macroeconomics and monetry development

8/14/2019 Macroeconomics and Monetry Development

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2/104

Ma croecon om ic a n dMon eta ry Develop m en ts in

2 0 0 8 - 0 9

Reserve Ban k of In dia


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Co n t en t s

I. Th e Re al Ec o n o m y 1Agricu ltu ra l S itu a t ion 2In d u s t r ia l Per form a n ce 6Services Sector 9Sa vin gs a n d In ves tm en t 1 0Bu s in es s Exp ecta t ion Su rvey 1 2Su rvey of Profes s ion a l Foreca s ter s 1 6

II. Fis cal S i t uat io n 1 9Com b in ed Govern m en t Fin a n ces : 2 0 0 8 -0 9 1 9Cen t res Fis ca l S itu a t ion : 2 0 0 8 -0 9 2 0Sta te Fin a n ces : 2 0 0 8 -0 9 2 3

III. Mo n e t a ry a n d Li qu i di t y Co n d it i o n s 2 6Mon eta ry Su rvey 2 6Res erve Mon ey Su rvey 3 4Liqu id ity Ma n a gem en t 3 6

IV. Pric e Si t uat io n 4 0Glob a l In fla t ion 4 0Glob a l Com m od ity Pr ices 4 8In fla t ion Con d it ion s in In d ia 5 2

V. Fin an c ial Marke ts 6 4In tern a t ion a l Fin a n cia l Ma rk ets 6 4Dom es t ic Fin a n cia l Ma rk ets 6 9Mon ey Ma rk et 7 0

Foreign Exch a n ge Ma rk et 7 4Cred it Ma rk et 7 7Govern m en t Secu r it ies Ma rk et 7 9Equ ity Ma rk et 8 1

VI Th e Ex te rn al Ec o no m y 8 6


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I. THE REAL ECONOMY

T h e I n d i a n e c o n o m y c o n t i n u e d t o r e c o r d r o b u s t g r o w t h i n 2 0 0 7 - 0 8 ,

although marginally lower than the last year. According to the revised estimates

released by the Central Statistical Organisation (CSO) in May 2008, the real GDP

growth was placed at 9.0 per cent during 2007-08 as compared with 9.6 per cent

in 2006-07. The deceleration in growth was on account of industry and services ,o f f s e t p a r t i a l l y b y r e c o v e r y i n a g r i c u l t u r e . T h e o v e r a l l g r o w t h m o m e n t u m

moderated particularly during the second half of the year (Table 1 and Chart 1) .

Table 1 : Growt h Rate s o f Real GDP @(Per cent)

1 2 3 4 5 6 7 8 9 10 11 12 13

1 . Agriculture and 2 .9 5 .9 3 .8 4 .5 2 .7 3 .2 4 .0 4 .9 4 .4 4 .7 6 .0 2 .9

Allied Activit ie s (2 0 .9 ) (1 9 .6 ) (1 8 .5 ) (17 .8 )

2 . Indus try 7 .1 8 .0 10 .6 8 .1 10 .0 10 .7 1 0 .3 1 1 .5 9 .6 8 .6 8 .6 5 .8

(1 9 .6 ) (19 .4 ) (1 9 .5 ) (19 .4 )

2.1 Min in g an d Qu arryin g 4.9 4.9 5.7 4.7 4 .1 3.9 6 .0 8.2 1.7 5.5 5 .7 5.9

2.2 Man u factu rin g 7.8 9.0 12.0 8.8 11.7 12.2 11.3 12.8 10.9 9.2 9 .6 5.8

2 .3 Electr ic ity, Gas andWater Su pply 4.8 4.7 6.0 6.3 4 .3 6.6 7 .6 5.4 7.9 6.9 4 .8 5.6

3 . Se rvices 9 .0 11 .0 1 1 .2 1 0 .7 1 1 .7 11 .6 1 1 .1 1 0 .5 1 0 .6 1 0 .7 1 0 .0 1 1 .4

(5 9 .6 ) (61 .1 ) (6 1 .9 ) (62 .9 )

3.1 Trade, Hote ls ,

Restaurants, Transport,

Storage and

Com mu n ication 10.3 11.5 11.8 12.0 10.9 12.7 12.1 11.6 13.1 11.0 11.5 12.4

3 .2 Fin an c in g , In su ran ce ,Real Estate an d

Bu sin ess Services 8.8 11.4 13.9 11.8 13.6 13.9 14.7 13.4 12.6 12.4 11.9 10.5

3.3 Commun ity, Social

an d Person al services 5.8 7.2 6 .9 7.3 10.3 7 .2 5.6 5.1 5.2 7 .7 6 .2 9.5

2 0 00 -0 1 2 0 05 -0 6 2 0 06 -0 7 * 2 0 07 -0 8 #Sector to

2 0 07 -0 8 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4(Average)

2 0 06 -0 7 2 00 7 -0 8


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Macroeconomic an d Monetary Developmen ts : Fi rs t Qu arter Review 2008 -09

Agricultural Situation

According to the revised forecast of the India Meteorological Department(IMD) released in June 2008, the rainfall during the 2008 South-West monsoonsea son (J u n e to Septem ber) is likely to be 10 0 p er cent of th e long period a verage(LPA) with a m odel error of (+/ -) 4 per cen t. Mons oon set in over Kerala on May

31, 2008 coinciding almost with i ts normal date of arr ival (June 1) . I t advancedrapid ly and covered pa r ts of south peninsu la a nd ent ire nor th-eas tern S ta tes byJune 2 , 2008. Nor thward advance of monsoon over eas t and centra l India a lsoh as b een n ear n ormal . Advance of th is year s m onsoon h as b een sm ooth a n drapid , unl ike las t year when i t was marked by a h ia tus of about one week oversou th p enins u la. Rainfall du ring this year s m ons oon so far (u p to J u ly 23) h as

been less satisfactory, with rainfall over the entire country amounting to 2 percen t be low normal as aga ins t 4 pe r cen t above normal du r ing co r respond ingperiod of the previous year (Table 2). Out of the 36 meteorological sub-divisions,21 h ave received excess / n orma l rainfall th is year (u p to J u ly 23 ) as compa redw it h 2 9 la s t y e a r. As o n J u ly 1 7 , 2 0 0 8 , t h e t o t a l live w a t e r s t o r a g e o f 8 1

0.0

2.0

4.0

6.0

8.0

10.0

12.0

P e r

c e n t

Chart 1: Real GDP - Growth Rate

1 9 9 7 - 9

8 Q

1 Q 3

1 9 9 8 - 9

9 Q

1 Q 3

1 9 9 9 - 0

0 Q

1 Q 3

2 0 0 0 - 0

1 Q

1 Q 3

2 0 0 1 - 0

2 Q

1 Q 3

2 0 0 2 - 0

3 Q

1 Q 3

2 0 0 3 - 0

4 Q

1 Q 3

2 0 0 4 - 0

5 Q

1 Q 3

2 0 0 5 - 0

6 Q

1 Q 3

2 0 0 6 - 0

7 Q

1 Q 3

2 0 0 7 - 0

8 Q

1 Q 3

Quarter


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The Real Econom y

Table 2: Cumulative Rainfall

(Num ber of Meteorological Division s)

Year

1 2 3 4 5 6 7 8 9 1 0 11

1998 6 12 21 3 0 - 28 6 1 11999 -4 3 26 7 0 - 20 7 6 32000 -8 5 23 8 0 - 0 4 13 192001 -8 1 30 5 0 - 14 10 9 32002 -19 1 14 19 2 -33 3 7 12 142003 2 7 26 3 0 9 9 9 6 122004 -13 0 23 13 0 -11 8 10 17 12005 -1 9 23 4 0 10 11 6 5 142006 -1 6 20 10 0 -21 3 6 14 132007 5 13 17 6 0 -32 2 7 9 182008* -2 9 12 14 1

(4) (1 4) (15) (7) (0)

* : u p to J u ly 23 . Excess : +20 p er cen t or more. Normal : +19 per cen t to -19 p er cen t .Deficient : -20 p er cen t to -59 p er cen t. Scanty : -60 p er cen t to -99 p er cen t. No Rain : -100 p er cen t.Not e : Figures in paren theses indicate compa rative posit ion du ring the corresponding period of 2007 .Sourc e : India Meteorological Departm ent.

Spatial DistributionExcess Norm al Deficien t Scan ty/

Ra in fa ll Ra in fa ll Ra in fa ll No Ra in

CumulativeRainfall:

Above(+)/ Below (-)

Normal(per cen t)

Spatial Distribu tionExcess Norm al Deficien t Scan ty/

Ra in fa ll Ra in fa ll Ra in fa ll No Ra in

CumulativeRainfall:

Above(+)/ Below (-)

Normal(per cen t)

Sou th -Wes t Mon s oon Nor th -Eas t Mon s oon

by 1.3 million hectares over the corresponding period of the previous year. Amongfood crops, r ice exhibited s ignif icant increase in sown area along with coarsecereals and oilseeds (Table 3).

Table 3 : Progres s o f Area un de r Kh a rif Crops 2 0 0 8 - 0 9(Million hectares)

Crop Norm a l Area Area Covera ge (As on J u ly 1 8 , 2 0 0 8 )

2 00 7 2 00 8 Va r ia t ion

1 2 3 4 5

Rice 3 9 .1 1 2 .1 1 4 .9 2 .8

Coa rs e Cerea ls 2 2 .7 9 .6 9 .9 0 .3

of wh ich:

Ba jr a 9 .2 3 .2 4 .0 0 .8

J owa r 4 .2 1 .8 1 .3 -0 .5

Ma ize 6 .4 4 .3 4 .1 -0 .2

Tota l Pu ls es 1 0 .9 4 .2 4 .2 0 .0


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According to the Four th Advance Es t imates , the foodgrains product ion

during 2007-08 was placed at an all-time high of 230.7 million tonnes, indicatingan increase of 6 .2 per cent over the previous year predominant ly on account of k h a r i f f o o d g r a i n s p r o d u c t i o n . B a r r i n g s u g a r c a n e , a l l f o o d g r a i n s a n d n o n -foodgrains are estimated to reach an all- t ime record production during 2007-08(Table 4) . Crops witnessing s ignif icant increase in production included coarsecereals (20.1 per cent) and oilseeds (18.6 per cent).

Food Managem ent The procurement of foodgrains (rice and wheat) during 2008-09 (up to July

18, 2008) aggregated to 27 .3 mil l ion tonnes , 78 .6 per cent h igher than that inthe corresponding per iod of the previous year (Table 5) . This was mainly ona c c o u n t o f a m o r e t h a n t w o - f o l d i n c r e a s e i n w h e a t p r o c u r e m e n t d u r i n g t h ecurrent year as compared with the previous year. The offtake of foodgrains (riceand wheat) during 2007-08 at 37.4 mill ion tonnes was marginally higher by 1.8

Table 4 : Agricultu ral Produ ct ion

1 2 3 4 5 6 7

(Million tonnes)

Crop 2 0 0 3 -0 4 2 0 0 4 -0 5 2 0 0 5 -0 6 2 00 6 -0 7 2 0 0 7 -0 8

Ta rget Ach ievem en t @

Rice 8 8 .5 8 3 .1 9 1 .8 9 3 .4 9 3 .0 9 6 .4

Kharif 7 8 .6 7 2 .2 7 8 .3 8 0 .2 8 0 .0 8 2 .8

Rabi 9 .9 1 0 .9 1 3 .5 1 3 .2 1 3 .0 1 3 .6

Wh ea t 7 2 .2 6 8 .6 6 9 .4 7 5 .8 7 5 .5 7 8 .4

Coa rs e Cerea ls 3 7 .6 3 3 .5 3 4 .1 3 3 .9 3 7 .5 4 0 .7

Kharif 3 2 .2 2 6 .4 2 6 .7 2 5 .6 2 8 .7 3 1 .7

Rabi 5 .4 7 .1 7 .3 8 .3 8 .8 9 .0

Pu ls es 1 4 .9 1 3 .1 1 3 .4 1 4 .2 1 5 .5 1 5 .1

Kharif 6 .2 4 .7 4 .9 4 .8 5 .5 6 .5

Rabi 8 .7 8 .4 8 .5 9 .4 1 0 .0 8 .7

Tota l Food gra in s 2 1 3 .2 1 9 8 .4 2 0 8 .6 2 1 7 .3 2 2 1 .5 2 3 0 .7

Kharif 1 1 7 .0 1 0 3 .3 1 0 9 .9 1 1 0 .6 1 1 4 .2 1 2 1 .0

Rabi 9 6 .2 9 5 .1 9 8 .7 1 0 6 .7 1 0 7 .3 1 0 9 .7

Tota l Oils eed s 2 5 2 2 4 4 2 8 0 2 4 3 3 0 0 2 8 8


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Industrial Performance

Industrial production moderated during April-May 2008, recording year-on-year expansion of 5.0 per cent as against 10.9 per cent in April-May 2007 (Chart2 and Table 6). The industrial deceleration was driven by both the manufacturingand electricity sectors. Manufacturing recorded cumulative growth of 5.3 per cent

A u g u s t

S e p t e m b e r

O c t o b e r

N o v e m b e r

D e c e m b e r

J a n u a r y

F e b r u a r y

A p r i l

M a y

J u n e

J u l y

M a r c h

Index of Industrial Production Year-on-Year Growth

A p r i l

M a y

J u n e

J u l y

A u g u s t

S e p t e m b e r

O c t o b e r

N o v e m b e r

D e c e m b e r

J a n u a r y

F e b r u a r y

M a r c h

P e r

c e n t

Chart 2: Industrial Production

0.02.04.06.0

8.010.012.014.016.018.0

220230240250

260270280290300310

I n d e x

( 1 9 9 3 - 9 4 = 1 0 0 )

2006-07 2007-08 2008-09 2006-07 2007-08 2008-09

Table 6 : Inde x o f Indus tr ial Produc tion : Sect ora l andUse -Based Class if ica t ion of Indus tr ies

(Per cen t)

Sectora l

Min in g 1 0 .5 5 .1 3 .2 5 .6 4 .3 2 .1 7 .5Ma n u factu r in g 7 9 .4 8 .8 1 1 .8 5 .3 8 9 .4 9 0 .6 8 9 .2Elect ricity 1 0 .2 6 .3 9 .0 1 .7 6 .4 7 .3 3 .0

1 2 3 4 5 6 7 8

In d u s t ry G ro u pWeight

in th e IIPGrowth Ra te Weigh ted Con tr ib u tion #

April-May April-May

2 0 0 7 -0 8 2 0 0 7 -0 8 2 0 0 8 -0 9 P 2 00 7-0 8 2 00 8-0 9 P2007-08


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The Real Econom y

du ring April-May 200 8 a s comp ared with 11.8 per cent d u rin g the corresponding

period of the previous year. Electr ici ty sector at 1.7 per cent witnessed a sharpslowdown - the lowest growth since 1994-95 for April-May period on account of decl ine in e lect r ic i ty generat ion in a l l the three segments . The mining sectorgrowth, h owever, a ccelerated .

The s lowdown in manufacturing activity was driven by 13 industry groups(56 .3 per cen t weight in th e IIP) th at r ecorded d ecelerat ed/ n egative growth in

April-May 2008 (Table 7) . Industry groups such as 'metal products and parts ' ,'o ther m an u factu r in g ind u s tr ies ', ' rubber, p las t ic , pet roleum an d coal products ' ,' food products ' , ' ju te and o ther vegetable f ibre text i les ' and 'wood and wood

Table 7 : Perform anc e o f Manu factu ring Grou ps(Per cent )

1 2 3 4 5 6 7 8

1 . Food p rod u cts 9 .0 8 7 .1 3 9 .3 -7 .9 6 .4 2 1 .9 -1 2 .32 . B eve ra ge s, t ob a cc o an d

rela ted p rod u cts 2 .3 8 1 1 .9 8 .4 3 0 .8 6 .9 3 .9 3 0 .83 . Cotton textiles 5 .5 2 4 .3 7 .4 1 .5 2 .0 2 .7 1 .24 . Woo l, s ilk a n d m a n -m a d e

fib re text iles 2 .2 6 4 .8 4 .1 3 .6 1 .6 1 .0 1 .95 . J u t e a n d o th e r ve ge ta b le

fib re textiles (excep t cotton ) 0 .5 9 3 3 .0 2 7 .8 -1 0 .1 1 .0 0 .7 -0 .66 . Te xt ile p r o du c t s (in c lu d i n g

wea r in g a p p a rel) 2 .5 4 3 .7 7 .5 2 .6 1 .4 2 .3 1 .77 . Wo od a n d wo od p ro du c t s,

fu rn itu r e & fixtu res 2 .7 0 3 9 .6 8 7 .9 -1 7 .4 5 .3 6 .9 -5 .18 . Pa p er a n d pa p er p rod u ct s

an d pr in t ing , publish inga n d a llied In d u s t r ies 2 .6 5 2 .7 0 .8 2 .5 1 .0 0 .2 1 .4

9 . Lea th er a n d lea th er & fu r p rod u cts 1 .1 4 1 1 .5 8 .9 8 .5 1 .1 0 .6 1 .31 0 . Ch emica ls an d ch emica l

produ cts (except produ cts of p et roleu m & coa l) 1 4 .0 0 1 0 .6 6 .6 1 2 .2 2 2 .8 1 1 .6 4 5 .9

11 . Ru b b er, p las t ic, p e t roleu ma n d coa l p rod u cts 5 .7 3 8 .9 1 3 .2 -5 .2 6 .2 7 .1 -6 .4

1 2 Non -m eta llic m in era l p rod u cts 4 4 0 5 7 8 1 1 4 4 2 4 6 1 7

In d u s t ry G ro u p Weightin th e IIP

Growth Ra te Weigh ted Con tr ib u tion #

April-MayApril-May

2 0 0 7 -0 8 2 0 0 8 -0 9 P2007-082 0 0 7 - 0 8 2 0 0 8 - 0 9 P2007-08


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products ' recorded a decl ine in product ion; whi le ' lea ther and lea ther and fur

products ' , 'machinery and equipment ' , 'basic metal and alloy industr ies ' , 'wool,s i lk and manmade f ibre text i les ' , ' tex t i le products ' , ' co t ton text i les ' and 'non-metall ic mineral products ' recorded decelerated growth. However, the growth in'chemicals and chemical products ' , a dominant segment of the manufactur ingindustry, accelerated reflecting sharp expansion in nitrogenous fertilisers segmentan d o the r pha rmaceu t ica l d rugs .

In terms of use-based c lass i f ica t ion , the bas ic goods sector decelera tedduring April-May 2008, mainly due to decline in production of certain petroleumand steel products . The intermediate goods sector also witnessed deceleration,mainly on account of lower per formance of yarn , hess ian , sacking and napthas e g m e n t s . T h e c a p i t a l g o o d s s e c t o r t h a t p e r f o r m e d w e l l d u r i n g 2 0 0 7 - 0 8 ,decelerated to 6.5 per cent due to lacklustre performance of printing machinery,m a t e r i a l h a n d l i n g e q u i p m e n t s , m a c h i n e t o o l s a n d c o m p u t e r s y s t e m s a n dperipherals during the period. The consumer goods sector recorded deceleratedgrowth due to moderated performance of non-durables . The consumer durablegoods ind u stry, which declin ed in eigh t m onth s of the last fina n cial year, p osted4.8 per cent growth during April-May 2008 led by the improved performance of two wheeler tyres , win dow type a ir con di t ioners , was h in g/ lau n dry ma chines ,motor cycles , passenger cars and T.V. receivers , among others . The consumernon-durables segment moderated in April-May 2008 on account of base effect anddeclin e in p rodu ction of su gar, wheat flour / m aida, an d certain edible oils .

Infrastructure

The core sector recorded lower growth at 3.5 per cent during April-May 2008

than 6 .9 per cent dur ing Apr i l -May 2007-08 (Char t 3) . Sharp decelera t ion inelectricity and subdued performance of petroleum refinery products impacted thegrowth of infrastructure during April-May 2008. The coal sector, on the other hand,recovered and posted robust growth. The electricity sector slowed down mainly on


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The Real Econom y

S e rv i c e s S e c t o r

The services sector continued to record double digit growth during 2007-08, al though there was some moderation. Accelerated growth in ' t rade, hotels ,t r anspor t , s to rage and communica t ion ' and ' communi ty, soc ia l and pe r sona lservices' was more than offset by deceleration in 'financing, insurance, real estateand bus ines s s e rv ices ' and ' cons t ruc t ion ' . No twi ths tand ing some modera t ion ,

services sector remained the major contr ibutor to the GDP growth (Table 8) .

0.0

2.04.0

6.0

8.0

10.0

12.0

April-May 2008-09April-May 2007-082006-07 2007-08 2008-09

-1.01.0

3.05.07.09.0

11.013.015.0

9 . 0

0 . 5

5 . 5

- 0

. 1

1 5

. 0

1 . 7

9 . 3

4 . 5

2 . 1

2 . 1

7 . 8

5 . 4

6 . 9

3 . 5

Industry-wise Growth

Table 8 : Se rvice s S ec to rs Con tr ibut io n t o Re al GDP Growth(percentage points)

Tra de, Hotels , Fin an cin g, In su ra nce, Com mu n ity, Socia l Tota lYear / Qu a r ter Con s tru ction Tra n s p or t a n d Rea l Es ta te a n d a n d Pers on a l Services

Com m u n ica tion Bu s in es s Services Services

1 2 3 4 5 6

2 0 0 0 -0 1 0 .4 1 .6 0 .5 0 .7 3 .22 0 0 1 -0 2 0 .2 2 .0 0 .9 0 .6 3 .82 0 0 2 -0 3 0 .5 2 .2 1 .1 0 .6 4 .32 0 0 3 -0 4 0 .7 2 .9 0 .8 0 .8 5 .22 0 0 4 -0 5 1 .0 2 .7 1 .2 1 .0 5 .82 0 0 5 -0 6 1 .1 3 .0 1 .5 1 .0 6 .62 0 0 6 0 7 0 8 3 1 1 9 1 0 6 8


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The leading indicators of services sector activity for 2008-09 so far suggest

accelera t ion in growth in respect of some indicators such as ra i lway revenueearning freight traffic, tourist arrivals and export cargo handled by civil aviationduring April-May 2008 as compared with April-May 2007. On the other hand,growth decelerated in respect of cargo handled at major ports, various indicatorsof civil aviation excluding export cargo and commercial vehicles production. Somed e c e l e r a t i o n w a s a l s o o b s e r v e d i n p r o d u c t i o n o f c e m e n t a n d s t e e l d u r i n g

Apr i l -May 2008 , wh ich a re among the impor tan t ind ica to r s o f cons t ruc t ionindustry (Table 9).

Aggregate Demand

The Ind ian economy con t inued to be d r iven by domes t ic demand wi thconsumption accounting for more than two-thirds and investment l i t t le less thano n e - t h i r d o f r e a l G D P. D u r i n g 2 0 0 7 - 0 8 , t h e s h a r e o f f i n a l c o n s u m p t i o nexpenditure declined to 67.8 per cent, while that of gross fixed capital formationrose to 31.9 per cent (Table 10).

Savings and Inves tm ent

Gross Domest ic Saving (GDS) , as percentage of GDP at current market

pr ices , increased to 34 .8 per cent in 2006-07 f rom 34.3 per cent in 2005-06

Table 9 : Indic a tors of Service s Se ct or Act ivi ty(Growth rates in per cent)

Su b-sector 2006-07 2007-08 2007-08 2008-09

April-May

1 2 3 4 5

1. Tou r is t a rriva ls 13 .0 1 1 .3 8 .2 * 10 .2 *2 . Com m ercia l veh icles prod u ction # 11 .2 -0 .2 10 .6 4 .63 . Ra ilway reven u e ea rn in g freigh t t ra ffic 5 .1 10 .9 6 .2 1 0 .24 . New cell p h on e con n ection s 85 .4 38 .3 5 0 .4 4 2 .95 . Cargo h an dled a t m a jor p orts 2 2 .1 14 .7 1 7 .7 10 .36 . Civil aviat ion

a) Expor t ca rgo h an d led 3 .6 7 .5 1 .6 7 .6b) Im por t ca rgo h an dled 19 4 1 9 7 21 7 9 3


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The Real Econom y

mainly due to improvement in the saving performance by the private corporate

a n d p u b l i c s e c t o r s . O n t h e o t h e r h a n d , t h e h o u s e h o l d s a v i n g r a t e d e c l i n e d

marg ina l ly in 2006-07 f rom the p rev ious yea r on accoun t o f dec l ine in thefinancial saving rate (Table 11). The rate of gross domestic capital formation(GDCF) was estimated to be marginally higher at 35.9 per cent of GDP in 2006-07 than 35.5 per cent in 2005-06. During 2006-07, while the overall saving ratei n c r e a s e d b y 0 . 5 p e r c e n t a g e p o i n t i n 2 0 0 6 - 0 7 , t h e o v e r a l l i n v e s t m e n t r a t einc reased by 0 .4 pe rcen tage po in t , r e f l ec t ing a marg ina l na r rowing down o f current account deficit .

Corporate PerformanceThe performance of non-government non-f inancia l companies moderated

dur ing 2007-08 re la t ive to the previous year (Table 12) . Sales growth , whichslowed down in the f irs t two quarters of the year, accelerated in the third and

Table 1 0 : Expendi tu re S ide of GDP (a t 1 9 99 -2 00 0 Prices )

(Rates a s per cent of GDP)Item 2006-07* 2007-08# 2006-07 2007-08

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

1 2 3 4 5 6 7 8 9 10 11

1. Total Final Consu mptionExpen d itu re 68.4 67.8 72.2 68.9 69.3 64.2 70.1 68.2 69.0 64.6(i) Private Final

Con su m ption Expen d itu re 58.6 58.2 60.7 60.3 60.4 53.7 59.8 59.5 60.7 53.4(ii)Governm ent Final

Con su m ption Expen d itu re 9.8 9.6 11.5 8.6 8.9 10.5 10.3 8.7 8.3 11.22. Gross Fixed Capital

Form ation 30.6 31.9 30.8 31.2 29.6 30.9 32.0 33.4 31.0 31.63. Ch an ge in S tocks 2.1 2.0 2.1 2.2 2.0 2.0 2.1 2.1 1.9 1.94. Valu ables 1.2 1.3 1.3 1.3 1.2 1.1 1.2 1.3 1.4 1.15. Exports 20.6 20.3 24.5 18.8 17.9 21.4 23.8 16.8 19.0 21.66. Less: Im ports 24.7 24.4 25.6 27.0 24.2 22.6 24.9 24.8 25.4 22.87. Discrepan cies 1.8 1.1 -5.3 4.6 4.3 3.0 -4 .3 3.1 3.0 1.9

Memo: (Rupees crore)

Real GDP at ma rket prices 3 1,1 7,3 72 3 3,9 8,7 67 7 ,0 4,8 41 7 ,2 2,3 55 8 ,2 5,4 01 8 ,6 4,7 74 7 ,6 9,8 71 7 ,8 8,5 14 8 ,9 9,0 98 9 ,4 1,2 83

* : Quick Estima tes. # : Revised Estima tes.

Source : Central Sta tistical Organisation.


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Table 1 1 : Ra tes o f Gross Dome st ic Sav ing and Inves tm en t

(Per cent of GDP at cu rrent mar ket prices)Item 2001-02 2002-03 2003-04 2004-05 20 05 -0 6 PE 2 006 -07 QE 10 th Plan

Average

1 2 3 4 5 6 7 8

1. Hou seh old Savin g 2 2.1 23 .2 24 .4 2 3 .0 2 4 .2 2 3 .8 23 .7of wh ich :a) Fin an cia l a s sets 1 0 .9 1 0 .3 1 1 .4 10 .1 11 .8 11 .3 11 .0b) Ph ys ica l a s sets 11 .3 12 .9 13 .0 1 2 .9 12 .5 12 .5 12 .7

2 . Priva te Corp ora te Savin g 3 .4 3 .9 4 .4 6 .6 7 .5 7 .8 6 .03 . Pu blic Sector Savin g -2 .0 -0 .6 1 .1 2 .2 2 .6 3 .2 1 .74 . Gross Dom es tic Savin g 2 3.5 26 .4 29 .8 31 .8 3 4 .3 34 .8 3 1 .45 . Net cap ita l in flow -0 .6 -1 .2 -1 .6 0 .4 1 .2 1 .1 0 .06 . Gross Dom es tic Capita l Form ation # 22 .8 2 5 .2 2 8 .2 32 .2 35 .5 35 .9 31 .47 . Gross Cap ita l Form ation 2 4.2 2 5 .2 2 6 .8 31 .6 34 .5 36 .0 30 .8

of wh ich :a) Pu blic sector 6 .9 6 .1 6 .3 6 .9 7 .6 7 .8 6 .9b) Priva te corp ora te sector 5 .4 5 .7 6 .6 10 .5 13 .3 1 4 .5 10 .1c) Hou seh old sector 11 .3 12 .9 13 .0 12 .9 12 .5 12 .5 12 .8

d) Valu ab les 0 .6 0 .6 0 .9 1 .3 1 .2 1 .2 1 .08 . Tota l Con su m ption Exp en d itu re (a+b) 7 6 .7 75 .1 73 .0 69 .2 6 7 .8 6 6 .1 7 0 .2

a) Private Final Consu mptionExpen ditu re 64 .4 63 .2 61 .7 5 8 .4 5 7 .4 55 .8 59 .3

b) Government Final Consu mptionExpen ditu re 12 .4 11 .9 11 .3 1 0 .7 1 0 .4 10 .3 10 .9

Memo:

Savin g-In ves tm en t Ba lan ce (4-6) 0 .7 1 .2 1 .6 -0 .4 -1 .2 -1 .1 0 .0Pu blic Sector Balan ce -8 .9 -6 .7 -5 .3 -4 .7 -5 .0 -4 .5 -5 .3Priva te Sector Ba lan ce 8 .8 8 .5 9 .2 6 .1 5 .9 4 .5 6 .8

a ) Private Corpora te Sector -2 .1 -1 .9 -2 .2 -4 .0 -5 .8 -6 .8 -4 .1b) Hou seh old Sector 10 .9 10 .3 11 .4 1 0 .1 11 .8 11 .3 10 .9

PE : Provis ion al E st im at es . QE : Q u ick Es tim ates .# : Adjusted for errors an d omissions.Note : Figures may n ot add u p to th e total due to roun ding off.S ou rc e : Central St atistical Organisation.

Business Expec ta t ion SurveyAccording to the quar ter ly bus iness expecta t ions survey of the Nat ional

Counci l of Appl ied Economic Research (NCAER) re leased in Apr i l 2008, theoverall business confidence index (BCI) for the next s ix months declined both

th i d d th i (T bl 13) A t i


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The Real Econom y

Table 1 3 : Bus ine ss Expec t a t ions Surveys

The CII bus iness conf idence index (CII -BCI) for Apr i l -September 2008declined by 5 .3 per cent as compa red with the pa s t s ix month s a nd 2 .9 per centas compared with the corresponding period a year ago (Table 13). The decline was

Table 1 2 : Corpora te Financ ia l Performanc e

(Growth r ates in p er cent)Item 2006-07 2007-08

2005-06 2006-07 2007-08P Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

1 2 3 4 5 6 7 8 9 10 11 12

Sales 16.3 26.2 18.5 25.6 29.2 30.3 22.5 19.2 16.0 18.0 20.6Oth er In com e 17.3 7.1 47.0 21.6 15.5 9.2 0.4 106.7 45.2 70.2 28.5Expen ditu re 16.7 23.4 18.6 24.0 27.7 25.7 20.0 18.0 15.3 18.9 23.3Deprecia tion 8.1 15.4 14.8 14.9 16.4 16.8 18.1 18.1 15.8 17.9 15.4Gross Profits 24.6 41.9 23.3 32.7 46.0 52.9 35.5 31.9 22.5 20.4 16.8

In teres t Paym en ts -2 .0 17.4 28.8 19.9 18.0 11.9 32.3 4.4 18.4 45.7 35.8Profits After Tax 32.8 45.2 27.0 34.7 49.4 59.5 39.6 33.9 22.7 29.4 14.1

Select Ratios (Per cent)

Gross Profits to Sa les 12.2 15.5 16.3 15.2 15.6 15.8 15.4 16.7 16.3 16.2 15.0Profits After Tax to Sa les 8.2 10.7 11.8 10.6 11.0 11.0 10.6 11.6 11.5 12.2 10.3In teres t to Sa les 2.2 2.1 2.3 2.2 2.0 2.0 2.0 2.0 2.1 2.5 2.2In teres t to Gross Profits 18.1 13.4 13.9 14.2 13.1 12.6 12.9 11.8 12.8 15.3 14.6In teres t Coverage (Tim es ) 5.5 7.5 7.2 7.0 7.6 7.9 7.7 8.5 7.8 6.5 6.8

Memo: (Amoun t in Rupees crore)

No of Com pan ies 2,730 2,388 2,219 2,228 2,263 2,258 2,356 2,342 2,228 2,329 2,357Sa les 7,35,216 10,41,894 10,88,203 2,34,610 2,51,125 2,60,064 2,94,223 2,80,814 2,97,110 3,06,238 3,50,917Oth er In come * 17,088 23,895 28,798 4,304 5,282 4,927 8,466 9,151 8,057 9,221 10,082Expen ditu re # 6,43,826 8,78,645 9,12,834 2,00,120 2,11,043 2,17,472 2,49,133 2,37,698 2,49,194 2,57,472 3,02,105Deprecia tion 28,961 37,095 38,528 8,449 8,892 9,172 10,338 10,173 10,576 10,961 11,805Gross Profits 90,179 1,61,006 1,76,845 35,761 39,055 40,995 45,424 46,780 48,296 49,717 52,583In teres t Paymen ts 16,302 21,500 24,551 5,083 5,121 5,162 5,862 5,504 6,194 7,609 7,703Profits After Tax 60,236 1,11,107 1,27,968 24,845 27,710 28,698 31,251 32,699 34,266 37,470 36,109

P : Provisional; data perta in to 2,219 companies a vailable so far.

* : Other income excludes extraordinary income/ expenditure if reported explicitly.# : The increas e or decrease in stock in trade is accounted u nder total income instead of total expenditure as was hitherto done.Notes : 1. Data for 2005-06 are bas ed on audited ann ua l accounts , while those for 2006-07 an d 2007-08 are ba sed on abridged financial resu lts

of the s elect n on-Governmen t n on-financial pu blic limited compa nies.2. Growth ra tes are percen tage changes in th e level for the period un der reference over the corresponding period of the previous year for

common set of compa nies.3. The qua rterly data m ay not add up to ann ua l data du e to differences in the num ber and composition of compan ies covered in each

period.


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o n a c c o u n t o f u n c e r t a i n g l o b a l e c o n o m i c o u t l o o k a n d c o n c e r n s a b o u t h i g h

interest rates . The composite business optimism index for July-September 2008compiled by Dun and Bradstreet (D&B) declined by 11.2 per cent as comparedwith the previous quar ter and by 18.0 per cent as compared wi th the previousyear. All the six optimism indices - volumes of sales, net profits, selling prices,new orders , inventory levels and employee levels declined as compared with theprev ious quar te r. Op t imism was pa r t i cu la r ly low among responden ts in the

consumer durables and bas ic goods sectors .Ac c o r d in g t o t h e R e s e r v e B a n k s In d u s t r i a l O u t l oo k S u r v ey o f

manufacturing companies in the private sector for April-June 2008, the businesse x p e c t a t i o n s i n d i c e s b a s e d o n a s s e s s m e n t f o r A p r i l - J u n e 2 0 0 8 a n d o nexpectations for July-September 2008 declined by 5.4 per cent and 0.9 per cent,respect ively, over the corresponding previous quar ters . The indices , however,increased by 0.3 per cent and 0.8 per cent, respectively, over the correspondingquarters of the previous year (Chart 4) .

Th e d e c lin e in e x p e c t a t i on s i n d e x fo r J u ly -S e p t e m b e r 2 0 0 8 o v e r t h eprevious quar ter was due to lower net responses for major parameters of thesu rvey su ch as overall bu siness s i tua tion, overall fina ncial s itu ation , produ ction,

order books, cost of raw materials, capacity utilisation, employment, imports andprofit margins than in the previous quarter (Table 14). Most of the corporatesexpec t inc rease in r aw mate r ia l p r i ces and the inc reased p roduc t ion cos t i s

Chart 4: Reserve Banks Industrial Outlook Survey -Business Expectations Index

I n d e x

130.0

125.0

120.0

115.0

110 0


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The Real Econom y

Table 1 4 : Rese rve Banks Indus tr ial Outloo k Survey - Net Respo ns e o n

'A Quarte r Ahe ad' Expe ct atio ns About t he Indu st rial Pe rforman c e(Per cent )

Pa ra m eter Res pon s e Apr-J u n e J u ly-Sept Oct-Dec J a n -Ma r April-J u n e J u ly-Sept2007 2007 2007 2008 2008 2008

1 2 3 4 5 6 7 8

1 . Overa ll bu s in ess s itu a t ion Better 51 .7 49 .5 50 .2 47 .7 4 6 .0 41 .8(43 .3) (41 .2) (4 2 .1) (42 .9) (42 .7) (42 .6)

2 . Fin an cia l s itu a tion Better 4 3 .8 4 1 .3 40 .1 40 .3 36 .6 3 2 .7

(49 .8) (49 .8) (5 1 .3) (50 .3) (51 .6) (53 .0)3 . Workin g capita l fin an ce requ irem en t In crease 35 .3 34 .5 32 .2 34 .7 36 .6 33 .6

(59 .2) (59 .2) (6 2 .6) (60 .3) (56 .5) (57 .3)4 . Availab ility of fin an ce Im prove 35 .2 3 2 .1 3 3 .8 31 .1 3 2 .3 30 .2

(57 .2) (58 .6) (5 8 .8) (59 .5) (58 .3) (57 .9)5 . Produ ction In crease 4 7 .8 4 6 .6 49 .0 43 .9 45 .2 43 .5

(41 .6) (41 .1) (4 0 .9) (42 .3) (41 .0) (36 .6)6 . Order books In crease 45 .7 43 .6 44 .1 37 .1 41 .5 38 .5

(45 .4) (46 .1) (4 6 .0) (48 .6) (44 .3) (43 .5)

7 . Pen din g ord ers , if app licable Below n orm al -2 .2 -2 .2 -3 .5 0 .4 -4 .3 2 .2(82 .8) (82 .6) (8 2 .4) (80 .2) (81 .3) (80 .9)

8 . Cos t of raw m ateria l Decrease -4 2 .1 -46 .0 -42 .4 -44 .1 -4 8 .2 -54 .7(52 .0) (49 .7) (5 1 .0) (49 .2) (46 .0) (39 .1)

9 . In ven tory of raw m ateria l Below average -7 .3 -5 .4 -6 .3 -7 .3 -7 .0 -3 .8(85 .0) (85 .0) (8 5 .0) (84 .8) (83 .2) (81 .8)

1 0 . In ven tory of fin ish ed good s Below average -4 .4 -2 .7 -3 .5 -4 .5 -5 .8 -1 .5(85 .2) (87 .1) (8 6 .4) (86 .1) (84 .5) (84 .5)

1 1 . Cap acity u t ilis at ion (Main produ ct) In crease 29 .4 2 7 .0 28 .4 24 .2 25 .6 22 .2

(60 .4) (61 .4) (6 1 .5) (62 .3) (59 .9) (58 .8)1 2 . Level of cap acity u t ilis at ion Above n orm al 11 .5 9 .4 1 0 .7 6 .4 9 .4 3 .6

(Com p ared to th e average in th e (77 .1) (76 .5 ) (77 .2) (78 .3 ) (77 .0) (74 .9)preceding four qua rters)

1 3 . Assessm en t of th e prod u ction capacity More th an 4 .0 3 .0 4 .2 4 .7 8 .0 4 .6(With regard to expected dem an d in th e adequ ate (82 .2) (82 .2) (83 .0) (83 .8) (8 1 .2) (81 .3)next six month s)

1 4 . Em ploym en t in th e com pan y In crease 1 8 .3 17 .4 16 .7 1 4 .6 20 .8 15 .8(73 .3) (73 .5) (7 4 .1) (75 .6) (68 .2) (71 .5)

1 5 . Exp or ts , if ap plicable In crease 33 .4 32 .6 31 .4 24 .3 27 .7 2 7 .7(56 .8) (55 .6) (5 5 .9) (58 .3) (53 .3) (54 .9)

1 6 . Im p orts , if an y In crease 21 .6 23 .7 20 .8 20 .1 25 .3 2 1 .3(68 .4) (68 .2) (6 8 .6) (70 .5) (65 .6) (66 .5)

1 7 . Sellin g pr ices a re expected to In crease 15 .5 19 .0 13 .0 14 .9 19 .1 2 1 .0(68 .9) (67 .1) (6 8 .5) (67 .1) (66 .0) (61 .5)

1 8 If in creas e expected in sellin g p rices In creas e a t 1 2 1 10 4 3 7 13 3 9 0 3 0


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expec ted to be ad jus ted by keep ing inven to ry l eve l s (bo th r aw mate r ia l and

finish ed goods ) at below average an d by incr eas ing sellin g prices.

Th e r ecen t p ro jec t ions fo r g rowth r a te o f in du s t r i a l p rodu c t ion in 200 8-

09 by the Centre for Monitoring Indian Economy (CMIE) present an optimistic

v iew in the l igh t o f l a rge cap i ta l inves tmen ts s chedu led fo r commiss ion ing

dur ing the yea r. The CMIE expec t s the indus t r i a l g rowth to acce le ra te f rom

t h e e s t i m a t e d 8 . 5 p e r c e n t i n 2 0 0 7 - 0 8 t o 11 . 4 p e r c e n t i n 2 0 0 8 - 0 9 . G r o w t hr a t e s i n t h e m a n u f a c t u r i n g , m i n i n g a n d e l e c t r i c i t y s e c t o r s a r e p r o j e c t e d a t

10 .8 pe r cen t , 8 .0 pe r cen t and 6 .3 pe r cen t , r e spec t ive ly. As pe r CMIE, the

indus t r i a l r ebound i s expec ted to be we l l sp read ac ros s a l l the s ec to r s and

would be fuelled by robust growth in capital goods in the wake of large capital

goods impor t s and inves tmen ts , hea l thy o rder-book pos i t ion and a p ick -up in

the g rowth o f consumer goods .

The ABN-AMRO Purchasing Managers ' Index (PMI) 1 fo r J u n e 2 0 0 8 r os e

to i t s h ighes t r ead ing in fou r mon ths a t 58 .6 (57 .4 in May 2008) , suppor ted

by inc rease in the r a te o f g rowth o f bo th ou tpu t and new o rder s , ind ica t ing

s t r o n g g r o w t h i n t h e m a n u f a c t u r i n g s e c t o r. M a n u f a c t u r i n g f i r m s a t t r i b u t e d

h i g h e r n e w o r d e r l e v e l s t o i m p r o v e m e n t i n m a r k e t c o n d i t i o n s a n d r o b u s tu n d e r l y i n g d e m a n d . H o w e v e r , o n t h e d o w n s i d e , i n p u t p r i c e i n f l a t i o n

acce le ra ted to i t s sha rpes t fo r n ine teen months in June , on accoun t o f h igher

raw mate r ia l cos t s .

S ur ve y o f Pro f e s s iona l F o re c a s t e rs 2

The resul ts of profess ional forecas ters ' survey conducted by the Reserve

Ban k in J u n e 200 8 s u gges ted m odera t ion in economic ac t ivity fo r each o f th e

three for thcoming quar ters and for 2008-09 on the whole (Table 15) . Between

t h e t h ir d r o u n d o f s u r ve y c on d u c t ed i n Ma r c h 2 0 0 8 a n d fo u r t h r o u n d s u r ve y


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The Real Econom y

Table 1 5 : Median Forecas ts o f Select Macroec ono m ic Indicato rs byProfessional Forec asters 20 08 -09

Actu a l 2008-09

In dica tors 2007-08 An n u a l Q1 Q2 Q3 Q4

E L E L E L E L L

1 2 3 4 5 6 7 8 9 10 11

1 Rea l G DP grow th r a te a t

factor cost (in per cen t) 9 .0 8.1 7 .9 8 .1 8 .0 8 .3 7 .7 8 .1 7 .6 7 .5

a. Agriculture & AlliedActivities 4.5 3 .0 3 .0 3.0 3.1 3 .0 3 .4 2 .9 3.1 3 .8

b . In du stry 8.1 8.1 7 .5 8 .4 7 .1 8 .5 7 .0 8 .6 7 .4 7 .3

c. Services 10.7 9 .7 9 .5 10 .0 9 .9 9 .6 9 .6 9.8 9 .6 9 .5

2 Gross Dom es tic Savin g 34.8 * 35.0 35.0 - - - - - - -

(per cen t of GDP

at current m arket prices)

3 G ro ss D om e st ic Ca p it a l

Formation 35.9 * 36 .0 36.3 36 .2 36.6 36.0 36 .0 36.0 35.8 36 .1

(per cen t of GDP at

current market prices)

4 Corpora te profit after tax 27 .0 24.7 16.0 21 .3 20.3 22.6 17 .4 23.1 16.0 19 .5

(growth r ate in per cen t)

5 91-day Treasu ry Bill Yield 7 .2 6 .8 8 .2 - - - - - - -

(per cent-en d period)

6 1 0 -year G overn men t Secu r it ie s

Yield 7 .9 7 .8 8.8 - - - - - - -

(per cent-en d period)

7 Export 23.7 15.8 20 .0 - - - - - - -

(growth r ate in per cen t)

8 Import 29 .9 20 .0 29.5 - - - - - - -

(Growth rat e in per cent)

9 Trade Ba lan ce -90 .1 -115.5 -126.2 -28 .4 -31.1 -27 .5 -32.1 -28 .1 -31 .1 -29 .0(US $ billion)

E : Ea rlier Projection. L : Lat est Projection. * : Perta ins to 20 06 -07. - : Not Availab le.

Note : The latest roun d refers to the fourth roun d for th e quarter end ed J un e 2008, while earlier roun d refers to third

round for the quarter ended March 2008


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Table 1 6 : Projec t ions of Real GDP for India by Various Agen cie s - 2 0 0 8 -0 9

(per cen t)

AgencyOverall Agriculture In d u s try Services Mon thGrowth of Project ion

1 2 3 4 5 6

ASSOCHAM # 7 .9 2 .6 7 .6 9 .7 Ap r-0 8

Con fed era t ion of In d ia n In d u s t r ies (CII) 8 .0 -8 .5 - - - Mar-0 8

Cit igrou p 7 .7 3 .0 7 .5 9 .2 Mar-0 8

8 .3 - - - Feb -0 8

Merr ill Lyn ch 7 .9 2 .5 7 .4 9 .6 J u n e-0 8

8 .2 3 .0 7 .6 9 .9 Mar-0 8

J P Morga n 7 .0 - - - Mar-0 8

7 .5 - - - Dec-0 7

Cen tre for Mon itor in g In d ia n Econ om y (CMIE) 9 .5 3 .2 1 1 .4 1 0 .6 J u ly-0 8

9 .1 - - - Feb -0 8

NCAER @ 8 .5 -8 .8 2 .5 8 .9 -9 .4 1 0 .2 -1 0 .5 May-0 8

Sta n d a rd & Poors , CRISIL 7 .8 3 .0 7 .5 9 .5 J u n e-0 8

8 .1 3 .0 8 .3 1 0 .3 Ap r-0 8

8 .5 - - - Feb -0 8

As ia n Develop m en t Ba n k 8 .0 - - - Ap r-0 8

8 .5 - - - Sep -0 7

In tern a t ion a l Mon eta ry Fu n d * 8 .0 - - - J u ly-0 8

7 .9 - - - Ap r-0 8

8 .4 - - - Oct-0 7

Un ited Na tion s Orga n is a t ion 8 .2 - - - J a n -0 8Econ om ic Ad vis ory Cou n cil to Pr im e Min is ter 8 .5 - - - J a n -0 8

Res erve Ba n k of In d ia 8 .0 -8 .5 - - - Ap r-0 8

- : No t Ava ila b le . * : C a le n d a r y ea r. # : Th e As s o cia t e d C h a m b e rs o f C om m e r ce a n d In d u s t r y o f In d i a .@ : National Cou ncil of Applied Econ omic Resear ch.


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II. FISCAL SITUATION

Combined Government F inances : 2008-09

An overview of the combined budgetary posit ion of the Central and StateGovernments indicates that the key defici t indicators are budgeted to decl inesignificantly during 2008-09. The revenue deficit and gross fiscal deficit (GFD) of combined Government f inances are budgeted to decl ine by 0 .4-0 .6 percentagepoints during 2008-09 over the revised est imates (RE) for 2007-08 (Table 17).Pr imary ba lance , which tu rned in to su rp lus in 2007-08 (RE) , i s budge ted torecord a surplus of 0.8 per cent of GDP in 2008-09 (BE). Supported by rise indirect taxes, the combined revenue deficit has declined in recent years, reflectingthe build up of surplus in the revenue account of consolidated State Governmentf inances and a reduct ion in the revenue defici t of the Central Government . Thecombined debt-GDP rat io of the Central and State Governments i s budgeted todecl ine to 73.4 per cent by end-March 2009 from 77.0 per cent a t end-March

Table 1 7 : Key Fiscal Indic ato rs(Per cent to GDP)

Yea r Pr im a ry Deficit Reven u e Deficit Gros s Fis ca l Deficit Ou ts t an d in g Liab ilit ies *

1 2 3 4 5

Centre

2 0 02 -0 3 1 .1 4 .4 5 .9 6 3 .52 0 0 3 -0 4 -0 .0 3 3 .6 4 .5 6 3 .02 0 0 4 -0 5 -0 .0 4 2 .5 4 .0 6 3 .32 0 05 -0 6 0 .4 2 .6 4 .1 6 3 .12 0 0 6 -0 7 -0 .2 1 .9 3 .5 6 1 .22 0 0 7 -0 8 RE -0 .6 1 .4 3 .1 6 1 .5

(-0 .9 ) (1 .2 ) (2 .8 )2 0 0 8 -0 9 BE -1 .1 1 .0 2 .5 5 7 .7

St a t e s

2 0 02 -0 3 1 .3 2 .3 4 .1 3 2 .02 0 03 -0 4 1 .5 2 .3 4 .4 3 3 .22 0 04 -0 5 0 .7 1 .2 3 .4 3 2 .72 0 05 -0 6 0 .2 0 .2 2 .5 3 2 .62 0 0 6 -0 7 -0 .4 -0 .6 1 .9 3 0 .22 0 0 7 -0 8 RE 0 .1 -0 .5 2 .3 2 8 .42 0 0 8 -0 9 BE 0 .1 -0 .6 2 .1 2 7 .4

Combined

2 0 02 -0 3 3 .1 6 .6 9 .6 8 0 .3


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Macroeconomic an d Monetary Developm ents : First Qu arter Review 2008 -09

2 0 0 8 , r e f l e c t i n g t h e co n t i n u ed p ro ces s o f f i s ca l co n s o l i d a t i o n an d b u o y an teconomic growth.

Market borrowings are budgeted to finance two thirds of the combined GFDduring 2008-09 (70.5 per cent a year ago). The contribution of small savings inGFD f inanc ing , which had fa l l en sharp ly to 3 .6 per cen t in 2007-08(RE) , i sbudgeted to increase to 11.7 per cent in 2008-09 (Table 18).

Centres Fisca l S i tua t ion: 2008-09

The revenue defici t and GFD of the Centre budgeted at 1 .0 per cent and2.5 per cent of GDP, respectively, during 2008-09, would be 0.4 percentage pointand 0 .6 percentage point lower than those in the revised es t imates for 2007-08.In comparison with the provisional accounts for 2007-08, the revenue defici t andGFD in 2008-09 would be lower by 0.2 percentage point and 0.3 percentage point,respec t ive ly. However, f inances o f the Cen t ra l Government may come underpressu re dur ing 2008-09 on accoun t o f S ix th Pay Commiss ion (SPC) awardinclud ing paymen t of arrea rs; reduction of du ties on petroleum produ cts; h igheroil subsidies; increase in fert i l iser subsidy due to sharp rise in the prices of rawmater ials and fer t i l i sers in the in ternat ional market ; and burden of debt waiverto the farmers .

Available information on Central Government finances during April-May2008 indicates that revenue defici t and GFD were h igher than a year ago, both

in abso lu te t e rms and as percen tages to budge t es t imates (Char t 5 and Tab le19). Gross primary deficit in April-May 2008 was also higher than a year ago.

(Rupees crore)

Yea r Mark et Sta te Sm a ll Ext ern a l Oth ers Gros sBorrowin gs Provid en t Sa vin gs Borrowin gs Fis ca l

Fu n d s Deficit

1 2 3 4 5 6 7

2 0 0 4 -0 5 8 5 ,4 9 8 1 3 ,1 3 9 8 7 ,6 9 0 1 4 ,7 5 3 3 3 ,6 4 1 2 ,3 4 ,7 2 1(3 6 .4 ) (5 .6 ) (3 7 .4 ) (6 .3 ) (1 4 .3 ) (1 0 0 .0 )

2 0 0 5 -0 6 1 ,2 1 ,5 4 6 1 5 ,3 8 8 8 9 ,8 3 6 7 ,4 7 2 5 ,3 1 8 2 ,3 9 ,5 6 0(5 0 .7 ) (6 .4 ) (3 7 .5 ) (3 .1 ) (2 .2 ) (1 0 0 .0 )

2 0 0 6 -0 7 1 ,2 7 ,8 4 3 1 5 ,1 3 0 6 3 ,7 4 6 8 ,4 7 2 1 5 ,3 7 3 2 ,3 0 ,5 6 4

Table 1 8 : Financing of Gross Fisca l Def ic i t of the Cen tre and Sta te s


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Fiscal Situa tion

The widening of fiscal deficit of the Central Government during April-May2008 was mainly on account of a sharp r i se in p lan expendi ture over Apri l -May2007 . On the o ther hand , non-p lan expend i tu re was con ta ined main ly due to amo d e ra t i o n i n t h e g ro w t h o f i n t e r e s t p ay men t s an d ma j o r s u b s i d i e s , an d adecline in defence expenditure (Table 19). While the tax revenue in April-May2008 was 47.1 per cent higher than that during April-May 2007, non-tax revenuewas lower by 2.4 per cent . Receipts of major taxes were higher than those duringApril-May 2007.

Cash Man agem ent a nd Central Governm ent Mark et Borrow ings

N e t m a r k e t b o r r o w i n g s ( d a t e d s e c u r i t i e s a n d 3 6 4 - d a y Tr e a s u r y B i l l sexcluding al locat ions under the MSS) of the Central Government are p laced atRs.99,000 crore during 2008-09. Including repayments of Rs.76,780 crore, grossmark e t b o r ro w i n g s a r e e s t i ma t ed a t Rs .1 ,7 5 ,7 8 0 c ro re d u r i n g 2 0 0 8 -0 9 . Th e

issuance calendar for dated securi t ies for the first half of 2008-09 released onMarch 24 , 2008 , in consu l t a t ion wi th the Cen t ra l Government , p rov ided fo rmobi l i sat ion of Rs .96,000 crore through auct ions during Apri l -September 2008as compared with Rs.97,000 crore raised during the corresponding period of theprevious year. During 2008-09 (up to July 18, 2008) the actual issuances of dateds e c u r i t i e s a m o u n t e d t o R s . 6 6 , 0 0 0 c r o r e , w h i c h i s i n a c c o r d a n c e w i t h t h ecalend ar released. All au ct ions du ring 2008-09 (u p t o J u ly 18, 20 08) were forre i s suance o f ex i s t ing secur i t i es , bar r ing one new i s sue o f 10-year matu r i ty.Th ere was a devolvemen t of Rs.779 crore on PDs du ring 2008-09 (u p to J u ly 18,2008 ) as compared with no d evolvemen t d u ring th e corresponding period of th e

Chart 5: Key Deficit Indicators of the Centre

80000

100000

120000

140000

Gross Fiscal Deficit

e e s

c r o r e

e s

c r o r e

Revenue Deficit

50000

60000

70000

80000

90000

100000


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previous year. The bid-cover rat io ranged between 1.63 and 3.49. Gross and netmarket borrowings (dated securi t ies and 364-day Treasury Bil ls) during 2008-09( u p t o J u l y 1 8 , 2 0 0 8 ) a m o u n t e d t o R s . 7 7 , 8 0 9 c r o r e a n d R s . 4 2 , 8 1 9 c r o r e ,respect ively, account ing for 44.3 per cent and 43.3 per cent of the es t imatedmarket borrowings for the year. During the corresponding period of the previousyear, gross and net borrowings accounted for 40.5 per cent and 33.5 per cent ,respect ively. The weighted average maturi ty of dated securi t ies i ssued during2008-09 (up to July 18, 2008) at 15.67 years was higher than 14.33 years duringthe corresponding period of the previous year. The weighted average yield of

Table 1 9 : Cen tral Gove rnm en t Finan ce s: Apri l -May 2 0 0 8(Rupees crore)

Item 2 008 -0 9 Apr il - May Per cen t of Bu dget(Bu d get Es tim a tes

Es t im a tes ) 20 07 20 08 Ap ril-May

1 2 3 4 5 6

1 . Reven u e Receip ts (i + ii) 6 ,0 2 ,9 35 25 ,89 9 36 ,03 0 5 .3 6 .0

i) Ta x Reven u e 5 ,0 7 ,1 50 21 ,72 5 31 ,95 8 5 .4 6 .3

ii) Non -tax Reven u e 9 5 ,7 85 4 ,1 74 4 ,07 2 5 .1 4 .3

2 . Non -Deb t Cap ita l Receip ts 1 4 ,6 6 2 2 ,71 6 254 86 .2 * 1 .73 . Non -Pla n Expen d itu re 5 ,0 7 ,4 98 67 ,61 5 71 ,4 96 15 .5 * 14 .1

of w hich:

i) In teres t Pa ym en ts 1 ,9 0 ,8 07 26 ,22 1 27 ,22 9 16 .5 14 .3

ii) Defen ce 1 ,0 5 ,6 00 6 ,7 70 6 ,45 1 7 .1 6 .1

iii) Ma jor s u b s id ies 6 7 ,03 7 15 ,508 1 8 ,002 3 0 .3 26 .9

4 . Plan Exp en ditu re 2 ,4 3 ,38 6 23 ,13 5 37 ,98 9 11 .3 15 .6

5 . Reven u e Exp en ditu re 6 ,5 8 ,11 9 85 ,23 4 103 ,76 1 15 .3 15 .8

6 . Cap ita l Exp en ditu re 9 2 ,7 65 5 ,5 1 6 5 ,72 4 6 .7 * 6 .2

7 . Tota l Exp en d itu re 7 ,5 0 ,8 84 90 ,75 0 109 ,48 5 14 .2 * 14 .6

8 . Reven u e Deficit 5 5 ,18 4 59 ,33 5 67 ,73 1 83 .0 1 22 .7

9 . Gros s Fis ca l Deficit 1 ,3 3 ,2 87 62 ,135 7 3 ,201 4 1 .2 54 .9

10 . Gros s Pr im ary Deficit -5 7 ,52 0 35 ,91 4 45 ,97 2 - -

N.A.: Not Available* : Excludes an amou nt o f Rs.40 ,000 crore in th e budget es t imates fo r 2007-08 on account o f t ransact ions rela t ing to

tran sfer of the Reserve Bank s sta ke in SBI to the Central Governm ent.Source : Controller Genera l of Accoun ts, Ministry of Finan ce, Governm ent of Ind ia.


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Fiscal Situa tion

2 0 0 8 . D u r in g 2 0 0 7 -0 8 (u p t o J u ly 1 8 ) t h e Cen t r a l G ove rn m en t w as in ca s hdefici t for 70 days. It had availed of overdraft of Rs.3,593 crore over and abovethe ways and means advances (WMA) of Rs. 20,000 crore as on July 18, 2007.

S ta t e F ina nc e s : 20 08 -09 1

T h e S t a t e G o v e r n m e n t s , w h i l e p r e s e n t i n g t h e b u d g e t s f o r 2 0 0 8 - 0 9 ,

indicated their commitment to the process of fiscal consolidation and correction.The State Governments budgeted a h igher consol idated revenue surplus of 0 .55per cent of GDP in 2008-09 than 0 .46 per cent of GDP in the previous year. Asa result , GFD is budgeted to decline to 2.1 per cent in 2008-09 from 2.3 per cent

T h i i h d i 2 0 0 8 0 9 i

Table 20 : Cent ra l Governmen t Sec uri t ie s Issue d during 20 08 -0 9

(Amou nt in Rupees Crore/ Matur i ty in years / Yield in Percen t )Borrowin gs a s p er Is s u a n ce Au ct ion Ca len d a r Act u a l Borrowin gs

Sr . Per iod of Au ct ion Am ou n t Res id u a l Da te of Au ct ion Am ou n t Res id u a l YieldNo. Ma tu r ity Ma tu r ity

1 2 3 4 5 6 7 8

1 . Ap ril 0 4 - 1 1 , 2 0 0 8 6 ,0 0 0 5 -9 yea r Ap r il 1 1 , 2 0 0 8 6 ,0 0 0 7 .3 8 8 .1 44 ,0 0 0 2 0 - yea r a n d a b ove 4 ,0 0 0 2 4 .3 7 8 .6 7

2 . Ap ril 1 8 - 2 5 , 2 0 0 8 6 ,0 0 0 1 0 -1 4 yea r Ap r il 2 1 , 2 0 0 8 6 ,0 0 0 1 0 .0 0 8 .2 44 ,0 0 0 2 0 - yea r a n d a b ove 4 ,0 0 0 2 8 .1 3 8 .7 7

3 . Ma y 2 -9 , 2 0 0 8 6 ,0 0 0 5 -9 yea r Ma y 0 9 ,2 0 0 8 6 ,0 0 0 7 .9 2 7 .9 64 ,0 0 0 2 0 -yea r a n d a b ove 4 ,0 0 0 2 4 .2 9 8 .3 54 . Ma y 1 6 -2 3 , 2 0 0 8 6 ,0 0 0 1 0 -1 4 yea r Ma y 2 3 , 2 0 0 8 6 ,0 0 0 9 .9 1 8 .0 7

4 ,0 0 0 2 0 -yea r a n d a b ove 4 ,0 0 0 2 3 .7 2 8 .5 25 . Ma y 3 0 - J u n e 6 , 2 0 0 8 6 ,0 0 0 1 0 -1 4 yea r J u n e 6 , 2 0 0 8 6 ,0 0 0 9 .8 7 8 .2 6

4 ,0 0 0 2 0 yea r a n d a b ove 4 ,0 0 0 2 4 .2 2 8 .7 26 . J u n e 1 3 - 2 0 , 2 0 0 8 6 ,0 0 0 1 5 -1 9 yea r s ecu r it y J u n e 2 0 ,2 0 0 8 6 ,0 0 0 1 8 .6 4 9 .2 57 . J u ly 4 -1 1 , 2 0 0 8 6 ,0 0 0 1 0 -1 4 yea r J u ly 4 , 2 0 0 8 6 ,0 0 0 9 .7 9 9 .1 3

4 ,0 0 0 2 0 yea r an d a b ove 4 ,0 0 0 2 3 .6 1 1 0 .0 3

To t al 6 6 ,0 0 0 6 6 ,0 0 0

Memo:

Yea r Weigh t ed Avera ge Weigh ted Avera geMa tu r it y Yield

2 0 0 4 -0 5 1 4 .1 3 6 .1 12 0 0 5 -0 6 1 6 .9 0 7 .3 42 0 0 6 -0 7 1 4 .7 2 7 .8 92 0 0 7 -0 8 1 4 .9 0 8 .1 22 0 0 7 -0 8 (u p to J u ly 1 8 , 2 0 0 7 ) 1 4 .3 3 8 .3 12 0 0 8 -0 9 (u p to J u ly 1 8 , 2 0 0 8 ) 1 5 .6 7 8 .5 8


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maintained at 2.7 per cent of GDP during 2008-09, though i t would be higher inabso lu te t e rms .

Cash Man agem ent an d State Governm ent Mark et Borrow ings

The provis ional net a l locat ion under market borrowing programme of theS t a t e G o v e r n m e n t s f o r 2 0 0 8 - 0 9 i s p l a c e d a t R s . 4 4 , 6 2 9 c r o r e . Ta k i n g i n t oaccount repayments of Rs .14,371 crore, the gross market borrowings of StateGovernments are es t imated at Rs .59,000 crore. During the current year so far

(u p to J u ly 18, 2008), e igh t Stat e Governm ents raised Rs.8 ,712 crore thr oughauct ions wi th a cut -off y ield in the range 8 .39-9 .81 per cent as compared wi thRs.7,153 crore by 13 State Governments (cut-off yield ranging from 8.30-8.57 percent) during the corresponding period of the previous year. The weighted averageinteres t ra te on market loans f i rmed up to 8 .87 per cent during 2008-09 (up toJ u ly 18, 2008 ) from 8.41 per cent d u ring th e correspon ding period of 2007 -08(Table 21). The spreads of State Government securities over the yields of CentralGovernment securi ty of corresponding maturi ty ranged between 30 and 98 basispo in t s as aga ins t 22 and 35 bas i s po in t s dur ing the co r respond ing per iod o f 2007-08.

The average daily uti l isat ion of WMA and overdraft by the States during2008-09 (up to July 18, 2008) was Rs.351 crore as compared with Rs. 736 croreduring the corresponding period of 2007-08 (Chart 6). Four States availed of WMAand three States resorted to overdraf t during 2008-09 (up to July 18, 2008) asc o m p a r e d w i t h s i x S t a t e s a n d t h r e e S t a t e s , r e s p e c t i v e l y , d u r i n g t h ecorresponding period of the previous year.

Table 21 : Market Borrowings of Sta t e Gove rnm en ts - 2 0 0 8 -0 9Item Da te Cu t -off Ra te Ten or Am ou n t Ra is ed

(Per cen t ) (Yea rs ) (Ru p ees Crore)

1 2 3 4 5Auct ionsi. Firs t Ap r il 4 , 2 0 0 8 8 .5 0 -8 .6 0 1 0 2 ,6 4 8ii. Secon d Ma y 2 7 , 2 0 0 8 8 .3 9 -8 .6 8 1 0 3 ,2 6 4

iii. Th ird J u n e 2 7 , 2 0 0 8 9 .3 8 -9 .5 9 1 0 2 ,3 0 0iv. Fou r t h J u ly 1 0 , 2 0 0 8 9 .8 1 1 0 5 00

Grand To t al 8 7 1 2


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Fiscal Situa tion

Chart 7: Investments in Treasury Bills by State Governments*

R u p e e s c r o r e

20,000

10,000

30,000

40,00050,000

60,000

70,000

80,000

90,000

Th e ca s h s u rp l u s p o s i t i o n o f t h e S t a t e s , a s r e f l e c t ed i n t h e i r av e rag einvestments in Treasury Bil ls (14-day Intermediate Treasury Bil ls and AuctionTreasury Bi l l s ) was h igher a t Rs . 82 ,637 crore on July 18, 2008 than that of Rs .75 ,659 c ro re on J u ly 18 , 2007 . The average inves tmen t s by th e S ta tes inTreasury Bills during 2008-09 (up to July 18, 2008) amounted to Rs. 81,750 croreas compared wi th Rs . 70,608 crore during the corresponding period of 2007-08

(Chart 7).

Chart 6: Utilisation of WMA and Overdraft by States*

* Average of daily outstandings2006-07 2007-08

200018001600140012001000800600

400200

0


A p r i l

M a y

J u n e

J u l y

A u g u s t

S e p t e m b e r

O c t o b e r

N o v e m b e r

D e c e m b e r

J a n u a r y

F e b r u a r y

M a r c h

2008-09


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III. MONETARY AND LIQUIDITYCONDITIONS

Monetary and l iqu id i ty aggrega tes con t inued to expand dur ing the f i r s tquarter of 2008-09. Year-on-year (y-o-y) growth in broad money (M 3) during 2008-09so far (u p to J u ly 4, 2008 ) was a bove th e in dicative tra jectory of 16 .5-17 .0 per

cen t s e t o u t i n t h e A n n u a l Po l i cy S t a t emen t (A PS) r e l ea s ed i n A p r i l 2 0 0 8 ,n otwith sta n ding som e m oderation ma in ly reflectin g the decline in capital inflowsduring 2008-09 so far. Accretion to bank deposits, led by time deposits, remainedstrong, al though the pace moderated. Expansion in bank credit to the commercialsector 2 00 8-09 so far was ab ove th e Reserve Ban ks p olicy projection of 20 .0 percent for 2008-09 as indicated in the APS (April 2008). Banks' investments in SLRs ecu r i t i e s a s a p ro p o r t i o n o f t h e i r n e t d eman d an d t i me l i ab i l i t i e s (N D TL)remained almost a t the same level as a t end-March 2008. Large capi ta l inf lowsth at rema ined a key dr iver of mon etary an d l iquidity cond it ions du rin g 2007-08have witnessed slowdown during 2008-09 so far. The Reserve Bank continued toact ively manage l iquidi ty by us ing al l the pol icy ins t ruments a t i t s command,inc lud ing cash reserve ra t io (CRR) , i s suances o f secur i t i es under the marke ts tabi l i sat ion scheme (MSS), operat ions under the l iquidi ty adjus tment faci l i ty(LAF) and conduct of open market operations (OMO).

Monetary Survey

Broad money (M 3) growth, on a year-on-year (y-o-y) basis, was placed at20 .5 per cen t as on Ju ly 4 , 2008 as compared wi th 21 .8 per cen t a year ago ,ref lect ing the impact of some decelerat ion in t ime deposi ts . Expansion in theresidency-based new monetary aggregate (NM 3 ) - which does not directly reckonnon-resident foreign currency deposits such as FCNR(B) deposits - was lower at2 0 .8 p e r c en t a s o n J u l y 4 , 2 0 0 8 t h an 2 1 .5 p e r c en t a y ea r ag o . G ro w t h i nliquidity aggregate, L 1 , a t 20 .3 per cent a t end-June 2008 was marginal ly lowerthan that of 20.7 per cent a year ago (Table 22 and Chart 8) .

In view of the continued underlying inflationary pressures, monetary policy


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31/104


ago. Accordingly, narrow money growth (M 1 ), y-o-y, was 17.7 p er cent a s on J u ly

4, 2008 as compared with 16.9 per cent a year ago. The growth of t ime deposits

was p laced at 21 .5 p er cent (y-o-y) as on J u ly 4 , 2008 a s compa red with 23.9

per cent a year ago. The strong growth in t ime deposits could be at tributed, inter

alia , to robust economic act iv i ty, h igher in teres t ra tes on bank deposi ts re lat ive

to pos ta l depos i t s and ex tens ion o f t ax benef i t s under Sec t ion 80C fo r bank deposits . During 2007-08, accretion to postal deposits decelerated significantly

up to November 2007. Beginning December 2007 there were net outflow from

small saving schemes (Chart 9). In order to revive interest in postal deposits , the

Government announced in December 2007 some incentives, including tax benefits

for cer ta in postal deposi ts . However, net out f lows cont inued up to March 2008,

the latest period for which the data are available.

On a financial year basis, growth in M 3 during 2008-09 (up to July 4, 2008)

was 3.5 per cent as compared with 3.8 per cent during the corresponding period

of the previous year. Currency wi th the publ ic expanded by 5 .9 per cent (up to

Chart 8: Money Supply

M3 Currency with the PublicAggregate Deposits with Banks

M3 NM3 L1

Broad Money

12

14

16

18

20

22

24Monetary and Liquidity Aggregates

G r o w t h r a t e ( y

- o - y ,

p e r c e n t )


- o - y ,

p e r c e n t )

10

1214

16

18

20

22

24

26

28

9 - D e c - 0

5

3 - M a r - 0

6

2 6 - M a y - 0

6

1 8 - A u g - 0

6

1 0 - N o v - 0

6

2 - F e b - 0 7

2 7 - A p r - 0

7

2 0 - J u l - 0

7

1 2 - O c t - 0

7

4 - J a n - 0 8

2 8 - M a r - 0

8

1 - A p r - 0

5

2 4 - J u n - 0

5

1 6 - S e p - 0

5

2 0 - J u n - 0

8

D e c - 0

5

M a r - 0

6

M a y - 0

6

A u g - 0

6

N o v - 0

6

F e b - 0 7

A p r - 0

7

J u l - 0 7

O c t - 0

7

J a n - 0 8

M a r - 0

8

A p r - 0

5

J u n - 0 5

S e p - 0 5

J u n - 0 8


32/104


33/104


iron and steel, food processing, chemicals, engineering, vehicles and constructionindus t r i es . The in f ras t ruc tu re sec to r a lone accoun ted fo r 33 per cen t o f theincremental credit to industry as compared with 25 per cent in the correspondingperiod of the previous year. The agricultural sector absorbed around 10 per centof the incremental non-food bank credit expansion as compared with 15 per centin the corresponding period of the previous year. Personal loans accounted for

nearly 17 per cent of incremental non-food credi t ; wi th in personal loans , thes h a re o f i n c r emen t a l h o u s i n g l o an s w as a t 4 4 p e r c en t . G ro w t h i n l o an s t ocommercial real estate remained high, notwithstanding moderation (Table 24).

Chart 9: Time Deposits Growth

Time Deposits and Small Savings


- o - y ,

p e r c e n t )

12

15

18

21

24

27

30

Fortnight

2006-07 2007-08 2008-09

Small Savings Growth Rate (left scale)Time Deposits Growth Rate (left scale)Small Savings Interest Rate (PPF, right scale)Time Deposits Interest Rate (right scale)

5

7

9

11

13

15

P e r c e n t ( y

- o - y

)

1 3 5 7 9 11 13 15 17 19 21 23 25

Time Deposits

0

369

121518212427

M a y - 0

5

A u g - 0

5

N o v - 0

5

F e b - 0 6

M a y - 0

6

A u g - 0

6

N o v - 0

6

F e b - 0 7

M a y - 0

7

A u g - 0

7

N o v - 0

7

F e b - 0 8 3-3

M a y - 0

8

P e r c e n t ( y

- o - y

)

Chart 10: Scheduled Commercial Banks' Credit Growth

Non-food Credit

( y - o - y ,

p e r c e n t )

27

30

33

36

e r c e n t

90

100

110

120

Incremental Credit Deposit Ratio


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Monetary and Liquidity Conditions

In addi t ion to bank credi t for f inancing thei r requirements , the corporatesector continued to rely on a variety of non-bank sources of funds such as capitalmark e t s ex t e rn a l co mmerc i a l b o r ro w i n g s an d i n t e rn a l g en e ra t i o n o f fu n d s

Table 2 4 : Non-foo d Bank Credit - Se ct oral Deploy m en t

Year-on-Year Variations

May 25 , 2007

Ou t s t an d i n gas on May

2 3 , 2 0 0 8

1 2 3 4 5 6

No n -fo o d Gro s s Ban k Cre dit (1 t o 4 ) 2 1 ,7 4 ,7 6 7 3 ,6 5 ,8 1 4 2 6 .4 4 ,2 2 ,4 1 8 2 4 .11 . Agricu lt ure an d Allie d Ac t iv it ie s 2 ,6 4 ,7 8 7 5 4 ,0 3 8 3 2 .2 4 2 ,7 4 5 1 9 .32 . In dus t ry (Sm all, Medium an d Large ) 8 ,5 8 ,5 1 5 1 ,4 1 ,2 8 0 2 6 .4 1 ,8 2 ,0 7 5 2 6 .9

Sm a ll Sca le In d u s t r ies 1 ,7 6 ,2 8 2 2 6 ,3 8 7 2 9 .5 6 0 ,3 9 8 5 2 .1

3 . Pe rs o n al Lo an s 5 ,2 8 ,0 4 6 8 7 ,9 4 4 2 3 .9 7 2 ,6 0 7 1 5 .9Hou s in g 2 ,6 2 ,4 8 6 4 1 ,0 6 6 2 1 .6 3 1 ,7 3 5 1 3 .8Ad va n ces a ga in s t Fixed Dep os it s 4 2 ,2 2 0 6 ,2 3 7 1 9 .0 3 ,1 2 8 8 .0Cred it Ca rd s 2 6 ,5 9 6 4 ,4 1 1 4 5 .0 1 2 ,3 7 5 8 7 .0Ed u ca t ion 2 1 ,3 5 2 4 ,9 0 3 4 6 .5 5 ,9 1 4 3 8 .3Con s u m er Du rab les 8 ,2 9 7 1 ,6 6 1 2 3 .2 -5 3 4 -6 .0

4 . Se rv ic e s 5 ,2 3 ,2 4 9 8 2 ,5 5 1 2 6 .1 1 ,2 4 ,8 2 1 3 1 .3Tra n s p or t Op era tors 3 5 ,2 4 8 7 ,9 2 2 4 5 .5 9 ,9 2 7 3 9 .2Profes s ion a l & Oth er Services 3 1 ,9 4 2 8 ,9 9 9 5 6 .8 7 ,1 0 8 2 8 .6Tra d e 1 ,2 2 ,4 3 8 2 3 ,3 1 9 2 8 .4 1 6 ,9 0 2 1 6 .0

Rea l E s ta te Loa n s 6 1 ,0 4 5 1 9 ,0 1 0 6 9 .7 1 4 ,7 5 0 3 1 .9Non -Ba n k in g Fin a n cia l Com p an ies 7 1 ,9 7 4 1 2 ,4 0 1 3 8 .7 2 7 ,5 4 9 6 2 .0

Memo:

Prio rit y Sec t o r 7 ,3 9 ,9 6 4 1 ,2 0 ,4 6 3 2 3 .9 1 ,1 4 ,6 6 6 1 8 .3In d u s t ry (Sm a ll, Med iu m a n d La rge) 8 ,5 8 ,5 1 5 1 ,4 1 ,2 8 0 2 6 .4 1 ,8 2 ,0 7 5 2 6 .9Food Proces s in g 5 0 ,4 9 3 6 ,7 5 8 2 2 .1 1 3 ,1 2 6 3 5 .1Text iles 9 3 ,9 1 6 1 9 ,2 2 3 3 2 .9 1 6 ,2 5 9 2 0 .9Pa p er & Pa p er Prod u cts 1 3 ,8 2 6 2 ,2 4 3 2 4 .5 2 ,4 3 5 2 1 .4Pet roleu m , Coa l Prod u cts & Nu clea r Fu els 4 7 ,2 8 9 9 ,8 8 4 5 1 .6 1 8 ,2 5 0 6 2 .8Ch em ica ls a n d Ch em ica l Prod u cts 6 5 ,3 9 7 6 ,5 1 1 1 4 .2 1 2 ,9 8 2 2 4 .8Ru b b er , Pla s t ic & t h eir Prod u ct s 1 1 ,1 1 6 1 ,9 3 8 2 8 .0 2 ,2 6 1 2 5 .5Iron an d St eel 7 8 ,8 3 4 1 3 ,5 5 4 2 7 .2 1 5 ,4 6 0 2 4 .4Oth er Meta l & Meta l Prod u cts 2 5 ,1 1 2 5 ,4 4 7 3 6 .3 4 ,6 5 8 2 2 .8En gin eer in g 5 2 ,5 5 1 8 ,5 53 2 5 .1 9 ,9 5 9 2 3 .4Veh icles , Veh icle Pa r ts a n d Tra n s p or t E qu ip m en t s 3 0 ,0 1 5 5 ,2 6 7 2 8 .6 6 ,3 2 4 2 6 .7Gem s & J ewellery 2 4 ,8 2 6 2 ,5 7 2 1 2 .3 1 ,4 0 3 6 .0Con s t ru ct ion 2 6 ,0 8 2 6 ,6 3 2 4 9 .2 5 ,9 5 9 2 9 .6In fra s t r u ctu re 2 ,0 3 ,3 3 1 3 5 ,2 9 2 3 2 .6 5 9 ,8 1 1 4 1 .7

Note: 1 . Da t a a r e p ro vis i on a l an d r e la t e t o se lect s ch ed u l ed commerc ia l b an k s .2 . Data a lso includ e the figur es o f Bhara t Overseas Bank , which was merged with Ind ian Overseas Bank

o n M arch 3 1 , 2 0 0 7 .

(Amou nt in Rup ees Crore)

S ect o r / In d u s t ry

May 23 , 2008

Ab solu te Per cen t Ab s olu te Per cen t


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previous year. Resources raised in the form of equity issuances through Americandepository receipts (ADRs) and global depository receipts (GDRs) during April-June 2008-09 (Rs.4,056 crore) were more than three t imes than those during thecorresponding period of the previous year. Internal generation of funds continuedto provide a s t rong su pport to th e fu nd in g requ irement s of the corporate s ector,despi te the profi t af ter tax of select non-f inancial non-government companiesduring 2007-08 wi tness ing some decelerat ion in comparison wi th the previousyear (Table 25 and Table 12).

Scheduled commercial banks ' inves tment in SLR securi t ies expanded by19.6 p er cent (y-o-y) as on J u ly 4 , 2008, a s compa red with 10.4 p er cent a yearago. The higher growth in investment in SLR securities mainly reflected the needt o ma i n t a i n SLR r eq u i r emen t s i n co n s o n an ce w i t h t h e i n c r ea s e i n t h e i r n e tdemand and t ime l i ab i l i t i es (Tab le 26) . Commerc ia l banks ' ho ld ings o f suchsecu rit ies a s on J u ly 4, 2008 were 27.7 per cent of th eir NDTL as compar ed with

Table 2 5 : Selec t Sou rce s of Funds to Indust ry(Rup ees Crore)

Item 2 0 0 6 -0 7 2 0 0 7 -0 8 2 0 0 7 -0 8 2 0 0 8 -0 9

Q1 Q2 Q3 Q4 Q1

1 2 3 4 5 6 7 8

A. Ba n k Cred it to In d u s t ry # 1 ,4 1 ,5 4 3 1 ,7 4 ,5 6 6 -1 5 ,6 0 3 5 9 ,7 7 6 4 0 ,9 9 3 8 9 ,4 0 0 -1 3 ,3 8 5 ^

B. Flow from Non-ban ks toCorporates1 Ca p it a l Is s u es (i+ii) 2 9 ,1 7 8 5 1 ,4 7 9 1 3 ,7 8 8 6 ,2 2 6 1 4 ,4 0 0 1 7 ,0 6 5 2 ,0 3 1

i) No n -Go vern men tPu b lic Ltd . Com p a n ies (a +b ) 2 9 ,1 7 8 4 8 ,9 6 2 1 3 ,2 6 1 4 ,2 3 6 1 4 ,4 0 0 1 7 ,0 6 5 2 ,0 3 1

a ) Bon d s / Deb en tu res 5 85 8 0 9 0 0 0 80 9 0

b ) Sh a res 2 8 ,5 9 3 4 8 ,1 5 3 1 3 ,2 6 1 4 ,2 3 6 1 4 ,4 0 0 1 6 ,2 5 6 2 ,0 3 1

ii ) PSUs andGovern m en t Com p an ies 0 2 ,5 1 7 52 7 1 ,9 9 0 0 0 0

2 ADR/ GDR Is s u es 1 6 ,1 8 4 1 3 ,0 2 3 1 ,2 5 1 9 ,8 9 9 2 89 1 ,5 8 4 4 ,0 5 63 E xt e rn a l Co m m er c ia l

Borrowin gs (ECBs ) 1 ,0 4 ,0 4 6 1 ,6 0 ,2 2 1 3 5 ,9 9 3 3 6 ,7 5 5 4 3 ,0 9 3 4 4 ,3 8 0

4 Is s u e of CPs 5 ,1 4 5 1 4 ,9 0 3 8 ,5 6 8 7 ,3 5 8 6 ,6 2 9 -7 ,6 5 1 1 4 ,2 5 6

C. Dep recia t ion Provis ion + 3 7 ,0 9 5 3 8 ,5 2 8 * 1 0 ,1 7 3 1 0 ,5 7 6 1 0 ,9 6 1 1 1 ,8 0 5

D Profit a ft er Tax + 1 1 1 1 0 7 1 2 7 9 6 8 * 3 2 6 9 9 3 4 2 6 6 3 7 4 7 0 3 6 1 0 9

M t d Li idit C diti


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27.8 per cent at end -March 2 008 a nd 2 8.7 per cent a year ago (Char t 11). ExcessSLR investmen ts of SCBs increas ed to Rs .99,238 crore as on J u ly 4 , 200 8 fromRs. 98,033 crore at en d-March 2008 ; excess inves tm ents in S LR securi t ies were

(Amou nt in Rup ees Crore)

Table 2 6 : Sche duled Com m ercial Bank Survey

Var iation (Year -on -Year )

As on J u ly 6 , 2007Ou t s t an d i n g

as onJ u l y 4 , 2 0 0 8

1 2 3 4 5 6

Sources o f Funds1 . Aggrega te Dep os it s 3 3 ,0 8 ,2 2 5 5 ,3 6 ,6 1 7 2 4 .6 5 ,8 9 ,6 4 6 2 1 .72 . Ca ll/ Te rm F u n d i n g fro m F i n an c ia l

In s t itu t ion s 1 ,0 3 ,5 6 9 -1 ,8 5 3 -2 .2 2 1 ,0 4 2 2 5 .53 . Overseas Foreign Currency

Borrowin gs 4 7 ,9 2 8 -5 ,8 6 7 -1 8 .9 2 2 ,6 9 6 8 9 .94 . Ca p ita l 4 4 ,4 2 4 6 ,9 2 7 2 3 .9 8 ,5 4 1 2 3 .85 . Res erves 2 ,7 4 ,0 8 9 5 0 ,9 4 3 3 1 .4 6 0 ,9 0 2 2 8 .6Uses o f Funds1 . Ba n k Cred it 2 4 ,0 8 ,5 7 9 3 ,7 5 ,4 8 3 2 4 .4 4 ,9 2 ,2 0 2 2 5 .7 of wh ich: Non -food Cred it 2 3 ,5 7 ,8 5 9 3 ,6 9 ,1 0 9 2 4 .6 4 ,8 5 ,7 0 9 2 5 .92 . In v es t men t s i n Govern men t an d

Ot h er Ap p roved Secu r it ies 1 ,0 ,1 5 ,3 8 2 7 9 ,9 3 8 1 0 .4 1 ,6 6 ,2 1 3 1 9 .6a ) In ves tm en ts in Govern m en t Secu r it ies 9 ,9 6 ,6 2 7 8 1 ,3 1 0 1 0 .8 1 ,6 2 ,4 7 5 1 9 .5b ) In ves tm en ts in Ot h er Ap p roved Secu r it ies * 1 8 ,7 5 5 -1 ,3 7 2 -8 .4 3 ,7 3 8 2 4 .9

3 . In ves t m en ts in n on -SLR Secu r it ies 1 ,7 1 ,3 8 2 2 3 ,4 4 5 1 5 .6 -2 ,7 1 8 -1 .64 . Foreign Cu r ren cy As s ets 3 4 ,3 6 4 3 0 ,3 5 6 9 3 .0 -2 8 ,6 3 6 -4 5 .55 . Ba la n ces wit h th e RBI 2 ,6 9 ,4 8 2 8 3 ,8 7 7 7 2 .5 6 9 ,8 8 9 3 5 .0

* : Refers to investmen t in SLR securit ies as notified in t he Reserve Ban k n otification DBOD No. Ref. BC. 61/ 12.02.00 1/ 2 0 0 7 -0 8 d a t ed F eb ru a ry 1 3 , 2 0 0 8 .

Note: Data are p rov is ional .

Item

Amou nt Per Cent Am ou n t Per Cen t

As on J u ly 4 , 2008

Chart 11: SLR Investments by Scheduled Commercial Banks

e n t

o f

N D T L

38

42

46

50


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Movemen ts in t he Reserve Ban ks n et credi t to th e Centra l Governm ent

Table 2 7 : Res erve Mone y - Variat ion s(Amou nt in Ru pees crore)

It em 2007-08 2007-08 2008-09(April- (Up to ( Up to 2007-08 2008-09

Ma rch ) J u ly 20 ) J u ly 18 ) Q1 Q2 Q3 Q4 Q1

1 2 3 4 5 6 7 8 9

Re se rve Mone y 2 ,1 9 ,4 2 7 4 3 ,0 8 0 2 3 ,2 8 1 1 1 ,6 3 0 6 0 ,6 8 8 2 6 ,6 0 6 1 ,2 0 ,5 0 3 3 ,1 5 5(6 .1 ) (2 .5 )

Components (1+2+3)1. Cu r ren cy in C ircu la t ion 86,702 10,539 34,915 16,866 -13,297 46,781 36,352 36,795

(2 .1) (5 .9)2. Ba n kers ' Depos its with RBI 1,31,152 27,685 -7 ,481 -4,800 75,464 -19,369 79,857 -29,333

(14.0) (-2 .3 )3 . 'Oth er ' Depos its with th e RBI 1,573 4,855 -4 ,153 -436 -1,479 -806 4,294 -4 ,308

(64.8) (-45.8 )Sources (1+2+3+4-5)1. RBIs n et cr edit to Govern m en t -1 ,15,632 19,461 54,113 -22,154 -54,695 -65,787 27,004 -13

of w hich: to Cen tre (i+ii+iii+iv-v) -1 ,16,772 18,875 55,581 -21,825 -55,588 -65,078 25,719 1,430i. Loa n s an d Advan ces 0 30,058 0 0 0 0 0 0ii. Treasu ry Bills h eld by th e RBI 0 0 0 0 0 0 0 0iii . RBIs Holdings of Dated

Secu rit ies 17,421 -21,182 -2 ,172 -34,284 4,019 20,874 26,812 -39,239iv. RBIs Hold in gs of Ru pee Coin s 121 79 -68 128 20 3 -31 -1v. Cen tra l Govern m en t Depos its 1 ,34,314 -9,921 -57,821 -12,330 59,627 85,956 1,062 -40,670

2. RBIs Credit to Banks an dCom m ercia l Sector -2 ,794 -7,778 -873 -6,450 -1,256 848 4,064 -3 ,358

3. NFEA of RBI 3,69,977 27,735 75,552 -2 ,745 1,19,430 94,681 1,58,610 1,03,932(3.2) (6 .1)

of which :FCA, ad ju sted for r eva lu at ion 3,70,550 72,947 -18,139 47,728 1,18,074 1,00,888 1,03 ,860 15,535

4. Governments ' Currency Liabil it ies toth e Pu b lic 1,064 330 161 166 354 312 232 161

5. Net Non -Mon eta ry liab ilit ies of RBI 33,187 -3,333 1,05,673 -42,812 3,145 3,448 69,406 97,567

Memo:

LAF- Repos (+) / Reverse Repos (-) 21,165 -32,185 -16,025 -32,182 9,067 16,300 27,980 -45,350Net Open Market Sa les # * -5 ,923 1,910 -18,183 1,246 1,560 -3,919 -4 ,810 -8 ,696Cen tres Su rp lu s ** 26,594 -49,992 -56,919 -34,597 15,376 54,765 -8 ,950 -42,427Mobilis a t ion u n der th e MSS 1,05,419 22,053 3,047 19,643 48,855 31,192 5,728 6,040Net Pur cha ses (+)/ Sales(-) fromAu th or ised Dea lers 3 ,12,054 60,824 17,356 ^ 38 ,873 1,01,814 87,596 83,771 17,356 ^NFEA/ Reserve Mon ey @ 133.1 118.9 137.8 119.8 125.8 133.4 133.1 143.8NFEA/ Cu rren cy @ 209.2 173.7 209.6 165.7 193.6 194.3 209.2 213.5

NFEA: Net Foreign Exchan ge Assets . FCA: Foreign Currency Assets . LAF: Liquidi ty Adjustmen t Facil ity.*: At face va lu e. # : Exclu des Treasu ry Bills . @ : Per cen t ; en d of per iod. ^ : u p to May 30 , 2008.** : Excludes min imu m cash balan ces in case of su rplus .Note: 1 . Data are bas ed on March 31 for Q4 an d las t report ing Fr iday for a l l o ther quar ters .

2 . Figures in parenth eses are percentage var ia t ions du ring the fiscal year.



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with th e Reserve Ban k. Reflectin g thes e developm en ts, t h e Reserve Ban ks n etcredi t to the Centre increased by Rs.55,581 crore during 2008-09 so far (up toJ u ly 18 , 2008) as comp ared with an increas e o f Rs . 18 ,875 c ro re dur ing thecorresponding period of the previous year.

Liquidity Management

The Reserve Bank con t inued wi th i t s po l i cy o f ac t ive management o f l iquidi ty in 2008-09 through appropriate use of the CRR and OMO, includingMSS an d LA F, an d o t h e r p o l i cy i n s t ru men t s a t i t s co mman d f l ex i b l y. Th eobjective is to maintain appropriate liquidity in the system such that all legitimaterequirements of credit are met, consistent with the objective of price and financials t ab i l i t y. D u r i n g 2 0 0 8 -0 9 s o f a r v a r i a t i o n s i n ca s h b a l an ces o f t h e Cen t r a l

G o ve r n m e n t , h i k e s i n t h e C RR a n d t h e R es e r v e Ba n k s f or e i gn e x c h a n g eoperations remained the key drivers of l iquidity condit ions.

L i q u i d i t y co n d i t i o n s t u rn ed ea s y a f t e r t h e co mmen cemen t o f 2 0 0 8 -0 9m a i n l y d u e t o s u b s t a n t i a l r e d u c t i o n i n t h e c a s h b a l a n c e s o f t h e C e n t r a l

Chart 13: Accretion to RBI's Net Foreign Assets

-40000-30000

-20000

-10000

0

10000

20000

30000

40000

50000

R u p e e s

c r o r e

1 - A p r - 0

5

2 7 - M a y - 0

5

2 2 - J u l - 0

5

1 6 - S e p - 0

5

1 1 - N o v - 0

5

6 - J a n - 0 6

3 - M a r - 0

6

2 8 - A p r - 0

6

2 3 - J u n - 0

6

1 8 - A u g - 0

6

1 3 - O c t - 0

6

8 - D e c - 0

6

2 - F e b - 0 7

3 0 - M a r - 0

7

2 5 - M a y - 0

7

2 0 - J u l - 0

7

1 4 - S e p - 0

7

9 - N o v - 0

7

4 - J a n - 0 8

2 9 - F e b - 0

8

2 5 - A p r - 0

8

2 0 - J u n - 0

8

IMD Redemption



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y q y

April 2008. On a review of the evolving l iquidity si tuation, the Annual MonetaryPolicy Statement issued on April 29, 2008, announced an increase in CRR by 25basis points to 8.25 per cent with effect from the fortnight beginning May 24, 2008.Reflecting the impact of the CRR hikes, average daily net absorption through LAFdecl ined to Rs .11,841 crore during May 2008. No auct ion of dated securi t iesunder the MSS was conducted dur ing May 2008 and the ou t s t and ing ba lanceunder the MSS was placed at Rs .1 ,75,362 crore on May 30, 2008 (Chart 14) .

Liquidity cond it ions eased in th e ear ly par t of J u n e an d th e average da ilynet absorpt ion under the LAF was placed at Rs .15,469 crore during June 1-9 ,2 0 0 8 . O n a r ev i ew o f t h e p r ev a i l i n g mac ro eco n o mi c an d o v e ra l l mo n e t a rycondit ions and with a view to containing inflat ionary expectations, the ReserveBank increased the repo rate under the LAF by 25 basis points to 8 per cent withe f f e c t f r o m J u n e 1 2 , 2 0 0 8 . S u b s e q u e n t l y , w i t h t h e b u i l d - u p i n C e n t r a lGovernment balances in the face of advance tax collections, l iquidity condit ions

Table 2 8 : Res erve Banks Liquidity Manage m en t Operation s

2 0 0 7-0 8 2 00 8 -0 9

Item 2 0 07 -0 8 Q1 Q2 Q3 Q4 Apr il Ma y

1 2 3 4 5 6 7 8

A. Drive rs o f Liqu idit y (1 +2 +3 +4 +5 ) 2 ,0 4 ,0 2 6 5 1 ,1 4 6 1 ,1 1 ,1 6 9 -1 ,9 8 4 4 3 ,6 9 5 2 7 ,0 8 3 1 7 ,9 8 91 . RBIs net p u rch a ses from Au th or ised Dea lers 3 ,1 2 ,0 54 3 9 ,79 1 1 ,00 ,8 96 8 8 ,5 45 8 2 ,8 2 2 1 1 ,4 6 9 5 ,8 872 . Cu rren cy with th e Pu b lic -8 4 ,57 1 -1 2 ,9 4 6 9 ,4 6 5 -4 7 ,42 2 -33 ,6 6 7 -2 2 ,1 ,9 6 -1 0 ,2 5 03 . S u r p lu s c a s h b a la n c es o f t h e

Cen t re with th e Res erve Ba n k @ -2 6 ,5 94 4 9 ,9 9 2 -30 ,7 71 -4 9 ,82 0 4 ,0 0 5 40 ,0 37 1 9 ,4 474 . WMA a n d OD 0 15 ,1 59 -1 5 ,1 5 9 0 0 0 0

5. Oth ers (res id u a l) 3 ,1 37 -4 0 ,85 0 4 6 ,7 39 6 ,7 1 2 -9 ,46 5 -2 ,22 7 2 ,9 05B. Man age m e n t o f Liqu idit y (6 +7 +8 +9 ) -1 ,1 7 ,7 4 3 -5 3 ,9 4 3 -6 8 ,6 2 1 -1 1 ,1 8 9 1 6 ,0 1 0 -8 6 ,4 2 7 2 1 ,0 8 06 . Liquid i ty impact o f LAF

Rep os 2 1 ,1 65 -2 0 ,2 90 -2 ,8 2 5 2 7 ,79 5 16 ,48 5 -83 ,11 5 4 2 ,3 657 . Liqu id ity im pa ct of OMO (Net ) * 1 3 ,5 1 0 1 0 4 0 5 ,2 6 0 8 ,2 0 0 7 40 1338. Liqu id ity im p a ct of MSS -1 ,05 ,4 19 -1 8 ,1 6 3 -5 0 ,3 36 -2 8 ,2 4 4 -8 ,6 75 -4 ,0 5 2 -2 ,9 1 89 . Firs t rou n d liqu id ity im pa ct du e to CRR ch a n ge -4 7 ,0 0 0 -15 ,5 0 0 -1 5 ,5 0 0 -1 6 ,0 00 0 0 -18 ,5 0 0

C. Ban k Re se rve s (A+B) # 8 6 ,2 8 3 -2 ,7 9 7 4 2 ,5 4 8 -1 3 ,1 7 3 5 9 ,7 0 5 -5 9 ,3 4 4 3 9 ,0 6 9

WMA : Wa ys a n d m e a n s a dva n c es . O D : Ove r dr a ft(+):Indicates injection of l iquidity into the banking system.(-) : Ind ica tes a bsorp t ion of liqu id ity from th e ban king system.

# : Inc ludes vau l t cash with ban ks an d ad justed for fi rs t round l iqu id i ty impact due to CRR chan ge.* :Adjus ted for Consol ida ted Sink ing Fun ds (CSF).@ : Ex c lu d e s mi n i mu m c a sh b a l a n c es i n c a se o f su rp l u s .Note : Data perta in to March 31 and las t Friday for a l l o ther month s .

(Rupees Crore)



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y p Q

Chart 14: Market Stabilisation Scheme

0

50000

100000

150000

200000

250000

300000


ActualsLimits

A p r - 0

4

J u n - 0 4

A u g - 0

4

O c t - 0

4

D e c - 0

4

F e b - 0 5

A p r - 0

5

J u n - 0 5

A u g - 0

5

O c t - 0

5

D e c - 0

5

F e b 6 - 0

A p r - 0

6

J u n - 0 6

A u g - 0

6

O c t - 0

6

D e c - 0

6

F e b - 0 7

A p r - 0

7

J u n - 0 7

A u g - 0

7

O c t - 0

7

D e c - 0

7

F e b - 0 8

A p r - 0

8

J u n - 0 8

Chart 15: Repo (+)/ Reverse Repo (-) under LAF

R u p e e s

c r o r e

-4000

0

2000

4000

6000

-2000

point s ea ch) with effect from th e fortn ights b egin n in g J u ly 5 an d J u ly 19, 2008 ,respectively. No MSS au ction was condu cted du ring J u ne 20 08 a nd the outs tan dingbalan ce as on J u ne 27, 200 8, was p laced at Rs .1 ,74,433 crore (Table 29). Th eaverage dai ly net in ject ion th rough the LAF du ring J u ne was Rs . 8 ,622 crore.

Liqu idity condit ions eas ed du ring the first week of J u ly ma in ly on accou n to f a d ec l i n e i n t h e ca s h b a l an ces o f t h e Cen t r a l G o v e rn men t b u t t i g h t en ed

signif icant ly thereaf ter mainly due to two s tage hike in CRR announced in theprevious mon th . The average liqu idi ty in ject ion du rin g J u ly 1-18, 200 8 was atRs . 23,421 crore.



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(Rup ees crore)

Table 2 9 : Liquidity Managem en t

Ou t s ta n d in g a s on La s t Fr id a y LAF MSS Cen t res Su rp lu s Tota l (2 t o 4 )with th e RBI @

1 2 3 4 5

2 0 0 7J a n u a ry -1 1 ,4 4 5 3 9 ,3 7 5 4 2 ,4 9 4 7 0 ,4 2 4Feb ru a ry 6 ,9 4 0 4 2 ,8 0 7 5 3 ,1 1 5 1 ,0 2 ,8 6 2Ma rch * -2 9 ,1 8 5 6 2 ,9 7 4 4 9 ,9 9 2 8 3 ,7 8 1Ap ril -9 ,9 9 6 7 5 ,9 2 4 -9 8 0 6 4 ,9 4 8Ma y -4 ,6 9 0 8 7 ,3 1 9 -7 ,7 5 3 7 4 ,8 7 6

J u n e -8 ,8 9 5 8 1 ,1 3 7 -1 5 ,1 5 9 5 7 ,0 8 3J u ly 2 9 9 2 8 8 ,0 1 0 -2 0 ,1 9 9 7 0 ,8 0 3Au gu s t 1 6 ,8 5 5 1 ,0 6 ,4 3 4 2 0 ,8 0 7 1 ,4 4 ,0 9 6Sep tem b er -6 ,0 7 0 1 ,3 1 ,4 7 3 3 0 ,7 7 1 1 ,5 6 ,1 7 4Octob er 1 8 ,1 3 5 1 ,7 4 ,2 7 7 2 3 ,7 3

macroeconomics and monetry development

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