South-west monsoon has progressed well, with cumulative rainfall placed at 113.6 mm till 18 June 2008, 45 per cent above normal. Thirty-two out of 36 sub-divisions have recorded excess or normal rainfall, during the period.
CRR, REPO rates hiked
RBI raised cash reserve ratio (CRR) from 8.2 per cent to 8.75 per cent and REPO rate (broadly the short term rate at which the apex bank makes funds available to banks) from 8 per cent to 8.5 per cent, on 24 June. The step-up in CRR, i.e. the ratio of cash to deposits to be kept by banks with RBI implying equivalent impounding of lendable resources, was to be implemented in two stages of 25 basis points each, from fortnights beginning from 05 July and 19 July. Earlier, on 11 June, the apex bank had raised REPO rate by 25 basis points to 8 per cent.
The demand side monetary measures have aimed at containing further intensification of inflationary pressures and anchoring inflation expectations. The WPI-based annual inflation increased to 11.05 per cent as on 07 June 2008, from 7.75 per cent at end-March 2008 and 4.28 per cent a year ago. Inflation based on the consumer price index (CPI) for industrial workers (IW) and urban non-manual employees (UNME) stood at 7.8 per cent and 7 per cent in April 2008, and the same for agricultural labourers (AL) and rural labourers (RL) stood at 9.1 per cent and 8.8 per cent in May 2008, respectively.
IIP rises 7 per cent
Industrial production as measured by IIP grew by 7 per cent in April, a steep decline from 11.3 per cent a year ago, but at double the pace of the preceding month. The feat at least to some extent reflects halting, if not reversing the downtrend of the last quarter of the preceding fiscal, which saw the growth rate plummet from 8 per cent in December 2007 to 3.9 per cent in March 2008 (the spurt in growth rate in February reflected the impact of 29 days in the leap year). Another pointer giving some hope that the worst could be over, is the upward revision in the growth rate for March to 3.9 per cent, as against 3 per cent provisionally estimated earlier. Even the cumulative rise in IIP over 2007-08 works out more, to 8.3 per cent, as against 8.1 per cent, earlier. Among the major segments, mining grew to/by 8.9 per cent in April, Manufacturing to/by 7.5 per cent and Electricity over 12 months’ low of 1.4 per cent.
The investment side of the economy has remained comparatively healthy. IIP for capital goods increased by 14 per cent, bettering 10.9 per cent a year ago, as also around this pace in the preceding two months. Incidentally, the March mount has also been revised upward to 11 per cent, from 8.6 per cent estimated earlier. Machinery production was up by 9.4 per cent and Transport Equipment output grew at 11 per cent in April, after an erratic growth rate in 2007-08. Consumer goods expanded to/by 8.9 per cent and both consumer durables and non-durables improved upon their recent feat.
Six infrastructure industries which account for 26.68 per cent of the IIP, expanded by 3.6 per cent in April 2008. Cement production increased by 6.9 per cent, Finished Steel (carbon) by 4 per cent, Coal by 10.3 per cent, Crude Oil by 0.9 per cent, Petroleum products by 4.3 per cent and Heavy Weight Electricity by 1.4 per cent.
Money supply
Broad Money (M3) increased by Rs.97,768 crore till 06 June 2008, in the current fiscal; speeding from Rs.61,727 crore in the corresponding period of 2007-08. The Y-o-Y growth worked out to 21.4 per cent (21 per cent). Net forex assets of the Banking sector rose by Rs.1.12 trillion to Rs. 13.78 trillion - 34 per cent of M3, or 140 per cent of reserve money. Forex assets account for 91 per cent of RBI’s assets.
Bank deposits & credit
Aggregate deposits with SCB were up by Rs.60,040 crore by 06 June 2008, twice of Rs.31,436 crore in the matching period of 2007-08. The annual rise in deposits worked out to 23.2 per cent (23.3 per cent). Bank credit increased by Rs.18,504 crore, as against the Rs.40,435 crore drop in the corresponding initial period of 2007-08. The Y-o-Y mount worked out to 25.9 per cent (25.5 per cent). Food credit rose by Rs 4,838 crore by 06 June, reflecting record food procurements. The corresponding period in 2007-08 had seen Rs.3,079 erosion in food credit.
Interest rates
Overnight inter-bank call money rates ranged 6.00-8.21 per cent in the first 21 days of June, as against 5.86-7.96 per cent in May. The Reverse Repo Rate was at 6 per cent and the Repo Rate at 8 per cent. The cut-off yields on 91-days and 182-days T-bills were at 7.69 per cent and 7.68 per cent, respectively. Discount rates on commercial papers (CP) ranged 7.70-10.5 per cent on CP issued in the second fortnight of May. Yields to Maturity (YTM) on longer-term Government of India securities, were at 8.08-9.08 per cent in the second week of June. Prime lending rates of major banks ranged 12.25-12.75 per cent in the first week of June, as against 12.75-13.25 per cent a year ago. Deposit rates ranged 8.25-9 per cent, as compared to 7.5-9 per cent a year ago.
Rupee was traded at 42.86/87 per USD on 15 June. Rupee depreciated annually by around 4 per cent against US$, 3 per cent against Pound Sterling, and 16-17 per cent against Euro and Yen.
Central government finance
The net borrowing requirement of the Central government as measured by gross fiscal deficit (GFD) was placed at Rs.32,939 crore in April 2008, against Rs.27,814 crore a year ago. Revenue deficit worked out to Rs.30,482 crore (Rs.25,975 crore).
Earlier, for the second consecutive year 2007-08, gross fiscal deficit (GFD) and revenue deficit (RD) of the Central government, turned out to not only be lower than their budget estimates (BE), but also showed Y-o-Y declines. Vastly, better tax buoyancy yielded Rs.33,675 crore and around Rs.20,539 crore came from extra other receipts, which could together take care of Rs.33,080 crore splurge in expenditure during 2007-08. Net tax receipt shot up by 24 per cent - over 30 per cent in 2006-07 and 20 per cent average in the earlier two years.
However, the Central government finances as revealed in the monthly data of the Controller General of Accounts, reflected a continued regression from the progress towards a smooth spread of receipt-disbursement over the months. Thus, two-fifths of the annual gross fiscal deficit - GFD (net borrowing to finance the shortfall between expenditure and non-debt receipt) happened in the last quarter in 2007-08, against 34 per cent in the corresponding period a year ago and 26 per cent two years back. This was because of the continued lumpiness in disbursements in the last quarter, while the bulge in non-debt receipt came down to 29 per cent from 34 per cent a year ago.
Exports & imports
Exports increased by 32 per cent (provisional-over-provisional data) to US$14.4 billion in April 2008. The mount in rupee terms was also a decent 25 per cent. Export target for 2008-09 has been fixed at US$200 billion.
Total imports were up by 37 per cent to US$24.27 billion. Oil imports were US$8.03 billion (+46 per cent) and non-oil imports US$16.24 billion (+32 per cent).
Trade deficit
The trade deficit was estimated at US$9.87 billion (US$6.82 billion).
Inflation
Annual inflation as measured by the overall Wholesale Price Index (WPI) was at 11.05 per cent by 07 June 2008. The WPI of primary articles rose to/by 11 per cent, Fuel & Power to/by 16 per cent and Manufactured Products to/by 9 per cent. Consumer price indices for industrial workers and urban non-manual employees ran 7.8 per cent and 7 per cent higher, respectively, in April. Cost of living index for agricultural/rural workers ran much higher at 9.1-8.8 per cent in May. The composite ERIL Index of Cost of Project Inputs showed 12.1 per cent escalation. The WPI of iron & steel subgroup shot up by 33 per cent.
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