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Infrastructure sector improves in 1997-98

The performance of the infrastructure sector during April to February of 1997-98 showed an improvement over the corresponding period in 1996-97.

Seven infrastructural and core industries, namely, electricity generation, coal, saleable steel, crude oil, petroleum products, cement and fertilisers with a combined weight of 31 per cent in the Index of Industrial Production, have recorded a growth rate of 5.5 per cent in April to February, 1997-98 as compared to 3.1 per cent during April to February, 1996-97.

Electricity generation grew at 6.7per cent in April to February 1997-98, as compared to 3.7 per cent during the corresponding period of the preceding year.

The crude oil sector grew by 3.3 per cent in April to February, 1997-98 reversing the negative growth of 9.3 per cent during the corresponding period of the previous year.

The highest growth rate was, however, witnessed in the fertilisers sector, which grew by 16.9 per cent in April to February 1997-98, as against the negative growth rate of 2.3 per cent during the corresponding period of the preceding year.

The production of saleable steel, however, registered a lower growth rate of 0.5 per cent in April to February 1997-98, as compared to 2 per cent in April to February, 1996-97.

The ministry of finance annual report for 1997-98, says the year 1996-97 witnessed the deceleration of industrial growth to 7.1 per cent and the trend continued in 1997-98. During 1997-98 the overall industrial production registered a 4.2 per cent growth added by a growth rate of 4.9 per cent in mining, 3.6 per cent in manufacturing and 6.8 per cent in electricity.

The performance of the capital goods sector has been quite disappointing. The sector suffered a decline of 4 per cent in 1997-98. However, intermediate goods, basic goods and consumer goods grew at 6.9 per cent, 7 per cent and 4.6 per cent respectively.

The broad money growth of 17 per cent in 1997-98 was higher than what it was in the previous financial year (16 per cent). Expansion in narrow money at 10.5 per cent in 1997-98 was, however, lower than that in 1996-97 (11.9 per cent). The lower growth of narrow money was reflected in the deceleration in the growth of both currency with the public and demand deposits.

Though deceleration in industrial production continued to cause concern, the growth in non-food credit at 14.2 per cent in 1997-98 was higher than that in the previous financial year (10.9 per cent). Besides, the significant expansion in banks' investments in commercial paper and other instruments like shares, bonds and debentures of both public sector undertakings and the private corporate sector supplemented the growth in non-food credit, as a result, there was an increase in the total flow of funds comprising non-food credit and banks' investments referred to above by Rs 519.91 million or 17.9 per cent in 1997-98 against Rs 204.94 billion 11.9 per cent in 1996-97.

With a view to developing the inter bank call money market, the reserve requirements on inter-bank liabilities were removed with effect from April 26, 1997, subject to the minimum of 3 per cent on overall net demand and time liabilities. Though the cash reserve ratio to be maintained by the banks against their net demand and time liabilities was significantly reduced from 14 per cent to 10 per cent, further reduction from 10 per cent to 8 per cent in eight phases of 0.25 percentage point each was deferred after two phases in the third quarter of 1997-98.

The policy measures undertaken by the RBI during November 1997 to January 1998 to protect the rupee led to an increase in the CRR to 10.5 per cent. This was later reduced to 10 per cent with effect from April 11, 1998.

Scheduled commercial banks showed a significant improvement in their financial performance in 1996-67 vis-a-vis 1995-96. This reflected either an improvement in operating profits or a decrease in provisoning needs or both. The operating profit of the SBI group amounted to Rs 5.45 billion in 1996-97. Lower amounts under provisions and contingencies boosted the net profit of the SBI group to Rs 8.57 billion in 1996-97. The corresponding figures for nationalised banks were Rs 8.16 billion and Rs 23.65 billion respectively. The operating profit for public sector banks (the SBI group plus nationalised banks) thus stood at Rs 13.61 billion, which represented an increase of 18.1 per cent over 1995-96.

Their net profits at Rs 34.62 billion registered a substantial increase on account of the relative decline in the yields on government paper, which led to a substantial reduction in provisioning in 1996-97.

The developments in the external sector in 1997-98 were consistent with sustaining the viability of balance of payments. The deficit in the current account of balance of payments declined to 1 per cent of GDP in 1996-97 from 1.8 per cent of GDP in 1995-96. In 1997-98, it is estimated to be about 1.5 per cent of GDP, which is well within the sustainable level.