The statement follows the pattern already set in the previous years both in outline and substance. Domestic Developments

• GDP growth projection for 2004-05 placed in the range of 6.0-6.5 percent as against the earlier expectation of 6.5-7.0 per cent.
• Annual inflation, as measured by point-to-point variations in the wholesale price index, rose from 4.6 per cent at end-March to 8.3 per cent in end-August but has since come down to 7.1 per cent by October 9, 2004.
• The point-to-point inflation rate based on WPI for the year 2004-05 is projected at around 6.5 per cent for policy purposes as against of 5.0 per cent projected earlier.
• Money supply (M3) growth in this fiscal year (up to October 1, 2004) lower at 5.4 per cent as compared with 7.8 per cent in the previous year.
• Projected expansion of money supply (M3) for 2004-05 retained at 14.0 per cent.
• A robust increase in non-food credit by 11.5 per cent in this fiscal year (up to October 1, 2004) as compared with an increase of 6.0 per cent in the previous year.
• The Central Government has completed gross market borrowings of Rs.75,044 crore in the fiscal year (up to October 21, 2004), which is 49.8 per cent of the budgetary amount.
• The Central Government has completed net market borrowings of 29.0 per cent of the budgeted amount up to October 21, 2004.
• The market borrowing programme in the remaining part of the year needs to be calibrated carefully in view of strong credit demand.
• Financial markets have remained generally stable though the government securities market tended to show some nervousness in recent months.
• The market interest rates have displayed some upward movement, particularly at the longer end.
• Banks advised to prepare themselves to implement the capital charge for market risk as envisaged under Basel II norms in a phased manner by end-March 2006.

External Developments

• Although global economic recovery is gaining strength, there is some increase in downside risk primarily on account of persistence of uptrend in global oil prices.
• The exchange rate of the rupee depreciated vis-à-vis US dollar, Euro, Pound sterling and Japanese yen by October 21, 2004.
• Foreign exchange reserves increased by US $ 7.6 billion from US $ 113.0 billion at end-March 2004 to US $ 120.6 billion as on October 21, 2004.
• India''s exports during April-September 2004 increased by 24.4 per cent in US dollar terms, while imports rose faster by 34.3 per cent. The higher trade deficit reflects high oil imports bill as also the growth in overall import demand.
• The current account remained in surplus consecutively over the past three years, the current account in the first quarter of 2004-05 also posting a surplus of US $ 1.9 billion.

Overall Assessment

• The pick-up in investment activity and significant growth in non-food credit appear to be broad based and are not temporary phenomena.
• As the magnitude and persistence of supply shock was partly unanticipated, demand management seems to invite closer attention, particularly for stabilising inflationary expectations in a credible manner.
• While the Reserve Bank will continue to pursue stability, the markets should be prepared for the uncertainties.
• Challenges for the rest of the year would broadly remain the same as in the first half of the year with equal weight being given to maintaining growth momentum and stabilizing inflationary expectations.

Stance of Monetary Policy

• The overall stance of monetary policy for 2004-05 will be provision of appropriate liquidity to meet credit growth and support investment and export demand in the economy, while placing equal emphasis on price stability.
• RBI to pursue an interest rate environment that is conducive to macroeconomic and price stability, and maintaining the momentum of growth.
• RBI to consider measures in a calibrated manner, in response to evolving circumstances with a view to stabilising inflationary expectations.

Financial Sector Reforms and Monetary Policy Measures

• Bank Rate kept unchanged at 6.0 per cent.
• Repo Rate increased by 25 basis points to 4.75 per cent.
• Revised Liquidity Adjustment Facility to operate with overnight fixed rate repo and reverse repo.
• Ceiling on Interest Rates on NRE Deposits raised by 50 basis points over US dollar LIBOR/SWAP rates of corresponding maturities.
• Banks may fix the ceiling on interest rates on FCNR(B) deposits on monthly basis.
• Minimum tenor of retail domestic term deposits reduced to 7 days.
• Limit on advances under priority sector enhanced for improving credit delivery to the agriculture sector.
• Restrictive provisions of service area approach to be dispensed with except for government sponsored programme.
• Banks to increase their disbursements to small and marginal farmers under special agricultural credit plans (SACP) by March 2007.
• Private sector banks are urged to formulate SACPs from the year 2005-06, targeting an annual growth rate of at least 20-25 per cent.
• Composite loan limit for SSI entrepreneurs enhanced from Rs.50 lakh to Rs.1 crore.
• Investment by banks in securitised assets pertaining to SSI sector be treated under priority sector.
• Banks may now extend direct finance to housing sector up to Rs.15 lakh under priority sector lending.
• Banks may finance distressed urban poor to prepay their debt to non-institutional lenders.
• IBA to look into the suggestions made by NCAER for the Kisan Credit Card scheme and take remedial action.
• RIDF X has been established with a corpus of Rs.8,000 crore (as announced in the Union Budget for 2004-05).
• Report of the Special Group on Debt Restructuring Mechanism for Medium Enterprises be placed in public domain.
• RBI has constituted Empowered Committees to focus on operational issues related to better functioning of Regional Rural Banks and to provide clarifications on regulatory issues.
• Report of the Task Force for reviving the rural co-operative banking institutions is expected shortly.
• Banks are urged to keep up the momentum of lending to agriculture.
• Bank finance to NBFCs for second hand assets.
• Many banks announced gold card scheme for exporters.
• Report of Working Group on Credit Enhancement by State Governments is expected shortly.
• Further move towards pure inter-bank call/notice money market.
• The minimum maturity period of CP is reduced to 7 days.
• IPAs to report issuance of CP on the NDS platform by the end of the day.
• Group to suggest rationalisation and standardisation of processing, settlement and documentation of CP issuance.
• Automated value-free transfer of securities between market participants and the CCIL facilitated.
• The Report of the Group on Negotiated Dealing System (NDS) is being placed in the public domain.
• Capital Indexed Bonds to be introduced during the year 2005-06 in consultation with the Government.
• The Report of the Working Group on Primary Dealers to be placed before the TAC.
• Settlement of OTC Derivatives through CCIL expected to be operationalised by March 2005.
• Group on Corporate Debt is expected to submit its Report in January 2005.
• The ceiling on MSS raised from Rs.60,000 to Rs.80,000 crore.
• A study Group to be constituted for strengthening OMO framework.
• Guarantee by ADs for trade credit liberalised.
• Time limit for export realisation relaxed for EOUs.
• Booking of forward contracts by exporters/importers relaxed.
• An internal Group on forex market constituted.
• RBI to undertake fresh survey on impact of trade related measures.
• RBI would prepare draft guidelines for implementation of Basel II norms and place them in the public domain.
• A second Draft Guidelines on Ownership and Governance will be put in public domain soon.
• Necessary instructions on "Fit and Proper" criteria issued to private sector banks.
• All cases of penalty imposed by RBI as also strictures/directions arising out of inspection will be placed in the public domain.
• Temporary risk containment measures prescribed on housing and consumer loans.
• Banks to comply with prudential guidelines on non-SLR securities.
• Prudential norms for classification of doubtful assets for FIs announced.
• Approaches for supervision of DFIs and large NBFCs proposed.
• Dissemination of credit information by CIBIL for improving asset quality of banks.
• To constitute a Working Group on conflicts of interest in the Indian financial services sector.
• A vision document for the future role of UCBs is being evolved.
• The Standing Advisory Committee on UCBs chaired by Deputy Governor, RBI would meet on a quarterly basis in future.
• Detailed guidelines on road map for RNBCs would be issued.
• Non-banking Finance Companies encouraged to consider phasing out their public deposits consistent with international practice.
• Enhancement of Capital Base for Asset Reconstruction Companies to 15 per cent of assets acquired or Rs. 100 crore, whichever is less.
• The Report of the Technical Group on Refinancing Institutions is expected by December 2004.
• The first lot of the data series under CDBMS to be released on November 1, 2004.
• The draft vision document on Payment and Settlement System be placed in the public domain for feedback and discussions.
• The draft regulation to set up the Board for Payment and Settlement Systems submitted to the Government for notification in the Gazette.
• The national settlement system is expected to be operationalised in early 2005.
• To constitute a Working Group on risk mitigation for Indian retail payment system to submit its Report by November 2004.
• Existing per transaction limits for ECS and EFT being dispensed with effective November 1, 2004.
• Working Group for regulatory mechanism for cards to be constituted.
• CBDT to grant refunds up to Rs.25,000 through Electronic Clearing System (ECS) facility at select centres.
• A High Powered Committee constituted for streamlining the systems and procedures for transmission of data on excise duty and service tax.

A revised draft report on International Financial Standards and Codes is being placed in the public domain.

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