Positives

1) In terms of relative performance, India anticipated to perform better than the global trend.

Region/Countries	GDP Growth (% YoY) 2002 Estimates
World	2.8
Advanced Economies	1.7
United States	2.2
European Union	1.1
Japan	-0.5
Developing Countries	4.2
India	5.5

Source: IMF, Sep 2002

2) Index of Industrial Production (IIP) growth picks up IIP growth has picked up in since April 2002. It has grown at 4.9 per cent year-on-year for the period April-August 2002 compared to a growth of 2.4 per cent for the same period last year.

The composite index of six infrastructure industries, viz., electricity, coal, steel, cement, crude petroleum and refinery products registered a growth of 6.0 per cent during April-September 2002, substantially higher than 1.5 per cent in the corresponding period of the previous year. During this period, all infrastructure industries recorded higher growth as compared to the corresponding period of the previous year. There are also indications of recovery in the production of basic goods, capital goods and consumer goods.

Infrastructure Industries Growth (% YoY)

Core Sector	Apr-Sep 2001-02	Apr-Sep 2002-03
Crude Petroleum	-2.9	5.2
Petroleum Ref. Products	4.2	5.6
Coal	2.1	5.9
Electricity	3.2	3.4
Cement	3.4	9.8
Finished steel	-0.9	9.3
Infrastructure Index	1.5	6.0

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

IIP Growth (% YoY)

	1998-99	1999-00	2000-01	2001-02	2002-03 (Apr-Aug)
General	4.1	6.7	5.0	2.7	4.9
Mining	-0.8	1.0	2.8	1.2	7.8
Manufacturing	4.4	7.1	5.3	2.9	4.7
Electricity	6.5	7.3	4.0	3.1	4.2
Use Based
Basic goods	1.6	5.5	3.7	2.6	5.4
Capital goods	12.6	6.9	1.8	-3.4	7.3
Intermediate goods	6.1	8.8	4.7	1.5	1.7
Consumer goods	2.2	5.7	8.0	6.0	6.9
Durables	5.6	14.1	14.5	11.5	-5.0
Non-durables	1.2	3.2	5.8	4.1	11.5

Source: CSO, Government of India

3) Exports growth booms Export performance during the current year has been encouraging so far. According to Ministry of Commerce, exports have grown at a rate of 17.8 per cent year-on-year for the period April-August 2002 compared to a decline of 2.3 per cent for the same period last year. RBI numbers on exports confirm the impressive performance. According to the latest information available, exports in US dollar terms during April-August 2002 increased by 13.4 per cent as against a decline of 0.6 per cent in the corresponding period of last year.

According to RBI, India's exports during the first five months of the current financial year at about US $ 19.8 billion, increased by 13.4 per cent over the corresponding period of the previous year. During the same period, imports increased by only 1.7 per cent as against an increase of 3.8 per cent in the corresponding period of last year. As a result, the trade deficit narrowed to US $ 2.7 billion from US $ 4.6 billion in the same period last year. Oil imports increased by 5.3 per cent in US dollar terms as compared with a decline of 5.4 per cent in the corresponding period of the previous year. Non-oil imports increased by 0.3 per cent as against an increase of 8.3 per cent in the corresponding period of the previous year. While the surplus on the non-oil account widened from US $ 1.1 billion to US $ 3.2 billion, the deficit on oil account increased marginally from US $ 5.8 billion to US $ 5.9 billion during April-August 2002. The current account deficit, which averaged 1.0 per cent of GDP over the past ten years, recorded a modest surplus in 2001-02. On present reckoning, it is expected that the current account deficit for the year 2002-03 would be below 1.0 per cent of GDP and no significant pressures on balance of payments are expected on this account.

Trade Data

	Apr-Aug 2001	Apr-Aug 2002
Exports (% YoY growth)	-2.3	17.8
Imports (% YoY growth)	2.5	1.8
Oil imports (% YoY growth)	-6.0	5.3
Non-Oil imports (% YoY growth)	6.5	0.3
Trade Deficit ($ bn.)	4.6	2.7

Source: Ministry of Commerce, Government of India

4) Non-Food Credit picks up, total flow of resources from SCBs also rise Outstanding Non-Food credit year-on-year growth has picked up since May 2002. It has been growing in the range of 24-26 per cent year-on-year since compared to 11-13 per cent growth in the same period last year.

Net of mergers too there has been improvement in the growth of non-food bank credit by 7.4 per cent (Rs.39, 600 crore), compared with 5.2 per cent (Rs.24, 500 crore) in the corresponding period of the previous year reflecting better outlook for industrial growth.

The increase in scheduled commercial banks' (SCBs') investments in bonds/debentures/shares of public sector undertakings and private corporate sector, commercial paper (CP) etc., was much higher at 7.6 per cent (Rs.6, 200 crore) upto September 20, 2002 as compared with an increase of 4.5 per cent (Rs.3, 500 crore) in the corresponding period of the previous year. Together with such investments, the increase in total flow of resources from scheduled commercial banks to the commercial sector, net of mergers, was 7.4 per cent (Rs.45, 800 crore) as against 5.1 per cent (Rs.27, 900 crore) in the corresponding period of the previous year. The year-on-year growth in resource flow, net of mergers, was also higher at 15.2 per cent as against 12.7 per cent a year ago.

Outstanding Non-Food Credit Growth (% YoY)

Date	FY 2001	FY 2002	FY 2003
April	19.7	14.5	13.0
May	19.4	13.4	24.8
June	22.7	11.0	25.4
July	21.5	11.4	25.6
August	21.6	11.2	24.9
September	22.7	11.3	26.1
1st Week October	20.7	12.8	24.1

Source: RBI

The feedback on industry-wise credit flows received from banks for April-August 2002 reveals that, at a disaggregated level, there was discernible increase in credit to coal, iron & steel, cotton & other textiles, tea, tobacco & tobacco products, paper & paper products, fertiliser, drugs & pharmaceuticals, cement, construction, gems & jewellery, petroleum, computer software, automobiles, power and residual industries. On the other hand, decline in credit was observed in mining, other metal & metal products, all engineering, electricity, sugar, vegetable oils & vanaspati, food processing, petrochemicals, rubber & rubber products, leather & leather products and telecommunications.

5) Foreign exchange reserves rise Foreign exchange reserves increased by US $ 9.9 billion from US $ 54.1 billion in end-March 2002 to US $ 64.0 billion by October 25, 2002.

India's current exchange rate policy seems to have stood the test of time. It has focused on the management of volatility without a fixed rate target, while the underlying demand and supply conditions are allowed to determine the exchange rate movements over a period in an orderly way. Despite several unexpected adverse developments on the external and domestic front, India's external situation has remained satisfactory.

India's foreign exchange reserves have increased sharply from US $ 45.2 billion as on October 26, 2001 to US $ 64.0 billion by October 25, 2002, an increase of US $ 18.8 billion. India's sustained efforts to build an adequate level of foreign exchange reserves in the last few years have also been fully vindicated by recent developments. As pointed out in previous policy Statements, the overall approach to the management of India's foreign exchange reserves in recent years has reflected the changing composition of balance of payments, and has endeavoured to reflect the "liquidity risks" associated with different types of flows and other requirements. The policy for reserve management is thus judiciously built upon a host of identifiable factors and other contingencies. Such factors, inter alia, include: the size of the current account deficit; the size of short-term liabilities (including current repayment obligations on long-term loans); the possible variability in portfolio investment and other types of capital flows; the unanticipated pressures on the balance of payments arising out of external shocks; and movements in the repatriable foreign currency deposits of Non-Resident Indians (NRIs). Taking these factors into account, India's foreign exchange reserves are at present comfortable and consistent with the rate of growth, the share of the external sector in the economy and the size of risk-adjusted capital flows.

6) Orderly conditions in forex market The Indian forex market generally witnessed orderly conditions during the current financial year (April-October 2002) with the Indian rupee exhibiting an appreciating trend against the US dollar on account of moderate demand coupled with a comfortable supply position resulting in large accretion to reserves.