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Slow industrial growth cocks a snook at RBI projections

The slow growth of industry has clouded the prospect of achieving 6 per cent growth as visualised by the Reserve Bank of India in its mid-term review of the Credit Policy in October.

According to the RBI Report on Currency and Finance (1997-98), industrial growth up to October-end turned out to be much lower than the previous year at 3.6 per cent as compared to 6.2 per cent in the corresponding period last year.

Agricultural performance too has not shown any recovery though latest available indications suggest higher growth next year.

The report maintained that the economic development in 1998-99 has been influenced by considerable uncertainties on the external front, which remained a major concern for recovery of the domestic economy.

Expressing concern over the increase in commodity prices, inflation rate, growth in money supply and slowdown in output growth, the central bank called for persuasion of all-round economic reforms and productivity improvements in a time-sequenced and balanced manner so that macroeconomic and structural policies are mutually supportive. This would eventually lead to enhancement of economic growth and competitiveness of the economy.

According to latest available data, major food grains showed higher production during the year barring jute and mesta which are estimated to show a modest decline in 1998-99 from 11.1 million bales recorded in 1997-98.

The total production of oilseeds is expected to be 14.3 million tonnes as compared with 14.2 million tonnes in the previous kharif season.

In the industrial sector, the major concern was the manufacturing group, which posted a lower growth rate of 3.8 per cent compared with 6.2 per cent in the same period last year. The capital goods sector recorded higher growth at 10.3 per cent during the first seven months of the current financial year as compared with 7.9 per cent in the corresponding period of the previous year.

All other industrial sectors, however, registered decelerated growth, particularly in basic and consumer goods.

The RBI felt that if the variability of industrial output could be contained, it was possible to improve the industrial performance by using the economies of scale and scope of technology applications.

On fiscal developments, the RBI said the Centre's financial position up to October-end reflected a sharp rise of 28.5 per cent in revenue expenditure while the growth in revenue receipts was only 11.7 per cent. The revenue deficit at Rs 305.90 billion in the first seven months amounted to about 64 per cent of the budget estimates of Rs 480.68 billion for the whole year.

Tax revenue (net) during the first seven months of 1998-99 recorded a sluggish growth of 8.6 per cent, much lower than the 17.8 per cent projected in the budget.

But aggregate expenditure recorded a substantial increase of 29 per cent as compared with 16.6 per cent envisaged in the budget estimates.

Up to December 8, the government's net borrowings aggregated Rs 546.17 billion (over 113 per cent of the budgeted amount) against the estimated amount of Rs 483.26 billion while gross borrowings amounted to Rs 804.53 billion.

The devolvement on the RBI in auctions of dated securities during the current year so far is placed at 17.4 per cent. Including the private placement with the RBI, it will rise to 39.9 per cent of total subscription as against 19.6 per cent during the corresponding period of the previous year.

In this context, the RBI underlined the need to contain market borrowings within reasonable limits in view of its bearing on risk perceptions and thereby on the interest rate in the economy and its implications on private-sector investment as well as on the movement of capital.

The inflation rate, which was higher at 6.35 per cent as on November 28 as against 3.84 per cent on the same day last year, reflected the sharp rise in prices of primary articles, particularly fruits, vegetables, pulses, cereals and oilseeds, due to major supply bottlenecks. These need to be addressed on different fronts particularly by focussing on structural and institutional causes.

On external sector, exports in terms of US dollars declined by 5.1 per cent during the April-October period in contrast to a rise of 5.2 per cent in the corresponding period of 1997-98.

Non-oil imports, on the other hand, increased by 18.7 per cent as compared to increase of 11.8 per cent recorded in the corresponding period last year.

As a result, the trade deficit widened during the year up to October-end to $5.8 billion from $2.6 billion during the same period last year.

Available information on capital investment indicates that foreign investment flows up to October at $644 million were much lower than in the corresponding period of 1997-98 ($3.4 billion).

This resulted in a net outflow of $672 million under portfolio investment during 1998-99 in sharp contrast to the net inflow of $1.48 billion in 1997-98. Direct investment inflows at $1.3 billion during the seven months of the year were also lower than in the same period last year.

The investment by foreign institutional investors in the capital market was also negative at Rs 20.6 billion during the seven months in contrast to a net investment of Rs 56.65 billion during the same period last year.

The RBI report also expressed concern over the sharp deterioration of financial positions of the state governments as reflected in almost all the major deficit indicators such as revenue deficit, gross fiscal deficit and primary deficit.

While some states initiated steps to raise resources through appropriate pricing of user products like electricity, transport and irrigation, several others continued to face problems with liquidity management, resorting to overdraft facilities from the RBI, the report added.

UNI

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