The higher increase in food credit during 1998-99 masks the deceleration in the growth of non-food credit, which increased by only Rs 37,594 crore during the year, compared to Rs 40,789 crore in 1997-98. Growth has been Rs 3,195 crore less lower.

The growth in non-food credit has slowed down considerably in the last quarter of 1998-99. During the quarter, while Rs 21,265 crore was added to non-food credit outstandings, this amount worked out to Rs 22,924 crore for the last quarter of 1997-98.

In real terms, after taking inflation into account, the growth would be even lower, reflecting the sluggishness in the economy.

The surprising fact is the low rate of growth in deposits, just 18.5 per cent in 1998-99 compared to 19.7per cent in the previous fiscal. This is surprising because the rate of growth of money supply (M3) has been 18.6 per cent (taking the figures as on March 12, 1999-the latest available) compared to a year-on-year growth rate of 17.6 per cent in money supply as on March 31, 1998.

The point is, while money supply grew at a faster rate than in 1997-98, deposits grew at a slower pace.

This would mean that the component of money supply that would have shown increased growth would be "currency with the public." If this were true, the implications could be that there has been a shift away from bank deposits.

An increase in currency with the public is usually seen when the transactions demand for money is high, that is people hold money to spend. This is usually associated with spending on real as opposed to financial assets, and goes with a booming economy.

Consider the fact that as on March 31, 1996, when industry was in much better shape than today, the proportion of "Currency with the public" to totalmoney supply (M3) was 19.6 per cent. This declined to 18.9 per cent as at end-March 1997, going down further to 17.6 per cent on March 31, 1998.

As on March 12, 1999, the proportion of "currency with the public" to money supply (not taking the RIBs into account, since they obscure the comparative picture) was 18.5 per cent, a big improvement. This percentage had improved from 17.9 per cent in mid-December last year. Going by the figure of currency with the public alone, therefore, there seems to be a distinct shift away from bank deposits.

Trouble is, this shift is accompanied by a slowing down of the accretion to demand deposits. Demand deposits accounted for 12.7 per cent of M3 as on March 12 (leaving RIBs out of the reckoning), compared to 14.8 per cent as on March 31 last year. The proportion was 16 per cent in March-end 1996, and 15.4 per cent as at end-March 1997.

If we take the total of "currency with the public," demand deposits and "other deposits with RBI" (a very small figure), the total isreferred to as M1. M1 as a percentage of M3 was 31.2 per cent as on March 12, 1999; 32.4 per cent as on March 31, 1998; and 34.3 per cent and 35.6 per cent as at end-March 1997 and 1996 respectively.

Since people would prefer to hold cash for transaction purposes not merely as currency but also as demand deposits, it may be difficult to state that the changes in composition of M3 reflect a pick-up in demand in the real economy. What has been happening over the last year is that people have shifted money out of demand deposits into currency. The proportion of term deposits, which was 67.6 per cent of M3 as on March 31, 1998 was almost unchanged at 67.2 per cent(leaving out RIBs) as on March 12, 1999.