Uncertainty To Cast Shadow On Revival

Macro-economic prospects for 2001-02 remain uncertain with the behaviour of various indicators of economic activity belying the initial expectations of an early upturn, the Reserve Bank of India (RBI) has said in its Report on Currency and Finance 2000-01.

"The prevailing uncertainty was reflected in the revisions in growth forecasts for India for the year by various entities, ranging widely from 4.5 per cent to over 6 per cent," it said. The RBI pointed out that the business sentiment remained depressed and the capital markets witnessed subdued investors' interest.

All the same, India's real growth is forecast at 5 to 6 per cent against 2.4 per cent global growth projected for 2001-02, making the country one of the few developing countries which weathered the sharp downturn in global economy.

 

The deceleration during the first half of the current year (4.4 per cent and 5.3 per cent in first quarter (Q1) and second quarter (Q2) respectively) indicates that the slowdown which began with a decline in the growth rate from 6.6 per cent in 1998-99 to 6.4 per cent in 1999-2000 and then to 5.2 per cent in 2000-01 has continued to persist.

The ongoing deceleration of growth has mainly reflected the sharp industrial slowdown. The index of industrial production (IIP) rose barely 2.2 per cent during April-October 2001-02 against 5.9 per cent in the corresponding period in 2000-01.

The slackening of growth was visible across all major sectors - electricity generation and manufacturing - with mining recording a low growth of 0.5 per cent.

The non-food credit, adjusted for scheduled commercial banks' non-statutory liquidity ratio investments, decelerated to 11.8 per cent from 18.7 per cent last year, on an annual basis, reflecting the slowdown.

In the absence of any significant pressure from non-food credit demand, around 98 per cent of the Centre's budgeted gross borrowing programme for 2001-02 was absorbed in the primary segment of the government securities market by December 28.

The RBI said, agriculture sector, however, recorded a distinct improvement in performance, supported by a well-distributed monsoon. The gross domestic product (GDP) growth in agriculture & allied activities improved to 2.3 per cent in Q1 (0.6 per cent in Q1 of 2000-01) and 3.4 per cent in Q2 (0.5 per cent). The Kharif foodgrain production touched a new peak in 2001-02. It averred that the Rabi production was also expected to improve over the last year's level on account of a favourable north-east monsoon.

The central bank pointed out that procurement operations had raised the foodgrains stocks to 59.1 million tonne at the end of November.

First quarter GDP, originating in the services sector, posted a growth of 6.4 per cent, reversing five consecutive quarters of deceleration. Improvement in the services sector GDP continued in the second quarter as it grew by 7.2 per cent.

On the fiscal front, the report says that the budgetary position of the Centre is experiencing some stress from a cyclical decline of receipts, dampened disinvestments and expansion of expenditure relative to budget estimates.

The gross fiscal deficit (GFD) of the Centre is placed at Rs 79,133 crore in April-November 2001, higher by 23.1 per cent over the level in the first eight months of 2000-01 (Rs 64,269 crore). The GFD constitutes 68 per cent of the budget estimates (Rs 1,16,314 crore) for 2001-02.

The revenue deficit at Rs 59,270 crore (75.2 per cent of budget estimates) was higher by 38.9 per cent over the level in the same period of the previous year (Rs 42,662 crore).

"Nevertheless these developments indicate some pressure in meeting the targeted levels for important fiscal variables in the union budget such as GFD at 4.7 per cent of GDP, revenue deficit at 3.2 per cent of GDP, increase in aggregate expenditure at 11.8 per cent," the RBI said.

Inflation conditions turned benign in the absence of demand pressures as well as the supply shocks - revision in fuel prices - which characterised the previous year. Headline inflation fell to a low of 2.2 per cent as on December 22, 2001 as against 8.6 per cent a year ago.