...Negatives

(f) Appreciating Rupee unfavourable An appreciating rupee against the US Dollar is unfavourable as it affects export competitiveness and India's exports are highly price elastic.

Rupee/US Dollar Exchange Rate (Average Monthly)

	2002	2001	2000
Apr	48.89	46.81	43.64
May	48.97	46.92	43.99
Jun	48.96	46.99	44.68
Jul	48.76	47.13	44.73
Aug	48.56	47.12	45.77
Sep	48.41	47.85	45.89
Oct	48.34	48.01	46.32

(g) Bank lending rates show resistance to further cuts The average lending rates of banks are also lower, although to a lesser extent compared to the substantial reduction in interest rates on various types of paper. PLRs of public sector banks have declined from 11.75 - 13.0 per cent to 10.0 - 12.5 per cent. There is a downward rigidity to further cuts.

(h) Government's budgeted borrowing programme may get affected The Government's budgeted borrowing programme may get affected by lower than anticipated real economic activity, shortfall in disinvestment proceeds and higher expenditure on account of drought relief.

(i) The impact of the drought more severe than expected The year 2002 was the first all-India drought year after a continuous spell of 14 good monsoons that followed the previous all-India drought year of 1987. The seasonal rainfall (June-September) for the country as a whole was 19% below normal. 29% area of the country experienced drought conditions with 19% area under moderate category and 10% under severe category. July had the worst rainfall deficiency of 49%.

When the rainfall for the monsoon season of June to September for the country as a whole is within 10% of its long period average, it is categorised as a normal monsoon. When the monsoon rainfall deficiency exceeds 10%, it is categorised as an all-India drought year. This year, the southwest monsoon rainfall for the country as a whole was 19% below normal, making 2002 an all-India drought year. The performance of monsoon rainfall over smaller areas of the country is monitored by evaluating the departures from the normal for each meteorological sub-division and district. The rainfall is classified as excess, normal, deficient or scanty as per the following criteria:

Excess	+20% of normal or more
Normal	+19 % to -19% of normal
Deficient	-20% to -59% of normal
Scanty	-60% of normal or less

At the end of the monsoon season, 15 out of 36 meteorological sub-divisions, covering 44% area of the country, received normal to excess rainfall. Out of the remaining 21 sub-divisions, only two viz., East and West Rajasthan, are in the scanty category and 19 sub-divisions are in the deficient category.

Out of the 523 meteorological districts, 272 (53%) are in deficient category, and 40 (8%) are in scanty category. 172 (33%) of the districts have normal rainfall and 33 (6%) have excess rainfall.

Severe Drought

Met. sub-division	% departure of rainfall
West Rajasthan	-71%
East Rajasthan	-60%

Moderate Drought

Met. sub-division	% departure of rainfall
Haryana, Chandigarh & Delhi	-36%
Punjab	-36%
Coastal Andhra Pradesh	-26%
Rayalaseema	-33%
North Interior Karnataka	-31%
South Interior Karnataka	-44%
Coastal Karnataka	-30%
Tamil Nadu	-45%
Kerala	-35%
Lakshadweep	-45%

The impact of the drought could be more severe than expected and will unfold gradually. Taking into account the performance of the SouthWest monsoon, it is expected that production of foodgrains this year will be lower than last year by about 5.0 per cent. The present indications are that agricultural GDP for the year 2002-03 will decline by around 1.5 per cent.

(j) Business/ Investor Confidence Business confidence seems to be tapering on account of slowdown in reforms and the impact of the drought.

Apart from credit growth, various business expectation surveys point to a positive industrial outlook for the current year. However, while taking a view on the industrial outlook, the impact of deficient SouthWest monsoon may have to be considered in view of the linkages among the various sectors of the economy.

Equity markets started on a positive note with a sharp increase in the BSE Sensex but weakened subsequently on account of cross-border tensions, monsoon uncertainties and subdued trends in the international stock markets. On an average basis, the BSE Sensex declined by 3.8 per cent to 3228 during April-September 2002 from 3355 during the corresponding period of the previous year.

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