RBI releases September 2011 Issue of RBI Bulletin

The Reserve Bank of India today released the September 2011 issue of its monthly RBI Bulletin. The September issue carries six articles:

1. India’s Foreign Trade: 2011-12 (April-June),
2. Monthly Seasonal Factors of Selected Economic Time Series,
3. Corporate Investment: Growth in 2010-11 and Prospects for 2011-12,
4. International Banking Statistics of India: December 31, 2010,
5. Performance of Financial and Investment Companies: 2009-10  and
6. Finances of Non-Government Non-Financial Private Limited Companies: 2009-10. Highlights of the articles are:

Highlights:

i) India’s Foreign Trade: 2011-12 (April-June): Robust Performance

This article reviews the performance of India’s merchandise trade during 2011-12 (April-June) on the basis of data released by Directorate General of Commercial Intelligence and Statistics (DGCI&S). The article also covers disaggregated commodity-wise and direction-wise analysis of India’s trade during 2010-11.

Main Findings

• During 2011-12 (April-June), India’s merchandise exports at US$ 79.0 billion witnessed a growth of 45.7 per cent compared with an increase of 41.2 per cent in the corresponding period of the preceding year.
• Merchandise imports at US$ 110.6 billion showed a rise of 36.2 per cent (30.1 per cent a year ago).
• The robust performance of exports appeared to have been driven by supportive policy of the Government to promote exports in terms of products and destinations. Trade deficit during 2011-12 (April-June) amounted to US$ 31.6 billion, as compared with US$ 27.0 billion during the same period of the preceding year.
• The disaggregated data on commodity-wise merchandise exports during 2010-11 indicate that items, such as, engineering goods, petroleum products, gems and jewellery and agriculture and allied products contributed more than 80 per cent of the overall growth in exports.
• Destination-wise, there has been diversification of exports towards developing countries and Oil Producing and Exporting countries (OPEC).

ii) Monthly Seasonal Factors of Selected Economic Time Series: Trend Analysis

This article presents the estimated monthly seasonal factors of selected 95 economic/financial time series taken from broad sectors, namely, Monetary and Banking; Price; Industrial Production; External Trade and Services sector. The series is classified into six major groups: Monetary and Banking Indicators (22 series), Wholesale Price Index (WPI) (27 series), Consumer Price Index (CPI) (3 series), Industrial Production (38 series), Services Sector Indicators (2 series) and External Trade (3 series).

Main Findings

• The computed seasonal factors and the variation over the time reveal that seasonal variations for M3 and currency in circulation remained stable in recent years. However, seasonal variations for M1 and reserve money showed an increasing trend.
• The seasonal variations of Aggregate Deposits, Non-Food Credit and Investments for scheduled commercial banks have been found to be stable in recent years. Within Aggregate Deposits, Demand Deposits have shown greater seasonal fluctuations than Time Deposits.
• Within the price-related series, data reveal that seasonal variation for WPI-All Commodities remained low and declined in recent years. Average variation for WPI-Primary articles was higher than for WPI Manufacturing. For WPI-Fuel and Power group, no significant seasonal factors were observed. However, the subgroup of ‘freely priced product ex-petrol’ showed significant seasonal variations.
• Seasonal variation of CPI-IW was stable in the recent years, and marginally lower than the CPI-AL and CPI-RL. Among the production series, seasonal variation of IIP general index increased marginally over the time. Over the years, the seasonal peak of IIP-General, sectoral and the use-based groups indices had remained in March; the seasonal trough, however, varied and occurred in different months. Seasonal variations in IIP for Basic goods, Intermediate goods and Capital goods increased but were partially offset by decline in seasonal variation in Consumer goods.
• During 2010-11, 38 out of 95 select series recorded their seasonal peaks in March. The largest seasonal variation has been observed in ‘IIP- Office, accounting and computing machinery’ series and the smallest is observed in ‘WPI milk’.

iii) Corporate Investment: Growth in 2010-11 and Prospects for 2011-12: Likely to be Lower than Expected

This article captures capital investment intentions of the companies in private and joint business sector in order to assess broadly the likely short-term changes in business sentiment. The estimation of capital investment during the year is based on phasing details of the investment intentions indicated by the companies while raising funds through sanctioned assistance by banks/FIs, ECB/FCCBs and domestic equity. Capital expenditure envisaged from pipeline projects are also estimated for the year 2011-12.

Main Findings:

• The cost of projects which were sanctioned institutional assistance during 2010-11 aggregated to `4,60,303 crore which is only marginally higher than `4,55,968 crore envisaged in 2009-10.
• The investment plan was led primarily by high value projects (projects having cost more than `1,000 crore each) envisaged in power, metal & metal products and telecom sectors. Spatial pattern of projects proposed during 2010-11 revealed that Chhattisgarh was the most preferred state that captured 14.9 per cent of total investment intentions followed by Andhra Pradesh, Gujarat and Karnataka.
• Based on the phasing details of investment intensions made during various years, capital expenditure that might have been incurred in 2010-11 worked out to be `3,82,641 crore.
• The capital expenditure already planned to be spent in 2011-12 aggregated to `2,74,919 crore and if companies do not defer the investment decisions and adhere to their investment plan, this pipeline investment is expected to provide the momentum of investment in 2011-12. Thus, if the aggregate capex in 2011-12 were to match the capex envisaged in 2010-11 (`3,82,641 crore), the minimum capital expenditure of around `1,07,722 crore needs to show up from the new investment intentions of 2011-12 by the private corporate sector.
• There are possibilities of some softening in the industrial sector growth due to continued input price pressure and escalating cost of capital. This raises some concerns regarding the investment demand in 2011-12. Going by the assessment on date, the capital expenditure of the above order does not appear to be feasible.  In all likelihood, capital expenditures in 2011-12 are likely to be lower than the previous year.

iv) International Banking Statistics of India: December 31, 2010: Decline in Short Term?

The article presents analysis of international liabilities and assets of banks in India, classified under Locational Banking Statistics (LBS) and consolidated international/foreign claims under Consolidated Banking Statistics (CBS), collected as per the reporting system of the Bank for International Settlements (BIS), for the quarters ended December 2010.

Main Findings

Locational Banking Statistics

International Liabilities

• The international liabilities (in Indian Rupees) of banks in India, at end-December 2010 grew by 14.0 per cent over the position a year ago. However, there was a marginal decline at 0.2 per cent over the previous quarter.
• The foreign currency borrowings, investment in ADRs/ GDRs and equities of the banking sector by non-residents contributed to the growth in international liabilities over previous year’s position.
• At end-December 2010, international liabilities towards USA, UK, UAE, France and Hong Kong declined as compared to the position one quarter ago.
• As at end-December 2010, the non-bank sector continued to contribute major portion of the international liabilities with a stable share between 74.5 per cent to 76.0 per cent since December 2009.

International Assets

• At end-December 2010, the international assets (in Indian Rupees) of banks in India registered a growth of 19.3 per cent over the previous year’s position and a decline of 2.2 per cent over the previous quarter.
• Compared to previous quarter, the NOSTRO balances decreased, pulling down the overall international assets for the quarter.
• The share of the non-bank sector in the international assets increased to 69.2 per cent from 67.8 per cent for the previous year.
• At end-December 2010, a decline (from 98.4 per cent to 94.0 per cent) was observed in the share of the non-bank sector in the international assets denominated in Indian Rupee over the position a year ago.

Consolidated Banking Statistics

• The annual growth in consolidated international claims (in Indian Rupees) of banks based on country of immediate risk, as at end-December 2010, was 2.8 per cent compared with 17.9 per cent registered a year ago.
• Consolidated international claims of Indian banks on immediate risk basis, at end-December 2010, continued to be of short-term nature (less than one year) and accounted for 62.1 per cent of total claims.

v)  Performance of Financial and Investment Companies – 2009-10: Signs of Recovery?

The article presents the financial performance of select 1,289 non-government financial and investment companies (other than banking, insurance and chit fund companies) during the financial year 2009-10, based on their audited annual accounts.

Main Findings

• The consolidated results of the select companies in 2009-10 showed some signs of recovery from the global financial crisis experienced during 2008-09.
• The growth in major parameters like financial income, interest payment and net worth, etc., was lower in 2009-10 as compared with that in 2008-09. However, profit before depreciation and tax (PBDT) and profits after tax recovered in 2009-10 after recording a decline in 2008-09. The profitability and profit allocation ratios, for instance, profit margin, return on equity and dividends to net worth were higher due to improved profits in 2009-10.
• The pace of expansion of business of the select companies was higher in 2009-10. This led to a significant increase in the borrowing requirements. Also, the share of external sources (other than own sources) in total sources of funds increased during 2009-10 when compared with the previous year and it continued to be the major sources of finance.
• Major portion of the funds raised during the year was deployed as loans and advances in the credit market. The share of ‘Investments’ in total uses of funds declined during 2009-10.

vi) Finances of Non-Government Non-Financial Private Limited Companies: 2009-10: Better than 2008-09

The article presents the financial performance of select 1,642 non-government non-financial private limited companies during the financial year 2009-10, based on their audited annual accounts. The major findings of the study are:

• The aggregate results of the select companies in 2009-10 showed signs of recovery from the global financial crisis experienced during 2008-09.
• While the growth rates in major parameters like sales, value of production and manufacturing expenses further moderated, various measures of profit like PBDIT, gross profits, profits after tax and gross savings recorded high growth in 2009-10 after declining in 2008-09.
• Profitability and profit allocation ratios, such as, profit margin, return on equity and dividends to net worth improved in 2009-10 as compared with that in 2008-09.
• However, growth in borrowings was at much lower level in 2009-10 as compared with the previous year, as increase in profitability might have led to significant cut down in the borrowing requirement.
• The share of external sources of funds (i.e., other than own sources), which has been playing a major role in financing the asset formation and other activities since the year 2004-05, witnessed a significant decline in 2009-10 mainly due to a fall in incremental borrowings. Correspondingly, the share of the internal sources of funds increased, backed by higher accretion in reserves and surplus in 2009-10.

Ajit Prasad
Assistant General Manager

Press Release : 2011-2012/405

Source – RBI

RBI releases Handbook of Statistics on the Indian Economy 2010-11

Date : 15 Sep 2011 The Reserve Bank of India today released the thirteenth volume of its annual statistical publication titled Handbook of Statistics on the Indian Economy (HBS) 2010-11. One of the major initiatives of the Reserve Bank; this publication is aimed at improving data dissemination to public. Through this publication, the Reserve Bank has been providing time series data on various economic and financial indicators for the Indian economy.

The current volume contains 242 statistical tables covering national income aggregates, output, prices, money, banking, financial markets, public finances, foreign trade and balance of payments and select socio-economic indicators.

Electronic form of the Handbook can also be accessed through (URL http://dbie.rbi.org.in) “Data Base on Indian Economy (DBIE): Reserve Bank’s Data Warehouse.” The data series in the DBIE are continuously updated without waiting for the release of the annual print version.

Comments and suggestions on the HBS are welcome and may please be forwarded to the Director, Data Management and Dissemination Division, Department of Statistics and Information Management, Reserve Bank of India, C-9, 3rd floor, Bandra-Kurla Complex, Bandra (East), Mumbai 400 051 by Fax No.91-22-26571371 or byemail.

Orders for the purchase of this publication (print along with CD-ROM) can be placed with the Director, Division of Reports and Knowledge Dissemination, Department of Economic and Policy Research, Reserve Bank of India, Amar Building, 6th Floor, P. M. Road, Mumbai-400 001 on payment through demand draft or cheque drawn in favour of the Reserve Bank of India, payable at Mumbai only. The publication is also available for sale at all the Regional Offices of the Reserve Bank of India at their reception and enquiry counters.

For excel/CSV version of the tables, please visit (www.dbie.rbi.org.in).

RBI Mid-Quarter Monetary Policy Review – September 2011

Mid-Quarter Monetary Policy Review: September 2011

Date : 16 Sep 2011
Monetary Measures

On the basis of the current macroeconomic assessment, it has been decided to:

• increase the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 8.0 per cent to 8.25 per cent with immediate effect.

Consequent to the above increase in the repo rate, the reverse repo rate under the LAF will stand automatically adjusted to 7.25 per cent and the marginal standing facility (MSF) rate to 9.25 per cent with immediate effect.

Introduction

Since the Reserve Bank's First Quarter Review of July 26, the global macroeconomic outlook has worsened. There is growing consensus that sluggishness will persist longer than earlier expected. Concerns over the sovereign debt problem in the euro area have added further uncertainty to the prospects of recovery.

Domestically, even as many indicators point to moderating growth, both headline and non-food manufactured products inflation are at uncomfortably high levels. Crude oil prices remain high. Food price inflation persists notwithstanding a normal monsoon.

Inflationary pressures are expected to ease towards the later part of 2011-12. Stabilisation of energy prices and moderating domestic demand should facilitate this process.  However, in the current scenario, with the likelihood of inflation remaining high for the next few months, rising inflationary expectations remain a key risk. This makes it imperative to persevere with the current anti-inflationary stance.

Global Economy

The global economy slowed in Q2 (April-June) of 2011.  Lead indicators such as purchasing managers' indices (PMIs) suggest a further moderation in economic activity in Q3, with the global manufacturing PMI approaching the neutral level of 50. In recent weeks, global financial markets have been rattled by perceptions of  inadequate solutions to the euro area sovereign debt problem, exposure of banks to euro area sovereign debt and renewed fears of recession. Global recovery will also be affected by fiscal consolidation measures in some of the advanced economies.

In the US, apart from fiscal concerns, stubbornly high unemployment and weak housing markets continued to weigh on consumer confidence and private consumption. In response to the weakening of economic activity, the US Federal Open Market Committee, in its 9th August meeting, indicated that it would keep the federal funds rate near zero at least through mid-2013.

Economic activity in the euro area decelerated significantly during Q2 of 2011 reflecting decline in both private and government consumption expenditures as well as deceleration in capital formation. Economic activity contracted in Japan reflecting the impact of the earthquake/tsunami.

In contrast to advanced economies, growth remained relatively resilient in emerging and developing economies, notwithstanding some moderation in response to monetary tightening to contain inflation.

Domestic Economy

Growth

GDP growth decelerated to 7.7 per cent in Q1 of 2011-12 from 7.8 per cent in the previous quarter and 8.8 per cent in the corresponding quarter a year ago. Agricultural growth has accelerated, but industry and services have decelerated. The index of industrial production (IIP) slowed from 8.8 per cent year-on-year in June  to 3.3 per cent in July. However, excluding capital goods, the growth of IIP was higher at 6.7 per cent in July  as  compared with 4.4 per cent in June. Cumulatively, the IIP increased by 5.8 per cent during April-July 2011, compared with an increase of 9.7 per cent in the corresponding period of the previous year.

The HSBC Purchasing Managers' Index for the manufacturing sector also suggested moderation.  Corporate margins in Q1 of 2011-12 moderated across several sectors compared to their levels in Q4 of 2010-11. However, barring a few sectors, significant pass-through of rising input costs is still visible.

Monsoon rains so far have been normal. The first advance estimates for the 2011-12 kharif season point to a record production of rice, oilseeds and cotton, while the output of pulses may decline.

Inflation

Headline year-on-year wholesale price index (WPI) inflation rose from 9.2 per cent in July to 9.8 per cent in August 2011.  Inflation in respect of primary articles and fuel groups edged up in August. Year-on-year non-food manufactured products inflation rose from  7.5 per cent in July  to 7.7 per cent in August 2011 suggesting as yet persistent demand pressures. The oil marketing companies raised the price of petrol by ` 3.14 per litre with effect from September 16, 2011. This will have a direct impact of  7 basis points to WPI inflation, in addition to indirect impact with a lag. The new combined (rural and urban) consumer price index (base: 2010=100) rose to 110.4 in July from 108.8 in June. Other consumer price indices registered inflation rates in the range of 8.4 to 9.0 per cent in July.

Monetary, Credit and Liquidity Conditions

Year-on-year money supply (M₃) growth at 16.7 per cent in August was higher than the projection of 15.5 per cent for the year reflecting higher growth in term deposits and moderation in currency growth.  Similarly, year-on-year non-food credit growth at 20.1 per cent in August 2011 was above the indicative projection of 18 per cent set out in the July Review.

Liquidity has remained in deficit, consistent with the stance of monetary policy. The daily average borrowings under the liquidity adjustment facility (LAF) were around ` 40,000 crore in September (up to September 15, 2011). Money and the government securities markets have remained orderly. In recent weeks, as a result of global risk aversion, the rupee has depreciated, which may have adverse implications for inflation.

Monetary transmission strengthened further with 45 scheduled commercial banks raising their Base Rates by 25-100 basis points after the July Review. Consequently, the modal base rate of banks rose to 10.75 per cent in August from 10.25 per cent in July.

Fiscal Conditions

The central government's fiscal imbalances widened during April-July of 2011 reflecting, primarily, the impact of decline in revenue receipts coupled with pressures from non-plan revenue expenditures on account of higher petroleum and fertiliser subsidies. Fiscal deficit at 55.4 per cent of the budget estimates in the first four months of the current fiscal was significantly higher than that of 42.5 per cent during the corresponding period last year (when adjusted for the more than budgeted spectrum proceeds).

Summing Up

To sum up, developments in the global economy over the past few weeks are a matter of serious concern. Growth momentum is weakening in the advanced economies amidst heightened concerns that recovery may take longer than expected earlier. Although India's exports have performed extremely well in the recent period, this trend is unlikely to be sustained in the face of weakening global demand. This, combined with the slowing down of domestic demand, to which the monetary policy stance is also contributing, suggests that risks to the growth projection for 2011-12 made in the July Review are on the downside.

Meanwhile, inflation remains high, generalised and much above the comfort zone of the Reserve Bank. After slight moderation in July, non-food manufactured products inflation rose again in August, suggesting continuing demand pressures.  Global crude oil prices have remained elevated despite weakening of global recovery. Moreover, there is still an element of suppressed inflation. Though global oil prices have moderated, the pass-through to domestic prices remains incomplete. Also, current administered electricity prices are yet to reflect increase in input prices, even as many states have initiated increases. Food inflation is at near-double digit levels, despite normal monsoons, underlining the fact that it is being driven by structural demand-supply imbalances and cannot be dismissed as a temporary phenomenon. The inflation momentum, reflected in the de-seasonalised sequential monthly data, persists.

Expected Outcome

The policy action in this Review is expected to:

• reinforce the impact of past policy actions to contain inflation and anchor inflationary expectations.

Guidance

The monetary tightening effected so far by the Reserve Bank has helped in containing inflation and anchoring inflationary expectations, though both remain at levels beyond the Reserve Bank's comfort zone.  As monetary policy operates with a lag, the cumulative impact of policy actions should now be increasingly felt in further moderation in demand and reversal of the inflation trajectory towards the later part of 2011-12.  As such, a premature change in the policy stance could harden inflationary expectations, thereby diluting the impact of past policy actions. It is, therefore, imperative to persist with the current anti-inflationary stance. Going forward, the stance will be influenced by signs of downward movement in the inflation trajectory, to which the moderation in demand is expected to contribute, and the implications of global developments.

Alpana Killawala
Chief General Manager

Press Release: 2011-2012/423