The Reserve Bank of India today released the December 2012 issue of its monthly Bulletin. The Bulletin includes four special articles: (i) Flow of Funds Accounts of the Indian Economy: 2008-09 and 2009-10, (ii) South-west Monsoon 2012: A Review (June 1 to September 30, 2012), (iii) India’s Foreign Trade: 2012-13 (April - September) and (iv) Finances of Foreign Direct Investment Companies: 2010-11.

1. Flow of Funds Accounts of the Indian Economy: 2008-09 and 2009-10

The Flow of Funds (FoF) accounts show the transactions in financial instruments between the major sectors of the economy on a ‘from whom-to-whom basis’. The flow of funds between sectors reflects the sectoral gaps between saving and investment as obtained from the National Accounts. While the significance of FoF as a tool for assessing, inter-alia, financial sector development, sectoral financial pressures and monetary policy transmission is well recognised, the recent global financial crisis has rekindled international attention and initiatives on the compilation and dissemination of FoF. The Reserve Bank of India has been publishing the FoF accounts of India since the early 1960s. The present article analyses the FoF accounts for the Indian economy for two fiscal years, i.e., 2008-09 and 2009-10, along with revised/updated data for 2007-08.

Key features

• The FoF accounts for 2008-09 to 2009-10 reflected the changes in the Indian macroeconomic and financial environment which transited from a robust state in 2007-08 to a period when overall growth and private sector investment slumped and financial markets came under pressure under the indirect impact of the global financial crisis in 2008-09, but recovered fairly quickly in 2009-10 as coordinated fiscal-monetary policy actions took effect.

• Aggregate financial claims issued by all the sectors as a ratio to national income declined in 2008-09 but recovered in 2009-10, and were, in fact, placed above the average during 2003-04 to 2007-08.

• The decline in the total financial claims issued in 2008-09 was primarily reflected in the private corporate business followed by the rest of the world and other financial institutions. The claims of the government sector increased, reflecting increase in overall borrowings necessitated by the fiscal stimulus measures.

• The claims of almost all sectors, particularly, the private corporate business and other financial institutions (including insurance and mutual funds), recovered substantially in 2009-10. The financial claims of the government sector declined only marginally as the fiscal stimulus programme continued.

• The claims of the banking sector, however, declined further in 2009-10 which resulted from, inter-alia, the unwinding of the Market Stabilisation Scheme (MSS) balances.

• The resource gap of the private corporate business sector narrowed in 2008-09 as investment declined more than saving. This was reflected across the major sources of funding particularly the rest of the world and banks. In 2009-10, as macroeconomic conditions improved, the higher financial deficit of the private corporate business sector was funded largely by the banking and the rest of the world.

• The household sector remained the financial surplus sector. The financial surplus of the household sector declined somewhat in 2008-09 but increased in 2009-10, in line with their financial savings. A major chunk of household financial surplus was invested in bank deposits in 2008-09. In 2009-10, the share of household financial surplus channelised towards other financial institutions increased with a turnaround in their financial position.

• The shares of both bank deposits and Government securities in total financial claims issued by all the sectors increased while that of non-Government securities (including mutual funds) declined during 2008-09 against the backdrop of financial market uncertainty. In 2009-10, the share of non-Government securities in total financial claims improved significantly.

• The finance ratio, the financial inter-relations ratio and the new issues ratio declined in 2008-09 but recovered in 2009-10 to somewhat above trend, indicating the pace of financial deepening had largely recovered in 2009-10.

2. South-west Monsoon 2012: A Review (June 1 to September 30, 2012)

The South-west monsoon during June-September 2012 was 8 per cent below the long period average (LPA) of 89 cm (average of 1951-2000) as against 1 per cent above LPA during June-September 2011. This is the second highest level by which rainfall during the period has fallen short of the LPA in the past eight years. The India Meteorological Department (IMD) had initially forecasted normal rainfall during the season. Less than expected precipitation along with uneven and slow progress of monsoon during the initial period, in particular, June-July, which coincided with the sowing period for most kharif crops resulted in delayed sowing for the crops. Recovery of rainfall during the second half of the season helped pick up of sowing of some kharif crops to an extent though some areas under crops like coarse cereals and pulses remained unsown. The result being lesser areas sown under most Kharif crops is reflected in a decline in production of most kharif crops compared with last year as per the First Advance Estimates. However, the late recovery of rainfall, especially during September augured well for standing kharif crops and has improved soil moisture content and reservoir levels, thus improving the prospects for winter and rabi crops which could help in compensating for the loss of kharif crops.

3. India’s Foreign Trade: 2012-13 (April-September)

This article reviews India’s merchandise trade performance during April-September 2012-13 (H1) on the basis of data released by the Directorate General of Commercial Intelligence and Statistics (DGCI&S). It also analyses disaggregated commodity-wise and direction-wise details for Q1 of 2012-13.

Highlights

The impact of adverse trade spillovers from weakness in the advanced as well as major emerging economies and slowdown in domestic economic activity was clearly evident on India’s trade performance. Major highlights of India’s trade performance are set out below:

• During H1 of 2012-13, exports stood at US$ 141.8 billion and showed a decline of 8.1 per cent as against an increase of 40.5 per cent during H1 of 2011-12. Decline in exports became more pronounced in Q2 of 2012-13 as global economic and trade environment remained unsupportive.

• During H1 of 2012-13, imports declined by 3.6 per cent over the corresponding period of 2011-12 and stood at US$ 234.8 billion. Lower imports during H1 of 2012-13 mainly reflected the contraction in import of gold and silver, slow domestic economic activity, lower international oil prices and a moderate growth in the quantum of imports of petroleum, oil and lubricants (POL).

• Lower growth in POL imports at 6.0 per cent during H1 of 2012-13 as compared with 51.8 per cent during H1 of 2011-12 reflects the moderation in international crude oil prices as compared with the corresponding period last year.

• Imports of gold and silver at US$ 21.3 billion during H1 of 2012-13 were 32.6 per cent lower than that in H1 of 2011-12.

• Non-oil non-gold imports during H1 of 2012-13 at US$ 134.4 billion recorded a decline of 3.2 per cent as compared to an increase of 27.2 per cent in H1 of the preceding year.

• As decline in exports has been higher than that of imports, trade deficit at US$ 93.0 billion during H1 of 2012-13 was higher as compared with US$ 89.2 billion during H1 of 2011-12. Non-oil non-gold trade deficit also stood higher at US$ 20.6 billion in Q1 of 2012-13 as compared with US$ 17.3 billion in Q1 of 2011-12.

• Commodity-wise data on merchandise exports show that engineering goods, petroleum products, chemicals, gems & jewellery and agricultural products contributed more than around 83 per cent of India’s exports during Q1 of 2012-13. Destination-wise, while the share of European Union in India’s total merchandise exports declined during Q1 of 2012-13, the same of OPEC countries and the US showed an increase.

4. Finances of Foreign Direct Investment Companies: 2010-11

The article presents the financial performance of select 745 non-government non-financial foreign direct investment (FDI) companies during the financial year 2010-11, based on their audited annual accounts. The major findings of the study are:

• While the sales growth of FDI companies improved, their net profits declined in 2010-11. Higher growth in manufacturing expenses and remuneration to employees led to reduction in profits.

• Profitability of FDI companies declined in 2010-11, while dividends to net worth ratio remained at the same level.

• The share of internal sources of funds decreased significantly in 2010-11 due to lower accretion in reserves and surplus and correspondingly the share of external sources of funds (i.e., other than own sources) went up.

• The FDI companies experienced lower growth in sales and profits as compared with those of non-FDI companies in 2010-11. The profit margins and return on equity were, however, higher as compared with those of non-FDI companies.

Ajit Prasad
Assistant General Manager

Press Release : 2012-2013/968