The Reserve Bank has in its credit policy for this year assumed an 18-per cent increase in total resource flows to the commercial sector against the small decline in such flows in 1998-99. Besides, it has also projected a rise in the current account deficit to 1.5 per cent ofGDP from one per cent in 1998-99. These should translate into larger investment and imports (to fuel production) this year. It may be that the finance minister is trying to talk up the economy. But his optimism cannot be dismissed off-hand.

Independently, the Reserve Bank's credit policy assumes a revival of growth. Furthermore, foreign portfolio investors have not been deterred by the aberrant Sensex: their net purchases have risen sharply this month. This reflects their expectations of growth prospects.

The trouble is that it is difficult to predict a turnaround. Sinha feels that industrial demand is picking up. The Reserve Bank assumes "some recovery in industry" and projects the GDP growth rate to rise to six to seven per cent this year. A seven-per cent growth would mark a turnaround, not six per cent. So is not the Reserve Bank being overcautious, after projecting a rise in the current account deficit? Perhaps, it could have allowed for a somewhat larger expansion in the money supply than thetargeted 15.5-16 per cent? After all, inflation has remained low by Indian standards for close to a year-and-a-half. True, the Reserve Bank can argue that while a rise in economic growth must be accommodated by an expansionary monetary policy, the latter cannot induce growth. So the stance of monetary policy is in the direction of ensuring adequate availability of liquidity. Fair enough, but the Reserve Bank is certainly not leading expectations of a turnaround.

Both the finance minister and the Reserve Bank are agreed about the strong fundamentals of the economy: low inflation, large food stocks, high domestic financial savings and ample foreign currency reserves. Even so, expectations have turned negative: the plummeting Sensex, the pressure on the rupee and the pessimism about politics which has thwarted reform.