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Industrial outlook not all that rosy: RBI -- Shadow on 6.5 pc GDP growth forecast

Our Bureau

MUMBAI, Aug. 28

THE uncertainty over post-monsoon industrial recovery has cast a shadow on the realisation of RBI's earlier projection of six to 6.5 per cent GDP growth rate for the current fiscal.

The annual report of the central bank for 2000-01, released today, observed that though the monsoon had so far been quite favorable and the foodgrain output not far short of expectations, ``the industrial outlook continues to be uncertain and a cause for considerable concern.''

The realisation of the growth rate projected in April 2001 is dependent on a sharp reversal in current industrial trends during the post-monsoon period, said the report.

``The deceleration of economic activity for the second year in succession has raised some concerns about the feasibility of rapidly moving the economy to a higher growth path in the medium term,'' the report said.

This is despite the positive aspects such as the softening trend in interest rates, lower level of inflation and comfortable foreign exchange reserves of over $44 billion.

Leading indicators of industrial activity and business confidence suggest the prospects of a modest revival of the industrial sector only in the second half of the year, in alignment with the usual seasonal upturn in industrial activity, said the central bank.

Non-food credit offtake, an indicator of industrial activity, has been sluggish. Bank credit to the commercial sector during 2001-2002 (upto July 27) decelerated to 1.9 per cent from 2.6 per cent during the corresponding period the previous year. Offtake of non-food credit of scheduled commercial banks was lower, at Rs. 1,714 crore, as compared to Rs. 14,482 crore.

Export growth, too, decelerated sharply, to 1.7 per cent in April-June 2001 from 26.6 per cent in the first three months of 2000-01.

On the domestic front, the fiscal deficit has been budgeted at 4.7 per cent of GDP and over three-fourth of the Centre's net borrowing requirement has already been completed. The Centre's gross fiscal deficit, at Rs. 42,198 crore during April-June, 2001 was higher by 68.3 per cent over the level in April-June, 2000.

The revenue deficit for the quarter was almost double the level of the first quarter of 2000-2001, reflecting the continuing slowdown in revenue collections, both tax and non-tax. On the other hand, growth in expenditure was higher in the revenue account as well as in the capital account during April-June 2001 over the level in April-June 2000.

A slump in world GDP growth in 2001 was widely expected, and India cannot but reckon the impact of these global developments, said the report. However, ``for several reasons, including its relatively small share of trade, GDP growth in India is unlikely to be as seriously affected as many other countries''.

On a more positive note, the RBI expects that inflationary conditions will remain supportive, with headline inflation around five per cent. Money supply expansion is expected to be about 14.5 per cent, amply supporting an expansion of non-food credit of the order of 16 to 17 per cent, assuming that there would be a pick-up in industrial activity.

The current account deficit is expected to be well below two per cent of GDP even of non-oil imports show considerable increase in the event of a pick-up in economic activity.

Foreign direct investment inflows at $608 million in April-June, 2001 were marginally lower than those in the corresponding period of the preceding year. On the other hand, net inflows on account of FIIs at $ 632 million in the first three months of 2001 -02 were higher than in the corresponding period of 2000-01.

The level of foreign exchange reserves increased by $ 1,854 million to $44,135 million as on August 10, 2001 reflecting the improvement in the merchandise trade account and the stability in net capital flows.