The
Reserve Bank of India today released the document "Macroeconomic
and Monetary Developments in 2006-07" to serve as a backdrop to the Annual
Policy Statement for 2007-08 being announced on April 24, 2007. The
highlights of macroeconomic and monetary developments during 2006-07 are: The
Real Economy - The
Indian economy witnessed robust growth during 2006-07 for the fourth year in succession.
According to the advance estimates released by the Central Statistical Organisation
(CSO), real Gross Domestic Product (GDP) growth is estimated to accelerate from
9.0 per cent in 2005-06 to 9.2 per cent in 2006-07. The acceleration in growth
during 2006-07 was driven by the continued momentum in the services and the manufacturing
sectors, both of which are expected to record double-digit growth. 'Agriculture
and allied activities' growth, however, slowed down from 6.0 per cent in 2005-06
to 2.7 per cent in 2006-07.
- According
to the Third Advance Estimates, production of foodgrains during 2006-07 is likely
to be 211.8 million tonnes, an increase of 1.5 per cent over the previous year.
- Industrial
production continued its growth momentum during April-February 2006-07, with growth
accelerating to 11.1 per cent from 8.1 per cent a year ago. The manufacturing
sector grew by 12.1 per cent during April-February 2006-07.
- The
services sector, with a growth rate of 10.7 per cent during April-December 2006
as compared with 9.8 per cent a year ago, continued to be the key driver of economic
activity.
- Profits
after tax of RBI sample non-Government non-financial companies increased by 48.7
per cent during April-December 2006 on top of 36.8 per cent growth recorded in
the corresponding period of 2005. Ratio of profits after tax to sales improved
to 11.0 per cent during the quarter ended December 2006 from 8.6 per cent a year
ago
Fiscal
Situation - According
to the revised estimates for 2006-07, the key deficit indicators of the Central
Government, viz., revenue deficit, gross fiscal deficit and primary deficit, relative
to GDP, at 2.0 per cent, 3.7 per cent and 0.1 per cent, respectively, were placed
lower than their budgeted levels.
- According
to the Reserve Bank records, actual gross market borrowings through dated securities
by the Central Government amounted to Rs.1,46,000 crore during 2006-07. The weighted
average yield of the dated securities issued during 2006-07 increased to 7.89
per cent from 7.34 per cent during the previous year. The weighted average maturity
of the dated securities issued during the year fell to 14.72 years from 16.90
years during 2005-06.
- During
2006-07, revenue deficit and gross fiscal deficit of State Governments were budgeted
at 0.1 per cent and 2.7 per cent, respectively, of GDP - a reduction of 0.4 percentage
points and 0.5 percentage pints, respectively, over the previous year.
- During
2006-07, the States raised market loans amounting to Rs.20,825 crore through auctions,
with cut-off rates in the range 7.65-8.66 per cent.
- The
liquidity position of the States remained comfortable during 2006-07. This was
reflected in the weekly average investment by the States in the 14-day Treasury
Bills which increased further during 2006-07 to Rs.43,075 crore from Rs.35,278
crore in the previous year. The weekly average utilisation of WMA and overdraft
by the States at Rs.234 crore in 2006-07 was lower than that of Rs.482 crore in
2005-06.
- The
Union Budget for 2007-08 proposes to continue the fiscal consolidation process,
with the key deficit indicators as per cent of GDP budgeted to be lower in 2007-08
than in the previous year. The revenue deficit relative to GDP is budgeted to
be reduced in 2007-08 by 0.5 percentage points, which is the minimum stipulated
threshold limit under the FRBM Rule, 2004; therefore, a substantial correction
in the revenue deficit of 1.5 percentage points would be required in 2008-09,
the terminal year for meeting the FRBM target.
Monetary
and Liquidity Conditions - Broad
money growth accelerated to 20.8 per cent (Rs.5,67,372 crore) (year-on-year) at
end-March 2007 from 17.0 per cent (Rs.3,96,881 crore) a year ago.
- Non-food
credit of scheduled commercial banks (SCBs) expanded by 28.0 per cent (Rs.4,10,285
crore), y-o-y, as on March 30, 2007 as compared with 31.8 per cent (Rs. 3,54,193
crore) a year ago.
- Deposits
exhibited sharp growth and enabled financing of sustained high demand for credit.
Deposits of SCBs increased by 23.0 per cent (Rs. 4,85,210 crore) (y-o-y) as on
March 30, 2007 as compared with 18.1 per cent (Rs. 3,23,913 crore) a year ago.
- Reserve
money expanded by 23.7 per cent (Rs.1,35,892 crore), y-o-y, as on March 31, 2007
as compared with 17.2 per cent (Rs.83,922 crore) a year ago. Adjusted for the
first round effects of the hikes in the CRR, reserve money growth (y-o-y) was
18.9 per cent as on March 31, 2007.
- The
Reserve Bank continued to modulate market liquidity with the help of repo and
reverse repos under the liquidity adjustment facility (LAF), issuance of securities
under the Market Stabilisation Scheme (MSS) and the cash reserve ratio (CRR).
The task of liquidity management was complicated during 2006-07 due to large variations
in market liquidity on account of variations in cash balances of the Governments
and capital flows.
Price
Situation - Headline
and core inflation remained at elevated levels in many economies during the first
half of 2006-07 reflecting high commodity prices and strong demand conditions.
Although headline inflation eased somewhat internationally from August 2006 levels
in tandem with the softening of international crude oil prices and favourable
base effects, it remains above the inflation targets/comfort zones in many economies.
Many central banks continued with pre-emptive monetary tightening to mitigate
the second round effects, especially in the face of continuing strong demand.
Central banks in emerging market economies also raised cash reserve requirements
to address concerns regarding excess liquidity arising, particularly from large
external flows.
- In
India, prices of primary food articles and manufactured products exerted upward
pressures on headline inflation in 2006-07. Wholesale price inflation was generally
within the Reserve Bank's indicative projections of 5.0-5.5 per cent up to mid-November
2006 and rose above the upper end of the band thereafter. The year-on-year (y-o-y)
inflation was 5.7 per cent as on March 31, 2007 as compared with 4.0 per cent
a year ago.
- Measures
of consumer price inflation remained above the WPI inflation throughout the year,
mainly reflecting the impact of higher food prices.
- The
Reserve Bank continued with the policy of gradual withdrawal of monetary accommodation,
using various instruments at its disposal flexibly to stabilise inflationary expectations.
The Government also took fiscal and supply-side measures to contain inflation.
Financial
Markets - Indian
financial markets remained generally orderly during most part of 2006-07. There
were, however, some spells of volatility at different points of time during the
year reflecting developments in liquidity conditions on account of large and sudden
changes in capital flows and cash balances of the Governments.
- The
call money rate edged up during the year in tandem with movements in policy rates.
The call rate remained mostly within the corridor set by the Reserve Bank's repo
and reverse repo rates during April-November 2006. In the subsequent months, there
were a few brief episodes (last week of December 2006 and second half of March
2007) of higher volatility when the call rate exceeded the repo rate significantly.
- In
the foreign exchange market, the Indian rupee exhibited two-way movements with
a strengthening bias since mid-July 2006.
- Yields
in the Government securities market hardened during the year and the yield curve
flattened.
- Banks'
deposit and lending rates edged up, especially in the second half of the year.
The
External Economy - According
to the Directorate General of Commercial Intelligence and Statistics (DGCI&S)
data, merchandise exports recorded a growth of 19.3 per cent during April-February
2006-07 as compared with 26.3 per cent during the corresponding period of 2005-06.
- Non-oil
imports increased by 25.7 per cent during April-February 2006-07 as compared with
26.4 per cent during the corresponding period of 2005-06. Growth in oil imports
remained high, reflecting partly the increase in volumes.
- Net
invisibles surplus increased to US $ 40.5 billion during the first three quarters
of 2006-07 (from US $ 28.1 billion a year ago), benefiting from continued growth
in exports of services and remittances.
- Net
invisibles surplus financed a large part of the deficit on the merchandise trade
account. Current account deficit at US $ 11.8 billion during April-December 2006
was marginally lower than that in April-December 2005 (US $ 11.9 billion).
- Capital
flows were substantially higher, led by foreign direct investment (FDI) flows.
Outward FDI flows associated with acquisitions by Indian corporates abroad also
increased. Capital flows (net) increased from US $ 13.8 billion during April-December
2005 to US $ 28.0 billion during April-December 2006.
- Foreign
exchange reserves increased by US $ 47.6 billion during 2006-07 to US $ 199.2
billion. As on April 13, 2007, India’s foreign exchange reserves were US $203.1
billion.
Alpana
Killawala Chief General Manager Press
Release : 2006-2007/1450 |