Borrowing by output-oriented private sector, which amounted to as much as Rs 384 billion during the first 11 months of FY08, plummeted to under Rs 14 billion during FY09 to May 30, showing a gap of about Rs 370 billion in credit utilisation over the corresponding period of last year.
The incremental growth of private sector credit in FY08 over FY07 had worked out to well over 15 percent, whereas the growth in FY09 over FY08 worked out to less than even 0.5 percent.
The figure did not look adequate enough even to meet the financial requirements of the least sophisticated agriculture sector, what to talk of other more capital-hungry sectors The abnormally low off-take of credit by the private sector during FY09 so far naturally translates into a (yet to be finalised) 2 percent economic growth for the year--the lowest in the last three decades.
The other segment of the corporate sector, namely the public sector enterprises or PSEs, however, utilised abnormally large chunk of credit, amounting to some Rs 145 billion during FY09 to May 30 as against less than Rs 61 billion in the corresponding period of FY08 and much less than this in previous years.
Detailed data available up to March 2009 showed that even bulk of the total was utilised by minor PSEs as against the autonomous five production and services giants. Who knows whether they borrowed this huge amount to meet their production needs or non-developmental spending.
Among other developments, as in the previous few weeks, surge in government borrowing for commodity operations continued through the week ended on May 30, 2009 with wheat procurement continuing in full swing from a bumper crop. Borrowing for the purpose rose from Rs 178 billion at the end of previous week to over Rs 191 billion at the end of current week, showing an increase of Rs 13 billion over the week. In a previous review, we had explained in detail the factors leading to the present surge.
In the meanwhile, government borrowing for budgetary support declined by Rs 24 billion to about Rs 321 billion during the week while in the previous week such borrowing had increased by Rs 13 billion. At its present level, budgetary borrowing from the State Bank amounted to Rs 159 billion (showing a decline Rs 39.5 billion over the previous week), while borrowing from the scheduled banks amounted to Rs 162.5 billion (showing an increase of about Rs 15.5 billion over the previous week).
Last year, in the corresponding period, the government had borrowed Rs 364.5 billion for budgetary support and that too entirely borrowed from the central bank while the scheduled banks actually happened to have retired some Rs 198 billion.
The secret of declining government borrowing from the banking system (the central bank plus the scheduled banks) this year lay in the massive recourse to borrowing from the non-bank sector through NSS which is reported to be contributing about Rs 2 billion daily to the government kitty.
It is estimated that government borrowing from this source could reach to Rs 250 billion in FY09 compared with an average of Rs 54 billion during the preceding three years. Though borrowing from the non-bank sector is considered to be the least inflationary, compared with borrowing from the central bank (highly inflationary) and scheduled banks (less inflationary than the central bank), it carries a heavier debt service burden because of very high returns offered on NSS paper.
Besides above developments on the monetary scene, OINs of the banking system contributed to a net contraction of some Rs 47 billion in money supply during the week while NFA of the banking system contributed to a net expansion of Rs 21.5 billion in it.
All said, incremental money supply during the week increased by Rs 47.6 billion to Rs 303.8 billion or 6.48 percent and consisted of about Rs 190 billion in terms of currency in circulation and over Rs 113 billion in deposit money besides other deposits with the State Bank which are of the nature of money.
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