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Macroeconomic and Monetary Developments: First Quarter Review 2009-10 -Released on July 27, 2009

The Reserve Bank of India has released the document “Macroeconomic and Monetary Developments: First Quarter Review 2009-10” which serves as a background to the First Quarter Review of Monetary Policy 2009-10 being announced on July 28, 2009.

The highlights of macroeconomic and monetary developments are the following:

Global Economic Conditions

The global economic environment continues to remain uncertain, although the rate of contraction in economic activities and the extent of pressures on financial systems eased in the first quarter of 2009-10. Nascent and sporadic signs of improvements in the global conditions do not suggest any clear trend, and as a result, the uncertainty on the timing and pace of global recovery persists.

Signs of improvements in the global financial conditions observed in the first quarter of 2009-10 are necessary, but not sufficient, to induce a firm global recovery, particularly in view of the depressed demand conditions.

According to the current available assessment of the IMF, the global economy is projected to contract by 1.4 per cent in 2009 and to expand by 2.5 per cent in 2010. The growth outlook of India and China for 2009, however, has been revised upwards by the IMF.


Reflecting the contagion from the synchronised global recession, domestic growth impulses remained subdued in India, which was evident from the growth deceleration in the second half of 2008-09. At 6.7 per cent, GDP growth for 2008-09, however, was better than what most had expected, though it reflected a deceleration in relation to the average 8.8 per cent rate recorded during the high growth phase of 2003-04 to 2007-08.

The overall GDP growth in the fourth quarter of 2008-09 remained at the same level as in the previous quarter, primarily on account of a turnaround in growth in agriculture and allied activities, even as industry and services continued to exhibit sustained deceleration over the four successive quarters of the year, with the rate of deceleration rising in the second half reflecting the contagion from the global synchronised recession.

Agriculture, Industry and Services

The fourth Advance Estimates place the total food grain production during 2008-09 at a record 233.9 million tonnes.

The slow progress of monsoon up to end-June 2009 has affected the kharif sowing, which could have implications for the agricultural production. The rainfall in July so far, however, has improved enabling better sowing position as on July 17, 2009 for pulses, oilseeds and coarse cereals at close to last year’s levels, though paddy sowing still remains substantially below last year’s level. During 2008-09, the lower Kharif output was made good by the Rabi output and, as a result, the overall agricultural production exhibited a turnaround in the fourth quarter of the year.

The core infrastructure sector grew by 4.8 per cent during the first quarter of 2009-10 as compared with 3.5 per cent growth during the corresponding quarter of the previous year, led by growth in electricity, cement and coal. The cement sector recorded acceleration, indicating revival of construction activity.

The Index of Industrial Production (IIP), which had registered a significant deceleration in growth to 0.1 per cent in the last quarter of 2008-09, exhibited growth at 1.9 per cent during April-May 2009, even though that reflected deceleration in relation to 5.3 per cent growth recorded during April-May 2008. Out of the 17 two-digit manufacturing industry groups, however, 10 groups recorded positive growth during April-May 2009-10 as compared to 11 industry groups recording positive growth in the corresponding period of last year.

The lead indicators of services sector activity such as railway freight and new cell phone connections showed positive signs. Tourist arrivals also improved in June 2009. Production of commercial vehicles, cargo handled at major ports, and passengers handled at domestic and international terminals, however, exhibited deceleration during the first two months of 2009-10.



Click Here For First Quarter Review of Monetary Policy 2009-10

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