Cmie Paints Gloomy Picture For 1997-98

Gross domestic product (GDP) is expected to grow by 5.5 per cent in 1997-98, down from 7.5 per cent in 1996-97, the Centre for Monitoring Indian Economy (CMIE) said in its monthly review of the economy yesterday.

Foreign capital inflows in the current financial year too will be lower at around $8.2 billion against $9.5 billion in the previous year, the CMIE report said.

In its previous report, released in early January, it had forecast inflows of $10.7 billion.

CMIE said foreign direct investment (FDI) inflows into India would total $3.5 billion in 1997-98 against $2.7 billion in 1996-97.

Foreign institutional investors (FII) net investment would drop to $1.5 billion in 1997-98 from $1.92 billion in 1996-97, it said.

 

It said the widening trade deficit and negative net FII inflows will weaken the rupee against the dollar.

The rupee will seek lower levels because the trade deficit has been increasing and net FII inflows have been negative, CMIE said.

CMIE said the Reserve Bank of Indias policy of hiking interest rates to defend the rupee would work only to a limited extent.

Thus a policy of maintaining high interest rates in the hope of keeping the rupee from depreciating can be sustained only to a limited extent, and it is likely that interest rates will begin to climb down sooner than later, it said.

The RBI last month hiked banks cash reserve ratio requirements by 50 basis points to 10.5 per cent. It also increased its bank rate the rate at which it lends to commercial banks to 11 per cent from 9 per cent.

The moves helped the rupee rally from an all-time low of 40.45 per dollar hit on January 15. Yesterday, the rupee closed at 38.71-73.

CMIE said untimely rains have adversely affected the cotton, onion, moong and to a small extent, the wheat crop. Yet, the overall foodgrain production in 1997-98, at 199 million tonnes, would be a shade above the 198 million tonnes produced in 1996-97.

The weighted average growth in foodgrain production would be 0.7 per cent.

Non-foodgrain production is expected to grow by only 0.2 per cent and the overall agricultural production would increase by 0.5 per cent.

The energy and infrastructure sectors have by and large, performed satisfactorily during 1997-98.

Coal production is likely to reach 300 million tonnes as against the target of 298 million tonnes, it said.

Crude oil production would be lower at 33.8 million tonnes compared to a target of 34.4 million tonnes.

But imports are increasing and these are cheaper than before.

Refineries are running at 105 per cent capacity utilisation, although the Vizag refinery is yet to start operations.