerns about the non-performing assets of banks and financial institutions. Standard & Poor's estimated non-performing assets figures for Indian banks, as well as those of Thomson Bankwatch, are several times the official estimates.

Even though the RBI refrains from announcing any monetary measures or structural changes on the lines ofrecommendations of the second Narasimham panel and Khan panel on harmonising the roles of banks and financial institutions, it is high time the central bank did something to shore up confidence in the banking system.