Macroeconomic and Monetary Developments Mid-Term Review 2008-09, RBI Credit Policy, Reserve Bank of India: Banknet India

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Macroeconomic and Monetary Developments: Mid-Term Review 2008-09 -Announced on the 23rd October 2008

The Reserve Bank released the document "Macroeconomic and Monetary Developments Mid-Term Review 2008-09" to serve as a backdrop to the Mid-Term Review of Annual Policy Statement for 2008-09 being announced on October 24, 2008.

The highlights of macroeconomic and monetary developments during 2008-09 so far are:

The Real Economy

According to the first quarter estimates of 2008-09 released by the Central Statistical Organisation (CSO) in August 2008, the real GDP growth was placed at 7.9 per cent during the first quarter of 2008-09 as compared with 9.2 per cent during the corresponding quarter of 2007-08. The deceleration in growth was spread across all the three sectors, viz., agriculture and allied activities, industry and services.

The cumulative rainfall during the South-West monsoon season 2008 (June-September) was near normal, with rainfall over the entire country being two per cent below normal as against five per cent above normal during the corresponding period of the previous year. According to the First Advance Estimates, the kharif foodgrains production during 2008-09 was placed at 115.3 million tonnes as compared with that of 121.0 million tonnes during 2007-08 (Fourth Advance Estimates).

The index of industrial production during April-August 2008-09 recorded year-on-year expansion of 4.9 per cent as compared with 10.0 per cent during April-August 2007-08. The manufacturing sector recorded growth of 5.2 per cent during April-August 2008-09 (10.6 per cent during April-August 2007-08) and the electricity sector recorded growth of 2.3 per cent (8.3 per cent during April-August 2007-08).

The infrastructure sector recorded growth of 3.4 per cent during April-August 2008-09 (7.1 per cent during April-August 2007-08), reflecting deceleration in all the sectors except coal.

Available information on the leading indicators of services sector activity during 2008-09 so far suggest healthy growth in respect of some indicators such as railway revenue earning freight traffic, commercial vehicle production, telephone connections and export cargo handled by civil aviation as compared with the corresponding period of 2007-08. On the other hand, growth decelerated in respect of cargo handled at major ports and other indicators of civil aviation excluding export cargo. Some deceleration was also observed in tourist arrivals and production of cement and steel.

Fiscal Situation

Available information on Central Government finances for 2008-09 (April-August) indicates that gross fiscal deficit and revenue deficit were placed higher than a year ago. Revenue deficit was 177.4 per cent of budget estimates for 2008-09 as compared with 74.9 per cent (122.9 per cent, net of transfer of profit on sale of the Reserve Bank’s stake in SBI to the Central Government) a year ago. GFD during the same period was 87.7 per cent of the budget estimates as compared with 68.5 per cent in April-August 2007. Tax revenue rose by 26.2 per cent over that during April-August 2007. Aggregate expenditure (adjusted for acquisition cost of Reserve Bank’s stake in SBI) increased mainly on account of sharp increase in revenue expenditure, particularly food and fertiliser subsidies, pension and rural development.

Gross and net market borrowings (dated securities and 364-day Treasury Bills) during 2008-09 (up to October 22, 2008) amounted to Rs.1,27,872 crore and Rs.64,808 crore, respectively, accounting for 72.8 per cent and 65.5 per cent of the estimated market borrowings for the year. During the corresponding period of the previous year, gross and net borrowings accounted for 66.5 per cent and 68.1 per cent, respectively, of the estimated market borrowings for the year.

During 2008-09 (up to October 18, 2008), the Central Government took recourse to ways and means advances (WMA) for 16 days as compared with 91 days during the corresponding period of 2007-08. As on October 18, 2008, the Central Government maintained a surplus cash balance of Rs.31,349 crore with the Reserve Bank.

During 2008-09 (up to October 22, 2008), 11 State Governments and the Union Territory of Puducherry raised a total amount of Rs.22,196 crore (35.4 per cent of gross allocation) through auctions with cut-off yields in the range 7.97-9.90 per cent as compared with Rs.20,362 crore by 19 State Governments (cut-off yields in the range 8.00-8.90 per cent) during the corresponding period of the previous year.

The average daily utilisation of WMA and overdraft by the States during April-September 2008 was Rs.243 crore as compared with Rs.986 crore during the corresponding period of 2007-08.

The average daily investments by the States in Treasury Bills (14-day Intermediate Treasury Bills and Auction Treasury Bills) during April-September 2008 amounted to Rs.82,382 crore as compared with Rs.72,805 crore during the corresponding period of 2007-08.

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