Macroeconomic and Monetary Developments : Second Quarter Review 2012-13
-Announced on 29th October 2012 by RBI
Fiscal consolidation and removal of impediments to infrastructure investments hold the key to growth revival
Aggregate demand is weakening, led by the investment slowdown. Investment intentions in the new projects sanctioned financial assistance remained low in Q1 of 2012-13.
Sales of private, non-financial firms moderated further in Q1 of 2012-13, while operating profits of these firms declined. Early results for Q2 of 2012-13 indicate some improvement in operating profits, though sales continued to decelerate.
Fiscal slippage is likely in 2012-13 despite recent measures by the government. Food, fertiliser and petroleum subsidies remain high and are likely to overshoot Centre’s budget estimates.
Financial restructuring of state distribution companies (discoms) may not have immediate implications for state finances, but will have medium to long-term impact.
CAD wider than comfortable in spite of BOP improvement
External sector risks remain in spite of the improved balance of payments (BOP) during Q1 of 2012-13. Though the merchandise trade deficit in 2012-13 so far has been lower than in the previous year, it largely reflects contraction in imports on the back of slower growth.
Global growth uncertainties continue to impinge on India’s export growth. Weak external demand has affected exports of engineering goods, gems and jewellery, textiles and petroleum products.
Services trade surplus is also lower, leaving the current account deficit (CAD) wide enough for a possible re-emergence of financing pressures should global risk aversion increase or domestic recovery falters. Recent measures, including those to augment FDI, should help reduce these risks.
External debt increased only marginally in Q1 of 2012-13, due to valuation gains. Vulnerability indicators deteriorated during the quarter, but have remained comparable with peer countries.
Monetary and Liquidity Conditions
Reserve Bank infuses liquidity, calibrates monetary policy to the evolving growth-inflation dynamics
Active liquidity management through reductions in the cash reserve ratio (CRR) and statutory liquidity ratio (SLR) backed by open market operations (OMOs) has kept liquidity largely in line with policy objective, balancing inflation concerns and the need to ensure credit supply to support growth.
Monetary and credit aggregates remain below their indicative trajectory. The current credit slowdown largely indicates tepid demand conditions and distinctively lower credit expansion by public sector and foreign banks partly reflecting their risk aversion.
The ratios of gross and net non-performing assets of the public sector banks increased further during Q1 of 2012-13. Deteriorating asset quality may have affected their credit expansion.
>>>GO TO PAGE 1
>>>GO TO PAGE 3
....Click Here For Second Quarter Review of Monetary Policy Statement 2012-13