Cumulative rainfall from June 01 to July 16 2008, in south-west monsoon was 4 per cent above normal. However, 14 of 36 meteorological sub-divisions recorded scanty or deficient rains, twice the number in the corresponding period of the preceding year and the highest over the past four years. Marathwada, Vidarbha, Madhya Maharashtra, Gujarat, Coastal Andhra Pradesh and Telengana had 24 per cent or more rain deficiency.
IIP crashes to 3.8 per cent
The annual growth in industrial production as measured by Index of Industrial Production (IIP), nose-dived to over eight-year low of 3.8 per cent in May, with Manufacturing paling to 3.9 per cent and Electricity - the basic infrastructure, limping with 2 per cent. Even Mining that grew 5 per cent, could find its rate lowered, as per the downward revision in April mount from 8.6 per cent to 6 per cent. The overall IIP growth for April has been revised downward to 7 per cent from 7.5 per cent estimated ‘provisionally’ last month, and that of Manufacturing to 6.7 per cent from 7 per cent.
While project announcements seem to have maintained a brisk pace, project implementation has probably dwindled. Capital goods production resulted in a pathetic 2.5 per cent Y-o-Y rise. Machinery and Basic Metal & Alloy industries grew at 4.2 - 4.4 per cent, and Non-Metallic Mineral products stagnated at year ago level. Finished Steel (carbon) production covered under infrastructure IIP was up by 4 per cent and Cement by 6.9 per cent.
Coal production was up by 10 per cent, but Domestic Crude Oil production continued to stagnate at year ago levels. Petroleum Refinery production that works mainly on imported crude, and suffers from grossly inadequate recoveries of blazing global crude oil prices from domestic realisations of petrol, diesel, kerosene and household LPG, vegetated in May with last three months growth working out to only around 1.5 per cent. Curiously, while Basic, Intermediate and Capital Goods grew pitifully; Consumer goods posted a relatively decent growth of 7.7 per cent.
Considering the first two months of the current fiscal - April-May, the picture appears depressing, with overall IIP growing at 5 per cent, half the rate a year ago and Manufacturing at 5.3 per cent, less than a half the pace a year ago. Five of the 17 two-digit level sub-groups showed Y-o-Y declines, while another five showed less than 5 per cent mount. Only Basic Chemicals & Chemical Products (except products of Petroleum & Coal) and Transport Equipment & Parts posted around 12 per cent rise.
Money Supply Slows
Broad Money (M3) increased by 3.5 per cent until 04 July in the current fiscal; slowing from 3.8 per cent in the corresponding period of the preceding fiscal. The Y-o-Y growth also worked out lower to 20.5 per cent (21.8 per cent). Net Bank Credit to the government grew by 5 per cent, one half of 10 per cent, a year ago. Bank Credit to Commercial sector was up by 2.2 per cent, against a decline in the similar period of 2007-08. Net Forex Assets of the Banking sector rose by 7.3 per cent (decline of 1.5 per cent). The Y-o-Y growth in Reserve Money was running 31.3 per cent high (25.5 per cent) as on 11 July.
Bank deposits & credit
Aggregate deposits with SCB were up by 3.5 per cent by 04 July in the current fiscal, dwindling from 4.1 per cent a year ago. The annual rise in deposits worked out less to 21.7 per cent (24.6 per cent). Bank Credit, however, increased by Rs.46,666 crore, against the Rs.14,812 crore decline in the corresponding period of 2007-08. The Y-o-Y mount worked out to 25.7 per cent (24.4 per cent). Food Credit rose by Rs.6,322 crore, reflecting record food procurements. Non-Food Credit increased by Rs.40,344 crore (decline of Rs.12,519 crore).
Interest rates
Overnight Inter-Bank Call Money rates ranged 5.6-9.58 per cent in the first 22 days of July, against 5.86-8.98 per cent in June. The Reverse Repo Rate was at 6 per cent and Repo Rate at 8.50 per cent. The cut-off yields on 91-days and 364-days T-bills were at 9.11 per cent and 9.45 per cent, respectively. Discount rates on Commercial Papers (CP) ranged 9-12.25 per cent on CP issued in the second fortnight of June, as against 8.25-11.6 per cent in the first fortnight. Yields to Maturity (YTM) on longer-term Government of India securities were at 9.22-10.13 per cent in the week ended 18 July. Prime lending rates of major banks ranged 12.75-13.25 per cent in the week ended 11 July. Deposit rates ranged 8.75-9.5 per cent. Cash Reserve Ratio (CRR) was hiked from 8.25 per cent to 8.75 per cent in two stages of 25-basis points, each from fortnights beginning 05 July and 19 July. Rupee was traded at 42.78/79 per USD on 18 July. Rupee depreciated annually by around 5 per cent against US$, 3 per cent against Pound Sterling, and 18 per cent against Euro and Yen.
Central Government Finance
The net borrowing requirement of the Central government as measured by Gross Fiscal Deficit (GFD), worked out to Rs.73,201 crore in April-May 2008, 18 per cent more than Rs.61,135 crore a year ago. Revenue deficit worked out to Rs.67,731 crore (Rs.59,335 crore). Central government runs high deficit in the initial months; thus, fiscal deficit in the first two months was 55 per cent of the annual budgeted deficit and the revenue deficit was 1.2 times the budgeted annual amount.
Exports & Imports
Exports increased by 22 per cent (provisional-over-provisional data) to US$28.18 billion in April-May 2008. The mount in rupee terms was also a decent 21 per cent.
Total imports were up by 37 per cent to US$48.82 billion. Oil imports were US$ 16.49 billion (+49 per cent) and Non-Oil imports US$32.33 billion (+24.5per cent).
Trade deficit
The trade deficit was estimated at US$20.64 billion (US$13.92 billion).
Balance of Payments: 2007-08
The country’s Current Account Deficit (CAD) shot up almost to US$17.4 billion in 2007-08, from US$9.8-9.9 billion in 2005-06 and 2006-07. The ratio of CAD to GDP at current prices, worked out to 1.5 per cent as against 1.1 per cent in 2006-07. Reflecting stresses due to stronger rupee and global slowdown, the last quarter saw a trade deficit twice that of a year ago. The current account too ended in deficit worth US$1 billion, as against a surplus of US$4.25 billion a year ago. Broadly implying an equivalent foreign capital inflow, CAD supplements domestic saving to finance domestic capital investment.
The main reason behind the ballooning CAD, was trade deficit, which according to the Balance of Payment (BoP) statistics released by RBI, shot up from US$63 billion to US$90 billion. Import on payment basis, shot up by 30 per cent, as against 22 per cent in the preceding year and export similarly calculated at 23.7 per cent (21.8 per cent).
The export-import break-up by commodities is unavailable in RBI BoP data, but according to DGCI&S data on customs clearances, POL imports during 2007-08 worth US$ 76.9 billion, recorded a growth of 34.6 per cent (30 per cent in 2006-07), driven mainly by surging international crude oil prices, while quantity of imports showed subdued growth. Non-Oil imports increased by 23.5 per cent (22.2 per cent) led by strong growth in imports of capital goods, gold and silver.
Strong invisibles
Strong invisibles, broadly export and import of services, against that merchandise captured in trade deficit, helped contain an otherwise sharper deterioration in external trade. Thus, invisibles netted a surplus of US$ 72.7 billion (+36 per cent). Software exports yielded US$37 billion (+28 per cent), and workers’ remittances (private transfers), another stable and significant source yielded US$41 billion (+46 per cent). Local withdrawals from NRI deposits accounted for two-fifths of private remittances in 2007-08. Net tourism income was down from US$2.4 billion to US$2.1 billion, due to increased spending by Indian tourists going abroad. In Business services, management and consultancy yielded US$815 million, a steep decline from US$2.2 billion in the preceding year; similarly, Architectural, Engineering and Technical fees offered only US$52 million, as against US$2.46 billion in the preceding year. The steep downturn reflected, reduced receipts probably due to stronger rupee and global slowdown. Among other services, Communication yielded more, amounting to US$1.6 billion (+11 per cent), but Financial services gave a sharp reduction of US$238 million (-71 per cent).
Capital Account
Capital Account transactions brought in US$109.6 billion, more than twice of US$46.4 billion a year ago. Foreign investment shot up from US$15.6 billion to US$44.8 billion; bulk of this was in portfolio investment which burgeoned from US$7.1 billion to US$29.3 billion. FDI into India was up from US$22 billion to US$32 billion; while FDI overseas by Indian companies rose from US$13.5 billion to US$16.8 billion. Net commercial borrowing amounted to US$22 billion (US$16 billion) and suppliers’ credit, etc. to US$17.7 billion (US$6.6 billion). NRI deposits netted only US$179 million (US$4.3 billion), but two-thirds of withdrawals (US$19 billion) during 2007-08 comprised local withdrawals, which are effectively private transfers under current account.
Including US$18 billion rise due to the US$ depreciation vis-à-vis other currencies, the total US$ denominated forex reserves increased by US$110.3 billion during 2007-08, twice to US$47.2 billion in the preceding year.
Foreign Debt
The total external debt of the country amounted to US$221.2 billion as at end-March 2008, up from US$169.7 billion a year ago. NRI & FC (B&O) Deposits of more than one year maturity, totaled to US$43.7 billion (+6 per cent). The outstanding commercial borrowings were placed at US$62 billion (+49 per cent) and bilateral/multilateral aid at US$58.9 billion (+15 per cent). The debt is covered 1.4 times by forex reserves. US$ debt accounted for 57 per cent of total external debt, as against 52 per cent a year ago, and 42 per cent five years back.
Inflation
Annual inflation as measured by the overall Wholesale Price Index (WPI) was at 11.89 per cent by 12 July 2008. The WPI of Primary Articles and Manufactured Products rose by 11 per cent each, and Fuel & Power by 16 per. Consumer Price Indices for industrial workers and urban non-manual employees, ran 7 per cent in May, and those of agricultural/rural workers ran around 8.75 per cent in June. The composite ERIL Index of Cost of Project Inputs showed 12.8 per cent escalation. The WPI of Iron & Steel sub-group shot up 35 per cent.
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