The Hindu Business Line : When the Guv talks, listen

EVEN as his predecessor was going through a political tug-of-war in the process of becoming the PM, Dr Y.V. Reddy went through a different tortuous exercise, that of announcing this year's Credit Policy. But people were too distracted by allies speaking in different tones to accord the attention that Reddy's work deserves. Hence, a quick FAQ for dummies.

What's this policy? As a policy, I know only of insurance policy.

Credit Policy, or more correctly the "Annual Monetary and Credit Policy," is a lamba document that is not for the layman except for the one input most people look for: the interest rate. If you were to ask the Guv, he'd tell you that the policy provides "a framework for the monetary and other relevant measures that are taken from time to time and captures the rationale or the underlying factors at work that affect its macro-economic assessments." Not too helpful or easily understandable, but what's comforting is that the Guv is considering so many things before writing the policy. It also sets out "the logic, intentions and actions related to structural and prudential aspects of the financial sector."

We can rely on his inflation figures, I guess?

Reddy is ready with lots of figures on this topic. Annual inflation rate, using WPI as basis, declined from 6.5 to 4.5 per cent by year-end March 2004. How? Because of lower price increase in primary articles and in the fuel group. "There was a lower increase of 2.7 per cent in the `fuel, power, light and lubricants' group (weight: 14.2 per cent) compared with an increase of 10.8 per cent in the previous year." Manufactured products that enjoy a heavy weight of 63.7 per cent registered a rise of more than 1 per cent. "Excluding `fuel, power, light and lubricants' group (weight: 14.2 per cent), the annual inflation worked out to 4.9 per cent as against 5.4 per cent in the previous year. The rate of inflation, excluding food articles and the fuel group (weight: 29.6 per cent), stood at 6 per cent compared with 6.6 per cent in the previous year." There lies the secret: Suppose you like a particular rate of inflation, you can goal-seek by adding or shedding `weights,' very much like tightening or loosening your belt.

Do we have more money?

Yes, because M3, that is, money supply has increased by 16.4 per cent. That is, Rs 2,81,147 crore, compared with only Rs 1,91,177 crore last year! There are more deposits in banks, up from Rs 1,47,822 crore to Rs 2,21,078 crore. "The expansion in currency with the public was also higher at 16.7 per cent (Rs 45,376 crore) compared with 12.7 per cent (Rs 30,587 crore) in the previous year." Check your pockets.

Any interesting jargon?

Plenty. Let me draw on what a reader has sent in: PCA is not the Punjab Cricket Association but Prompt Corrective Action. Another abbreviation that is kicking in is KYC, no cousin of KFC, but Know Your Customer. Then, there's RBS for Risk Based Supervision and CPR for Consolidated Prudential Reports. MPI stands for Macro-Prudential Indicators; SSS is Securities Settlement System; CFMS is not a school but Centralised Fund Management System; and STP sounds like software tech park but is Straight Through Processing. You know SMS, so the Guv talks of SFMS, for Structured Financial Messaging System. Further, "the Institute for Development and Research in Banking Technology is setting up a National Financial Switch to facilitate apex-level connectivity of other switches established by banks for electronic transfer of funds, and to act as an e-commerce payment gateway."

Do you still want to claim you don't understand the Credit Policy?

mail to:SayCheek@TheHindu.co.in

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