| Those focussing on the traditional role of monetary policy don't appear to have paid enough attention to the fact that bank credit is becoming less critical in recent years. Economist Ajay Shah points out that, in June 1990, total non-food credit in the country was Rs 100,090 crore while market capitalisation (as defined by the CMIE Cospi Index, which comprises firms where trading took place on at least two-thirds of the days in the last six months) was less than half at Rs 48,650 crore. By September 2007, however, while non-food credit rose nearly 20 times to Rs 19,88,390 crore, Cospi market capitalisation rose over 106 times to Rs 51,96,470 crore. Put another way, in March 1991, the market capitalisation of Cospi firms was just under 13 per cent of GDP, and this rose to just under 95 per cent of GDP by March 2007, and a lot more since. Since buoyant stock markets represent a greater opportunity for firms to raise funds at will "" and share prices are determined by the market unlike interest rates "" this changes the picture of how much control the government can exercise through monetary policy. |
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