Summary of RBIs annual report 2001-02

Mumbai: The Annual Report of the Reserve Bank of India for the year 2001-02 was released on August 30, 2002. The Report presents the Annual Accounts of the Reserve Bank and its working and operations for the year ended June 30, 2002. The Report also presents a review of the Indian economy during 2001-02 and prospects for the near- and medium-term.

In the year 2001-02, India was among the strongest growing economies in the world, notwithstanding an international environment bound down by the synchronised weakness affecting large parts of the global economy. Agriculture performance was robust with the stock of foodgrains crossing 63 million tonnes. With the posting of a modest current account surplus after 24 years and the continuing strength of the capital flows, Indias foreign exchange reserves rose to US $ 60.6 billion, placing India among the top reserve holding emerging market economies. Monetary and financial conditions remained stable in 2001-02 as well as in the first few months of the current year. There was a distinct easing of inflationary pressures.

The macroeconomic prospects for the current year 2002-03 are mixed. On the one hand, financial, liquidity and inflationary conditions and the external sector are highly favourable for higher growth. On the other hand, the agricultural outlook is sombre with likelihood of widespread drought. This may also adversely affect the incipient industrial recovery. On balance, there is a strong possibility that the growth rate of 6.0 to 6.5 per cent projected in the Annual Monetary and Credit Policy Statement (April 2002), which was based on the assumption of a normal monsoon, will not be realised. A re-assessment of the projected growth rate for the current year will be attempted in the mid-term review of the Monetary and Credit Policy in October 2002, by which time reliable information regarding the effects of drought on the agricultural and industrial output will be available.

The monetary and credit policy for 2002-03 has been reinforced by favourable developments in the form of low inflation, ample liquidity in financial markets, continuing capital inflows and a substantial build up of foreign exchange reserves. The policy stance continues to ensure that all legitimate requirements of credit are met consistent with price stability, with the outlook biased towards a soft and a more flexible interest rate structure in the medium term. Monetary policy has been imbued with a flexible approach and markets are being prepared for shifts in stance if a change in circumstances warrant a tightening.

Considerable progress has been achieved in financial sector reforms in India in terms of setting out the objectives, the framework and the timetable. Indias position on international standards and codes in respect of the financial sector has been placed in the public domain. Expert assessment, both internal and external, of the applicability of these worlds best practices to the specifics of the Indian situation has also been undertaken to enable an unbiased public assessment of the announced resolve to converge to international norms, with the speed and content modulated to the country-specific case. The focus of financial sector reforms is now on the implementation of the agenda of reforms over a wide area involving financial markets, financial intermediaries and the regulatory and supervisory function.

In sum, the Indian economy seems to have acquired a remarkable degree of resilience to withstand domestic and external shocks with minimal adverse consequences for growth, inflation and financial stability. A foundation has been laid, particularly in financial and external sectors, for acceleration of the growth rate.