Consider the facts. Between March 26, 1999, to June 18, 1999, bank credit increased by a mere Rs 116 crore. A closer look shows that this entire increase was due to a rise of Rs 5,405 crore in food credit. Food credit is the borrowing made by the Food Corporation of India from banks to finance their foodgrain procurement operations. So a rise in food credit may indicate that there is more procurement of foodgrains this fiscal year, but how does it indicate a recovery? In fact, the figures show that non-food credit actually fell by Rs 5,289 crore over the same period. That means credit must be contracting, but the reassuring part is that we are right now in what used to be termed the `slack' season, the period between April to September which isusually the lean season for agricultural production. Since about one-third of our national income comes from agriculture, all industrial activity slackens during the period, which is reflected in a decline in credit offtake from banks. This is an annual phenomenon, and a fall in credit during April to August is no cause for worry.

Now for the good news. Although the decline in non-food credit was Rs 5,289 crore during the period March 26 to June 18 this year, the fall in non-food credit was much more pronounced last year. In 1998, non-food credit declined by a whopping Rs 9,590 crore during the period March 27 to June 19. A clear indication that the rate of decline this year is much lower, which means that demand for credit has picked up.

This confirmation of a recovery is all the more important because bank credit is usually a factor which is affected only when a recovery is well under way. In the jargon, bank credit is not a `leading indicator'. The reason is simple. During a recession, companies areunable to sell their goods, and unsold stocks pile up at warehouses and godowns. When demand revives, it is these unsold stocks which are sold off initially. That means there is no additional demand for working capital, at least in the beginning. It is only when the stocks clogging the pipeline have been cleared that bank credit is needed for expanding working capital. So what the RBI figures show is that not only is a recovery on, but that it has already gathered steam.

The picture is unchanged even if we include the banks' investments in corporate sector paper. Although incremental investment in commercial paper, bonds, etc, has been lower this year, the total of all these investments plus non-food credit has decreased by a mere Rs 3,674 crore this year, between the period March 26 to June 18. Compare last year's corresponding decline of Rs 6,625 crore between March 27 to June 19, and it's clear that a recovery in bank credit is well under way.