Positive

01 Jan 1900

Economy demonstrated its intrinsic strength Robust export growth, healthy accumulation of foreign exchange reserves, a much improved performance by infrastructure industries, and a revival in overall industrial growth are clear indicators of the buoyancy and resilience that the economy has exhibited in the current year despite several and simultaneous adverse factors.
The supply position of foodgrains continues to be comfortable with sufficient buffer stocks. The Food Corporation of India (FCI) held 51.4 million tonnes of foodgrain stock on October 1, 2002. Adequate supplies have prevented flare-ups in prices of most essential commodities despite a critically deficient monsoon.
Inflation remains low. The most important is the success in containing prices, which, in the past, generally tended to rise rapidly after monsoon failures. The latest 52-week average inflation, based on the Wholesale Price Index (WPI), was 2.3 per cent (as on November 9, 2002). The annual rate of inflation based on the Consumer Price Index (CPI) for industrial workers — which is the retail price index — declined from 4.7 per cent at the beginning of 2002-03 to 4.3 per cent in September 2002.
A strong balance of payments position. The current account had a surplus of $325 million during the first quarter of the current financial year (April-June 2002). This was the third consecutive quarter with a surplus, with large contributions from healthy growth in remittances and export of services. Despite subdued sentiments in international capital markets in the aftermath of the largest sovereign bond default in history by Argentina, foreign investment inflows were $744 million in the first quarter of the current year. During April-June 2002, net foreign direct investment inflows were $982 million. This robust external sector performance is best reflected in foreign exchange reserves, which crossed $66 billion by the middle of November 2002. FDI inflows have maintained the healthy trend of the previous year in the first half of the current year. During April-August 2002, aggregate net inflows under various non-resident deposit schemes were higher at $1,336 million compared to $1,079 million in the corresponding previous period. The trade deficit was lower at $4,303 million in the first half of 2002-03 compared to $4,942 million in the first half of 2001-02.
Merchandise exports increased by 13.5 per cent in dollar terms in April-September 2002, largely from a rise in exports of manufactured goods, ores and minerals, and agriculture and allied crops. During April-September 2002, with international crude prices hardening, POL imports have risen by 13.4 per cent. During the same period, non-POL imports have grown by 6.4 per cent, despite a substantial decline in the import of gold and silver. Detailed commodity-wise data indicate that manufactured goods, minerals, and agriculture products led the export rally. In April-July 2002, moderate to high growth of 10 per cent and above was witnessed in exports of engineering goods, ores and minerals, chemicals and related products, gems and jewellery, rubber, glass, project goods, rice, wheat, fresh fruits and vegetables, floriculture products, and meat and meat preparations. Export sales from the FCI stocks indicate continued buoyancy in exports of wheat and rice amounting to more than $1 billion up to November 2002. Growth in exports of spices, processed foods, textiles, ready-made garments, handicrafts and sports goods was positive but below 10 per cent. The expansion in exports in April-July 2002 was largely accounted for by the markets in OECD, OPEC, and East Asian countries.
GDP growth projections for the current year continue to be between 5 and 5.5 per cent. The RBI expects this year's GDP growth to be 5 per cent to 5.5 per cent. After a robust 4.6 per cent growth of agriculture sector in the first quarter (April-June), reflecting a good rabi season (2001-02), the prospects of kharif agricultural production have been affected by the poor rains. The current assessment of the decline in kharif foodgrain production is around 21 million tonnes. Buoyant market arrivals and procurement of rice so far, at levels marginally higher than those in the previous kharif season, indicates that the impact of the drought is telling only in such areas as depend primarily on rain-fed cultivation. Whereas coarse cereals, pulses and oil seeds, are likely to register significant falls, the initial estimate of the 13 million tonnes fall in rice production is still somewhat tentative. If the agricultural sector turns out to be more resilient than what was initially apprehended and the decline in foodgrains production is limited to around 10 million tonnes, the overall GDP growth in agriculture, forestry and fisheries could drop to about 1 per cent during the current year from the high of 5.7 per cent recorded in 2001-02. With a net positive growth of 1 per cent of the agriculture and allied sector, the overall GDP growth in the current year may be close to the 5.5 per cent projected by the RBI.
In April-September 2002, industrial production grew by 5.2 per cent compared with 2.4 per cent in the corresponding previous period. The turnaround by capital goods has been particularly striking. Taken together with the higher growth in the manufacturing sector in the current year, the trends underline a distinct revival in industrial activity. During the current year, high value-additive and employment-intensive industries, like steel and textiles, are showing signs of resurgence. The steel sector appears poised for a turnaround after subdued performance in the past few years.
The transition from Administered Price Mechanism (APM) to a market-determined price system for domestic petroleum products was smooth despite a rise in global oil prices.
Bank credit to the commercial sector in the current financial year (upto October 4, 2002) increased by 11.3 per cent as compared with 4.4 per cent in the corresponding previous period. Excluding the impact of ICICI merger with the ICICI Bank, the comparable growth in credit for the current financial year was 5.4 per cent.
Non-POL imports in the first half of the current year grew by 6.4 per cent, marginally lower than last year's 7.0 per cent growth in the same period. The main reason for this modest rise in non-POL imports was a subdued demand for gold and silver imports because of a sharp escalation in their global prices. Non-POL imports, exclusive of gold and silver, are estimated to have risen by 12.3 per cent in April-July 2002 as against a marginal rise of 0.2 per cent in the corresponding period of the previous year. Notwithstanding the elimination of remaining quantitative restrictions on imports of 715 items with effect from March 31, 2001, there has been no surge in the import of these commodities. Commodity-wise details of imports for the period April-July 2002 reveal a significant growth in capital good imports. Import of products for re-export, of electronic items, medicinal and pharmaceutical products, artificial resins and plastic materials have also been buoyant. While food and allied imports, like edible oil and cashew nuts, have exhibited a rising trend in the year so far, imports of gold and silver, fertilizers, newsprint, chemicals, leather, and wood and wood products have registered declines.
India's agri-exports as a per cent of total exports of the country have ranged from 12 to 14 per cent in recent years. In contrast, annual agri imports as a proportion of total imports have been just about 4 to 6 per cent, three quarters of which is only one item, namely, edible oils.
Foreign exchange reserves experienced accretion of almost $12 billion, growing from $54.1 billion at end-March 2002 to $66.0 billion on November 15, 2002. The rupee depreciated by 4-5 per cent during April-August 2002 in nominal effective terms.
Retiring and refinancing of more expensive external debt is one of the elements of a prudent debt management policy. With a soft interest rate regime both in the international and domestic markets, and a comfortable foreign reserve position, after pre- paying $102.08 million of corporate external debt in 2001-02, a further amount of $600.74 million was pre-paid in the current year up to September 2002.
Following budget announcements, the Non-Resident (NR) deposit schemes became fully convertible. Transition to full convertibility encouraged heavy inflows of $2,401 million, under the (NR (E) RA) scheme, while balances under (NR (NR) RD) decreased by $1,528 million in April-August 2002.