RBI releases Q1 economic reviewOur Web Bureau / Mumbai July 25, 2005The Reserve Bank of India (RBI) today released a document "Macroeconomic and Monetary Developments: First Quarter Review 2005-06" to serve as a backdrop to the first quarter review of the annual policy statement to be issued tomorrow.The highlights of the macroeconomic and monetary developments in the first quarter (April-June) of 2005-06 are:The Real Economy The cumulative rainfall recorded during June 1 to July 13, 2005 was 1% above normal as against 10% below normal a year ago. Industrial production was buoyant and broad-based in April-May 2005 with growth accelerating in the manufacturing sector. Lead indicators point to robust services sector performance in Q1 2005-06. The generally positive developments in agriculture, industry and services, coupled with upbeat business confidence, have imparted optimism regarding growth prospects for 2005-06. Fiscal SituationIn April-May 2005-06, the centre's revenue deficit and the primary deficit were placed lower than their levels a year ago as proportion to budget estimates. During the first quarter of 2005-06 (April-June), gross and net market borrowings raised by the centre amounted to 29.7% and 30.9% of the budget estimates. States raised Rs 10,245 crore (Rs 7,554 crore through tap sale and Rs 2,691 crore though auctions). The weekly average utilisation of WMA and overdraft by the states significantly lower than a year ago. Monetary and Liquidity ConditionsUp to July 8, 2005, money supply expansion at 13.9% remained well within the indicative trajectory (14.5%) set in the annual policy statement. Reserve money increased by 18.1% up to July 15, 2005 as banks unwound LAF positions and withdrew liquidity to finance higher demand for credit. Price SituationInflation remained firm worldwide in Q1 of 2005-06 driven up by high and volatile international crude oil prices. Producer prices continue to lead consumer prices in most economies, reflective of the supply-side character of inflation. International oil prices reached new highs crossing $62 per barrel on July 7, 2005. In India, supply-side pressures on inflation conditions in April 2005 eased in May and June - pulled down by the base effect of higher prices last year as well as various monetary and fiscal measures to stabilise inflation expectations. Despite increases in electricity and petrol and diesel prices during June 2005, year-on-year wholesale price inflation edged down to 4.1% as on July 9, 2005 from 5.1% at end-March 2005. Financial MarketsComfortable liquidity kept money market segments tethered to the reverse repo rate during the greater part of the quarter. The foreign exchange market remained orderly and forward premia declined sharply in tandem with the movement of the rupee in the spot segment. Yields in the government securities market eased after April 2005 with ebbing of inflationary pressures. In the credit market, key interest rates edged up as commercial credit offtake was strong and broad-based. The equity market staged a strong rally, which pushed the BSE Sensex to new highs beyond the 7,300-level in July 2005. The External EconomyIn 2004-05, India's balance of payments recorded a modest current account deficit after a gap of three years. Buoyant merchandise exports and invisible earnings were outstripped by massive expansion of imports powered by soaring international crude prices as well as strong domestic demand. Merchandise export growth at 19.5% remained robust during April-June 2005. Non-oil imports recorded a sharp increase of 40.2% indicative of rising investment demand in the economy. High and volatile international crude oil prices have translated into a large expansion in the POL import bill. The trade deficit almost doubled to $11.5 billion during April-June 2005 from $6 billion during April-June 2004.Foreign direct investment (FDI) flows picked up alongside various types of debt flows while institutional portfolio flows significantly moderated in April-May 2005 as in other emerging markets.India
