The government was never going to grant industry any fiscal sops in what was effectively a vote-on-account. Rather than complaining about a ?non-budget?, industry ought to be looking at RBI and monetary policy to provide more immediate relief. Those arguing in favour of lower rates may even have a strong case based on RBI?s own statistics which show a very unusual slowdown in total credit disbursement by scheduled commercial banks in January 2009. The figure for total credit disbursement was Rs 2,83,501 on December 26, 2008 (non-food credit was Rs 2,74,777 crore). This went up to Rs 2,97,084 crore (Rs 2,86,884 crore for non-food credit) in the January 2 2009 numbers. That was in line with the usual upward trend.

The numbers for January 16 2009, however show a decline in both total credit (down to Rs, 2,83,247 crore) and non-food credit (Rs 2,77,950 crore) disbursed by scheduled commercial banks when compared with the numbers for January 2. And this was after RBI?s most recent interest rate cut on January 2 which brought the repo rate and reverse repo rate down by 100 basis points and CRR by 50 basis points.

The downward trend was confirmed again in the latest figures released for January 30. The figure for total credit disbursement was down to Rs 2,74,424 crore and non-food credit was down to Rs. 2,73,303 crore, lower than the numbers for December 5, 2008, but higher than the numbers for November 21, 2008. So in effect, RBI?s rate cuts and government?s stimulus packages haven?t led to a sustained increase in the disbursement of credit by scheduled commercial banks. The decline in credit disbursement numbers for January (and the fact that they are lower than December?s numbers) is worrying because conventional wisdom declared the end of the credit squeeze at the end of 2008. The worst months were supposed to be October, November and December, not January.

A Bloomberg survey of 2,875 manufacturing firms across 15 major economies also throws up some interesting responses on the demand for credit and the availability of credit. The survey covers the three months before January?-the acute crisis months. Consider first the demand side. Compared with three months earlier, a majority of Indian respondents (78.5%) reported a largely unchanged need for credit?-only 13.2% of respondents said they needed more credit and 8.3% said they needed less. The average response for the survey across the world was 24% reporting a need for more credit, 62.2% unchanged and 13.2% needing less.

Consider the availability of credit?the supply side. Overall, for all countries surveyed, just 13.2% respondents said availability of credit had increased, 56.1% said unchanged and 30.7% said less was available. The response from India was interesting?19.9% respondents reported an increase in availability, 69.7% responded an unchanged availability and just 10% reported less availability. This seems consistent with RBI data which showed an increase in disbursement in November and December. The credit squeeze on the supply side was clearly not as bad as in some other countries?compared with India?s 10%, 39% of UK respondents, 35% of French respondents and 46% of Spanish respondents reported less availability of credit in the same period. If the survey had covered January, perhaps Indian manufacturers would have complained more, if RBI numbers are an indicator.

The issue in India, therefore, may not be plainly a demand for credit squeeze or a supply of credit squeeze. The issue is probably more of getting the price of credit right. At the moment, it seems too expensive even if its available. RBI must now cut rates sharply so that the pent up demand for credit can meet the availability of credit at an appropriate price. More than any fiscal stimulus, this will kickstart the economy.

dhiraj.nayyar@expressindia.com