Negatives

(a) GDP growth projections lowered In its annual statement on monetary and credit policy released on April 29, 2002, RBI had projected a GDP growth of 6.0 to 6.5 per cent for the year 2002-03. It was based on the assumption of a normal monsoon. But now the rate of growth in GDP is expected to be lower in view of the poor rainfall in some parts of the country. In line with this view, RBI has lowered GDP growth projections to 5.0 to 5.5 per cent for the year 2002-03 as against the earlier projection of 6.0 to 6.5 per cent.

(b) Infrastructure growth slumps in September 2002 Core sector growth has slumped to 1.7 per cent in September 2002 after growing at five per cent plus since April 2002. This signals that present industrial growth numbers may not be sustainable for rest of the financial year.

Infrastructure Index Sector-wise Growth (% YoY)

Sector	Aug 2002	Sep 2002	Apr-Aug 2002-03	Apr-Sep 2002-03
Crude Petroleum	2.0	0	6.3	5.2
Petroleum Ref. Products	6.7	2.8	6.2	5.6
Coal	5.9	-2.4	7.6	5.9
Electricity	3.8	-0.4	4.1	3.4
Cement	12.2	0.7	11.6	9.8
Finished steel	13.2	7.6	8.9	9.3
Infrastructure Index	6.9	1.7	6.7	6.0

Source: Office of the Economic Adviser, Ministry of Commerce & Industry, Government of India

(c) US and global economic recovery still uncertain Uncertainty over the recovery in the US economy remains, with real GDP growth for second quarter of 2002 having slumped to 1.3 per cent year-on-year after growing at an impressive rate of 5 per cent in the first quarter.

Although, the prospects for recovery in the world economy, after the September 11 events, had improved. The recovery process, however, now appears to be somewhat slower than that anticipated earlier. The International Monetary Fund (IMF) has also noted some emerging issues that would affect the investment climate adversely. These include the risk averse behaviour of financial institutions in the current uncertain economic climate; a sharp slowdown of investment into the US; and some signs of contagion from South America to other emerging markets. Whether the global economy will recover this year and the high growth rate of India's exports will sustain remains under a cloud of skepticism.

US Economic Growth (% YoY)

	1999	2000	2001	Q1 2001	Q2 2001	Q3 2001	Q4 2001	Q1 2002	Q2 2002
Real GDP	4.1	3.8	0.3	-0.6	-1.6	-0.3	2.7	5.0	1.3
Personal Consumption Expenditures	4.9	4.4	2.5	2.4	1.4	1.5	6.0	3.1	1.8
Gross private domestic investment	6.6	6.2	-10.7	-19.7	-17.6	-5.2	-17.3	18.2	7.9
Exports of goods and services	3.4	9.7	-5.4	-6.0	-12.4	-17.3	-9.6	3.5	14.3
Imports of goods and services	10.9	13.2	-2.9	-7.9	-6.8	-11.8	-5.3	8.5	22.2
Government consumption expenditures and gross investment	3.9	2.7	3.7	5.7	5.6	-1.1	10.5	5.6	1.4

Source: Bureau of Economic Analysis, US Government

Global Economic Scenario: Global Output Growth

Year	1994	1995	1996	1997	1998
% YoY Growth	3.7	3.7	4.0	4.2	2.8
Year	1999	2000	2001	2002 E	2003 F
% YoY Growth	3.6	4.7	2.2	2.8	3.7

Source: IMF, Sep 2002

(d) Non-Food Credit picks up could be due to retail borrowing, minus mergers credit could be down, food credit declined Overall scheduled commercial banks' credit showed a sharp increase of 14.1 per cent (Rs.83, 400 crore) upto October 4, 2002 largely reflecting the impact of mergers in the banking sector during the year. Excluding the impact of mergers, scheduled commercial banks' credit increased by 6.6 per cent (Rs.38, 800 crore) upto October 4, 2002 as against 6.8 per cent (Rs.34, 700 crore) in the corresponding period of the previous year. Food credit declined by Rs.800 crore in contrast to an increase of Rs.10, 200 crore in the previous year on account of lower procurement and higher off-take of foodgrains.

(e) Oil Prices surge With the Iraq question still to be sorted out, oil prices are expected to remain on the higher range of $ 26-30 per barrel. This will lead to higher energy prices in India and will push up inflation.

Average Monthly Brent (US. Dollars Per Barrel)

	1999	2000	2001	2002
Apr	15.1	23.0	25.7	25.8
May	15.0	28.1	28.0	25.6
Jun	16.0	29.7	28.2	24.1
Jul	18.9	28.6	24.5	25.7
Aug	20.3	29.9	25.7	26.8
Sep	22.8	33.3	26.0	28.5
Oct	22.1	30.9	20.5	28.2