I. The Real Economy - আৰবিআই - Reserve Bank of India
I. The Real Economy
The Indian economy continued to exhibit strong growth during the first quarter of 2006-07. According to the Central Statistical Organisation (CSO), real gross domestic product (GDP) registered an increase of 8.9 per cent in the first quarter (April-June) of 2006-07 as compared with 8.5 per cent in the corresponding period of 2005-06, benefiting from strong manufacturing as well as service sector activities (Table 1 and Chart 1). All major sub-sectors, excepting ‘electricity, gas and water supply’ and ‘construction’, recorded an accelerated growth during April-June 2006; growth in the agricultural sector was the same as a year ago. Services sector remained the key driver of economic activity with a contribution of around 71 per cent to overall
real GDP growth followed by industry (22 per cent). The Indian economy thus maintained the momentum of growth recorded in the latest three years (2003-04 to 2005-06).
Against the backdrop of the economic performance in the first quarter, developments in the real economy during 2006-07 so far covering the agricultural situation, industrial production, lead indicators of service sector activity, business and investment expectations are presented in this section.
AGRICULTURAL SITUATION
The cumulative rainfall during the South-West monsoon season 2006 (June 1 to September 30, 2006) was close to
Table 1: Growth Rates of Real GDP |
|||||||||||
(Base Year : 1999-2000) |
|||||||||||
(Per cent) |
|||||||||||
Sector |
2000-01 |
2003-04 |
2004-05* |
2005-06# |
2005-06 |
2006-07 |
|||||
to |
|||||||||||
2002-03 |
Q1 |
Q2 |
Q3 |
Q4 |
Q1 |
||||||
(Average) |
|||||||||||
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
||
1. |
Agriculture and Allied Activities |
-0.2 |
10.0 |
0.7 |
3.9 |
3.4 |
4.0 |
2.9 |
5.5 |
3.4 |
|
(23.5) |
(22.2) |
(20.8) |
(19.9) |
||||||||
1.1 |
Agriculture |
-0.5 |
10.7 |
0.7 |
.. |
||||||
2. |
Industry |
5.2 |
6.6 |
7.4 |
7.6 |
9.5 |
6.3 |
7.0 |
7.9 |
9.7 |
|
(19.7) |
(19.5) |
(19.5) |
(19.3) |
||||||||
2.1 |
Mining and Quarrying |
4.4 |
5.3 |
5.8 |
0.9 |
3.1 |
-2.6 |
0.0 |
3.0 |
3.4 |
|
2.2 |
Manufacturing |
5.7 |
7.1 |
8.1 |
9.0 |
10.7 |
8.1 |
8.3 |
8.9 |
11.3 |
|
2.3 |
Electricity, Gas and Water Supply |
2.8 |
4.8 |
4.3 |
5.3 |
7.4 |
2.6 |
5.0 |
6.1 |
5.4 |
|
3. |
Services |
6.6 |
8.5 |
10.2 |
10.3 |
10.1 |
10.3 |
9.7 |
11.0 |
10.5 |
|
(56.8) |
(58.3) |
(59.7) |
(60.7) |
||||||||
3.1 |
Trade, Hotels, Restaurants, Transport, |
||||||||||
Storage and Communication |
8.5 |
12.0 |
10.6 |
11.5 |
11.7 |
11.0 |
10.2 |
12.9 |
13.2 |
||
3.2 |
Financing, Insurance, Real Estate |
||||||||||
and Business Services |
6.5 |
4.5 |
9.2 |
9.7 |
8.8 |
10.5 |
8.9 |
10.5 |
8.9 |
||
3.3 |
Community, Social and Personal services |
4.1 |
5.4 |
9.2 |
7.8 |
7.3 |
8.0 |
8.4 |
7.6 |
7.4 |
|
3.4 |
Construction |
5.9 |
10.9 |
12.5 |
12.1 |
12.4 |
12.3 |
11.5 |
12.0 |
9.5 |
|
4. |
Real GDP at Factor Cost |
4.6 |
8.5 |
7.5 |
8.4 |
8.5 |
8.4 |
7.5 |
9.3 |
8.9 |
|
* : Quick Estimates. # : Revised Estimates. .. : Not available separately. |
* Issued with the Mid-Term Review of the Annual Policy Statement 2006-07.
normal (only one per cent below normal); however, the inter-temporal and inter-spatial distribution was uneven. The SouthWest monsoon arrived six days in advance - it reached Kerala on May 26, 2006 and covered rapidly the west coast by May 31, 2006 and up to Gujarat by June 2, 2006. Subsequently, the monsoon entered a weak phase and there was a prolonged hiatus in advancement of monsoon for about 16 days in June. The monsoon revived in the last week of June 2006, and advanced further into other regions. Monsoon covered the entire country by July 24, 2006, with a delay of nine days. Cumulative seasonal rainfall over the country, as a whole, remained below its long-period average throughout the monsoon period, except for the first week of June 2006. Of the 36 meteorological sub-divisions, cumulative rainfall was deficient/scanty/no rain in 10 sub-divisions (4 sub-divisions during last year) (Table 2). At the district level, 60 per cent of the total number of districts (533) reported excess/normal rainfall, while the rest received deficient/scanty/no rain. The total live water storage in the 76 major reservoirs1 as on October 12, 2006 was 90 per cent of the Full Reservoir Level (FRL), higher than that of 81 per cent a year ago.
Kharif sowing was affected due to uneven and delayed rainfall in some parts of the country. As a result, coverage under kharif crops up to October 13, 2006 was around 2.2 per cent lower than a year ago (Table 3). The decline in area coverage was mainly on account of fall in sowing under coarse cereals and oilseeds. The area under irrigation intensive crops like sugarcane, on the other hand, was marginally higher than a year ago reflecting comfortable reservoir position.
Table 2: South-West Monsoon |
|||||
Year |
Cumulative |
Excess |
Normal |
Deficient |
Scanty/ |
Rainfall: |
Rainfall |
Rainfall |
Rainfall |
No Rain |
|
Above(+)/ |
|||||
Below (-) |
|||||
Normal |
Number of Sub-Divisions |
||||
(per cent) |
|||||
1 |
2 |
3 |
4 |
5 |
6 |
1998 |
6 |
12 |
21 |
3 |
0 |
1999 |
-4 |
3 |
26 |
7 |
0 |
2000 |
-8 |
5 |
23 |
8 |
0 |
2001 |
-8 |
1 |
30 |
5 |
0 |
2002 |
-19 |
1 |
14 |
19 |
2 |
2003 |
2 |
7 |
26 |
3 |
0 |
2004 |
-13 |
0 |
23 |
13 |
0 |
2005 |
-1 |
9 |
23 |
4 |
0 |
2006 |
-1 |
6 |
20 |
10 |
0 |
Source : India Meteorological Department. |
Reflecting the uneven rainfall and the modest decline in area sown, total kharif foodgrains production during 2006-07 at 105.2 million tonnes is likely to be 4.1 per cent lower than last year (Table 4). This decline is expected to emanate mainly from lower output of major cereals. Among the commercial crops, the output of oilseeds as well as cotton is expected to decline while that of sugarcane is expected to show an improvement.
Food Management
Total procurement of rice and wheat during 2006-07 (up to October 10, 2006) at 18.3 million tonnes (mt) was
Table 3: Progress of Area under Kharif Crops - 2006-07 |
||||
(Million hectares) |
||||
Crop |
Normal |
Area Coverage (As on October 13) |
||
Area |
2005 |
2006 |
Variation 2006 |
|
over 2005 |
||||
1 |
2 |
3 |
4 |
5 |
Rice |
38.2 |
37.0 |
36.7 |
-0.2 |
Coarse Cereals |
22.9 |
22.8 |
21.1 |
-1.7 |
Of which |
||||
Bajra |
9.4 |
9.4 |
8.1 |
-1.3 |
Jowar |
4.4 |
3.9 |
3.7 |
-0.2 |
Maize |
6.2 |
6.9 |
7.3 |
0.4 |
Total Pulses |
10.9 |
11.4 |
11.4 |
0.0 |
Total Kharif Oilseeds |
15.4 |
17.6 |
16.8 |
-0.9 |
Of which |
||||
Groundnut |
5.5 |
5.6 |
4.7 |
-0.9 |
Soyabean |
6.6 |
7.8 |
8.1 |
0.3 |
Sesamum |
1.5 |
1.9 |
1.8 |
-0.1 |
Sunflower |
0.5 |
0.9 |
0.9 |
-0.1 |
Sugarcane |
4.2 |
4.3 |
4.4 |
0.2 |
Cotton |
8.3 |
8.5 |
8.9 |
0.4 |
All Crops |
99.8 |
101.5 |
99.3 |
-2.2 |
Source: Ministry of Agriculture, Government of India. |
1 These reservoirs account for 63 per cent of the total reservoir capacity of the country.
Table 4: Agricultural Production |
|||||||
(Million tonnes) |
|||||||
Crop |
2002-03 |
2003-04 |
2004-05 |
2005-06 $ |
2006-07 |
||
T |
A $$ |
||||||
1 |
2 |
3 |
4 |
5 |
6 |
7 |
|
Rice |
71.8 |
88.5 |
83.1 |
91.0 |
92.8 |
||
Kharif |
63.1 |
78.6 |
72.2 |
78.0 |
80.8 |
75.7 |
|
Rabi |
8.7 |
9.9 |
10.9 |
13.0 |
12.0 |
||
Wheat |
65.8 |
72.2 |
68.6 |
69.5 |
75.5 |
||
Coarse Cereals |
26.1 |
37.6 |
33.5 |
34.7 |
36.5 |
||
Kharif |
20.0 |
32.2 |
26.4 |
27.0 |
28.7 |
24.5 |
|
Rabi |
6.1 |
5.4 |
7.1 |
7.7 |
7.8 |
||
Pulses |
11.1 |
14.9 |
13.1 |
13.1 |
15.2 |
||
Kharif |
4.2 |
6.2 |
4.7 |
4.7 |
5.8 |
5.0 |
|
Rabi |
7.0 |
8.7 |
8.4 |
8.4 |
9.4 |
||
Total Foodgrains |
174.8 |
213.2 |
198.4 |
208.3 |
220.0 |
||
Kharif |
87.2 |
117.0 |
103.3 |
109.7 |
115.3 |
105.2 |
|
Rabi |
87.6 |
96.2 |
95.1 |
98.6 |
104.8 |
||
Total Oilseeds |
14.8 |
25.2 |
24.4 |
27.7 |
29.4 |
||
Kharif |
9.0 |
16.7 |
14.1 |
16.8 |
18.1 |
13.2 |
|
Rabi |
5.9 |
8.5 |
10.2 |
10.9 |
11.3 |
||
Sugarcane |
287.4 |
233.9 |
237.1 |
278.4 |
270.0 |
283.4 |
|
Cotton # |
8.6 |
13.7 |
16.4 |
19.6 |
18.5 |
18.1 |
|
Jute and Mesta ## |
11.3 |
11.2 |
10.3 |
10.7 |
11.3 |
10.9 |
|
T : Target. A : Achievement. |
14.7 per cent lower than a year ago. The total off-take of foodgrains (up to July 31, 2006) at 11.8 mt was 19.4 per cent lower than a year ago. The off-take under the Targeted Public Distribution System (TPDS), Other Welfare Schemes (OWS) and Open Market Sales (OMS) was lower than the previous year’s level. The total stock of foodgrains with the Food Corporation of India (FCI) and the State Government agencies was around 17.5 mt as on August 1, 2006, down by 18.3 per cent from a year ago (Table 5). While wheat stocks (7.3 mt) were lower than the buffer stock norms of 17.1 mt, the stocks of rice (9.9 mt) were marginally above the buffer stock norms of 9.8 mt.
Table 5: Management of Food Stocks |
|||||||||||||
(Million tonnes) |
|||||||||||||
Month |
Opening Stock of Foodgrains |
Procurement of Foodgrains |
Foodgrains Off-take |
Closing |
Norms |
||||||||
Stock |
|||||||||||||
Rice |
Wheat |
Total |
Rice |
Wheat |
Total |
PDS |
OWS |
OMS - |
Exports |
Total |
|||
Domestic |
|||||||||||||
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
11 |
12 |
13 |
14 |
2004-05 |
13.1 |
6.9 |
20.7 |
24.2 |
16.8 |
41.0 |
29.7 |
10.6 |
0.2 |
1.0 |
41.5 |
18.0 |
|
2005-06 |
13.3 |
4.1 |
18.0 |
26.6 |
14.8 |
41.4 |
31.4 |
9.8 |
1.1 |
0.0 |
42.2 |
16.6 |
|
2005-06@ |
6.6 |
14.8 |
21.4 |
10.2 |
4.3 |
0.1 |
0.0 |
14.6 |
|||||
2006-07@ |
9.1 |
9.2 |
18.3 |
10.0 |
1.8 |
0.0 |
0.0 |
11.8 |
|||||
2005 |
|||||||||||||
April |
13.3 |
4.1 |
18.0 |
1.4 |
12.8 |
14.2 |
2.4 |
1.0 |
0.0 |
0.0 |
3.4 |
28.5 |
16.2 |
May |
13.0 |
15.1 |
28.5 |
1.0 |
1.9 |
3.0 |
2.5 |
0.8 |
0.0 |
0.0 |
3.3 |
27.9 |
|
June |
11.6 |
15.7 |
27.9 |
0.8 |
0.1 |
0.9 |
2.5 |
1.7 |
0.0 |
0.0 |
4.2 |
25.1 |
|
July |
10.1 |
14.5 |
25.1 |
0.8 |
0.0 |
0.8 |
2.8 |
0.8 |
0.1 |
0.0 |
3.6 |
21.4 |
26.9 |
August |
8.0 |
13.0 |
21.4 |
0.4 |
0.0 |
0.4 |
2.6 |
0.8 |
0.1 |
0.0 |
3.4 |
18.4 |
|
September |
6.4 |
11.6 |
18.4 |
0.4 |
0.0 |
0.4 |
2.7 |
0.7 |
0.1 |
0.0 |
3.5 |
15.6 |
|
October |
4.9 |
10.3 |
15.6 |
7.5 |
0.0 |
7.5 |
2.7 |
0.5 |
0.0 |
0.0 |
3.2 |
19.8 |
16.2 |
November |
10.3 |
9.1 |
19.8 |
2.7 |
0.0 |
2.7 |
2.3 |
0.5 |
0.1 |
0.0 |
2.8 |
19.0 |
|
December |
11.1 |
7.6 |
19.0 |
3.4 |
0.0 |
3.4 |
2.7 |
0.7 |
0.2 |
0.0 |
3.6 |
19.3 |
|
2006 |
|||||||||||||
January |
12.6 |
6.2 |
19.3 |
3.8 |
0.0 |
3.8 |
2.7 |
0.8 |
0.1 |
0.0 |
3.6 |
19.5 |
20.0 |
February |
14.0 |
4.9 |
19.5 |
2.5 |
0.0 |
2.5 |
2.7 |
0.6 |
0.3 |
0.0 |
3.6 |
18.3 |
|
March |
14.1 |
3.5 |
18.3 |
1.9 |
0.0 |
1.9 |
2.8 |
0.9 |
0.2 |
0.0 |
3.9 |
16.6 |
|
April |
13.7 |
2.0 |
16.6 |
1.7 |
8.7 |
10.3 |
2.5 |
0.3 |
0.0 |
0.0 |
2.8 |
22.8 |
16.2 |
May |
12.8 |
9.0 |
22.8 |
1.6 |
0.6 |
2.2 |
2.5 |
0.4 |
0.0 |
0.0 |
3.0 |
22.3 |
|
June |
12.0 |
9.3 |
22.3 |
1.5 |
0.0 |
1.5 |
2.5 |
0.6 |
0.0 |
0.0 |
3.1 |
20.5 |
|
July |
11.1 |
8.2 |
20.5 |
0.8 |
0.0 |
0.8 |
2.4 |
0.4 |
0.0 |
0.0 |
2.9 |
17.5 |
26.9 |
August |
9.9 |
7.3 |
17.5 |
0.5 |
0.0 |
0.5 |
N.A |
N.A |
N.A |
N.A |
N.A |
N.A |
|
September |
N.A |
N.A |
N.A. |
0.2 |
0.0 |
0.2 |
N.A |
N.A |
N.A |
N.A |
N.A |
N.A |
|
October * |
N.A |
N.A |
N.A. |
2.8 |
0.0 |
2.8 |
N.A |
N.A |
N.A |
N.A |
N.A |
N.A |
16.2 |
PDS : Public Distribution System. OWS : Other Welfare Schemes. OMS : Open Market Sales. |
INDUSTRIAL PERFORMANCE
Industrial production, in its fifth year of expansion, remained buoyant during the first five months of 2006-07. During April-August 2006, industrial production accelerated to 10.6 per cent - the highest growth recorded in April-August period since 1995-96 - from 8.7 per cent in the same period of 2005 (Chart 2). The manufacturing sector with a growth of 11.8 per cent, also the highest since 1996-97, continued to be the main driver of the industrial activity. Mining sector recorded modest improvement, benefiting from higher production of crude oil. Higher output of crude oil reflected the recovery from the setback to production following the outbreak of fire at Mumbai High in July 2005. Electricity sector recorded subdued growth, which could be attributed partly to shortage of gas in gas-based power stations.
The manufacturing sector performance was broad-based with 14 out of 17 industry groups, at the two digit manufacturing level, recording positive growth (Table 6). Chemicals, machinery, basic metals, transport equipment and cement have led the manufacturing growth during 2006-07 so far.
According to the use-based classification, all sectors, barring consumer non-durable goods sector, recorded higher growth (Table 7). Capital goods recorded an impressive growth of 18.6 per cent during April-August 2006 reflecting strong investment demand in the economy. This is the highest growth for the period April-August since 1996-97.
Table 6: Growth Rate of Manufacturing Groups |
||||||
(Per cent) |
||||||
Industry Group |
Weight |
Growth Rate |
Weighted |
|||
in the IIP |
Contribution # |
|||||
April-August |
April-August |
|||||
2005 |
2006 P |
2005 |
2006 P |
|||
1 |
2 |
3 |
4 |
5 |
6 |
|
1 |
Machinery and equipment |
|||||
other than transport equipment |
9.6 |
9.8 |
14.8 |
15.7 |
19.4 |
|
2 |
Chemicals and chemical |
|||||
products except products |
14.0 |
12.9 |
10.5 |
27.2 |
18.5 |
|
of petroleum & coal |
||||||
3 |
Basic metal and alloy industries |
7.5 |
16.8 |
19.0 |
14.6 |
14.4 |
4 |
Transport equipment and parts |
4.0 |
11.1 |
18.6 |
7.5 |
10.4 |
5 |
Other manufacturing industries |
2.6 |
17.5 |
26.9 |
5.8 |
7.8 |
6 |
Non-metallic mineral products |
4.4 |
8.8 |
12.7 |
6.0 |
7.0 |
7 |
Beverages, tobacco and |
|||||
related products |
2.4 |
17.0 |
13.4 |
8.7 |
6.0 |
|
8 |
Rubber, plastic, petroleum and |
|||||
coal products |
5.7 |
3.9 |
9.8 |
2.8 |
5.4 |
|
9 |
Textile products |
|||||
(including wearing apparel) |
2.5 |
23.8 |
16.8 |
7.7 |
5.0 |
|
10 |
Cotton textiles |
5.5 |
10.9 |
9.7 |
4.8 |
3.5 |
11 |
Paper and paper products |
|||||
and printing, publishing |
||||||
and allied activities |
2.7 |
7.3 |
7.7 |
2.7 |
2.3 |
|
12 |
Wool, silk and man-made |
|||||
fibre textiles |
2.3 |
-1.8 |
4.3 |
-0.7 |
1.2 |
|
13 |
Metal products and parts |
2.8 |
-2.7 |
2.7 |
-0.8 |
0.6 |
(except machinery and equipment) |
||||||
14 |
Food products |
9.1 |
-2.9 |
1.0 |
-2.4 |
0.6 |
15 |
Jute and other vegetable |
|||||
fibre textiles |
0.6 |
2.7 |
-0.5 |
0.1 |
0.0 |
|
(except cotton) |
||||||
16 |
Leather and leather & |
|||||
fur products |
1.1 |
4.5 |
-8.3 |
0.5 |
-0.7 |
|
17 |
Wood and wood products, |
2.7 |
-1.4 |
-13.2 |
-0.2 |
-1.3 |
furniture & fixtures |
||||||
Manufacturing – Total |
79.4 |
9.6 |
11.8 |
100.0 |
100.0 |
|
P :Provisional. # : Figures may not add up to 100 due to rounding off. |
Higher production of machinery and transport equipments contributed to high growth in capital goods sector. While
Table 7: Index of Industrial Production: Use-Based Classification of Industries |
|||||
(Per cent) |
|||||
Industry Group |
Weight |
Growth Rate |
Weighted Contribution# |
||
in the IIP |
April-August |
April-August |
|||
2005 |
2006 P |
2005 |
2006 P |
||
1 |
2 |
3 |
4 |
5 |
6 |
Basic Goods |
35.6 |
6.9 |
8.3 |
25.2 |
24.1 |
Capital Goods |
9.3 |
13.8 |
18.6 |
15.5 |
17.8 |
Intermediate Goods |
26.5 |
3.5 |
9.5 |
11.7 |
24.4 |
Consumer Goods |
|||||
(a+b) |
28.7 |
13.7 |
11.3 |
48.1 |
33.9 |
a) Consumer |
5.4 |
13.0 |
16.6 |
11.7 |
12.7 |
Durables |
|||||
b) Consumer |
23.3 |
13.9 |
9.5 |
36.3 |
21.2 |
Non-durables |
|||||
General |
100.0 |
8.7 |
10.6 |
100.0 |
100.0 |
P : Provisional. |
acceleration in basic goods sector benefited from higher production of basic chemicals, that in intermediate goods sector was facilitated by industries such as chemicals, rubber, plastic and petroleum products. Growth in consumer non-durables goods sector decelerated, partly attributable to the high base and negative growth in food products such as wheat flour/maida, milk powder, and edible oils.
Infrastructure
The infrastructure sector witnessed some improvement during April-August 2006 (growth of 6.7 per cent as compared with 6.1 per cent in the comparable period of the preceding year) on account of better performance of crude petroleum and petroleum refinery products (Chart 3). The
turnaround in crude oil production, as noted earlier, resulted from restoration of production of crude oil in plants of ONGC at Mumbai high offshore. Double-digit growth in the petroleum refinery products could be attributed to base effect and increased exports.
SERVICES SECTOR
Services sector with double-digit growth (10.5 per cent in April-June 2006 on top of 10.1 per cent in April-June 2005) remained the leading sector of the Indian economy (Table 1 and Chart 4). Services sector now accounts for more than 60 per cent of overall GDP. Services sector activity continued to be led by the sub-sector ‘trade, hotel, restaurants, transport, storage and communication’ which recorded growth of 13.2 per cent in the first quarter of
Table 8: Indicators of Services Sector Activity |
|||||
(Growth rates in per cent) |
|||||
Sub-sector |
2004-05 |
2005-06 |
April-July |
||
2005 |
2006 |
||||
1 |
2 |
3 |
4 |
5 |
|
Tourist arrivals |
23.7 |
11.7 |
13.0 * |
13.8 * |
|
Commercial vehicles production |
28.6 |
10.6 |
8.2 $ |
34.9 $ |
|
Railway revenue earning freight traffic |
8.1 |
10.7 |
10.7 |
10.3 |
|
New cell phone connections |
10.4 |
89.4 |
31.5 |
120.2 |
|
Exports of software services |
34.4 |
37.2 |
33.1 # |
25.1 # |
|
Cargo handled at major ports |
11.3 |
10.3 |
15.7 |
6.2 |
|
Civil aviation |
|||||
a) Export cargo handled |
12.4 |
7.3 |
9.1 |
7.8 |
|
b) Import cargo handled |
24.2 |
15.8 |
7.8 |
23.4 |
|
c) Passengers handled at international terminals |
14.0 |
12.8 |
12.5 |
12.9 |
|
d) Passengers handled at domestic terminals |
23.6 |
27.1 |
20.4 |
41.3 |
|
Roads: Upgradation of Highways |
16.1 |
-23.4 |
-0.6 |
-37.6 |
|
Cement |
6.6 |
12.3 |
12.7 $ |
9.0 $ |
|
Steel |
8.4 |
8.0 |
11.6 $ |
7.0 $ |
|
Aggregate deposits |
11.9 |
22.3 |
6.5 @ |
8.8 @ |
|
Non-food credit |
31.6 |
38.4 |
11.0 @ |
9.8 @ |
|
Central Government expenditure |
9.4 |
9.4 |
11.2 $ |
17.4 $ |
|
* : April-September. |
2006-07, contributing nearly 38 per cent to overall real GDP growth of 8.9 per cent during the quarter. Revenue earning freight of the railways, new cell phone connections and tourist arrivals continued to record strong growth (Table 8). Substantial activity was witnessed in import cargo handled by civil aviation and passengers handled at domestic and international airports. Acceleration in growth of bank deposits and sustained high growth in non-food credit and exports of software services buoyed up the sub-sector ‘financing, insurance, real estate and business services’ which recorded growth of 8.9 per cent during April-June 2006 (8.8 per cent a year ago). Construction continued to record strong growth, albeit with some deceleration (see Table 1).
BUSINESS EXPECTATIONS SURVEYS
Various business confidence surveys, after recording steady increase in the previous quarters, indicate a mixed assessment of current economic conditions as well as in expectations in the near term (Table 9). According to the FICCI survey (conducted during July-August 2006), the business confidence index declined over the previous quarter on the back of rising oil prices and hardening of interest rates. Notwithstanding the decline in the overall index during the quarter, the FICCI’s expectations index remained in the "significantly optimistic" zone. A majority of 58 per cent of the respondents felt that the current overall economic conditions were ‘moderately to substantially better’ vis-a-vis
Table 9: Business Expectations Surveys |
||||
Agency |
Business |
Growth over |
Growth |
|
(per cent) |
previous round |
|||
Period |
Index |
(per cent) |
||
1 |
2 |
3 |
4 |
5 |
Dun & Bradstreet |
2006 (October-December) |
Business Optimism Index |
-5.0 |
14.1 |
NCAER |
2006 (July-December) |
Business Confidence Index |
-1.7 |
-8.0 |
FICCI |
2006 (July-December) |
Business Confidence Index |
-5.7 |
-8.2 |
RBI |
2006 (October-December) |
Business Expectation Index |
2.1 |
-0.9 |
the preceding six months. This proportion was, however, lower than that of 85 per cent in the previous survey. The services sector continued to be the most upbeat segment among the industry sectors in the survey. On the other hand, according to the Dun & Bradstreet’s survey conducted in early October 2006, business confidence for the period October-December 2006 was higher than the previous quarter. All the six optimism indices comprising the survey, viz, sales, net profits, selling prices, new orders, inventory levels and employees were higher than the preceding quarter.
According to the Reserve Bank’s latest Industrial Outlook Survey (conducted during July-August 2006), the Business Expectations Index for October-December 2006 quarter declined by 0.9 per cent over the previous quarter’s level (Chart 5). The level of confidence was, however, higher than that during the corresponding quarter a year ago. The assessment about the overall business situation for July-September 2006 also showed a marginal decline in the level of confidence over the previous quarter. The level of confidence was, however, higher than in the same quarter a year ago.
Responses to the survey suggest a marginal decline in expectations for the overall business situation, financial
situation, exports, and profit margins during the quarter October-December 2006 vis-à-vis July-September 2006. On the other hand, production, order books, capacity utilisation and employment are expected to show an improvement during October-December 2006. The working capital finance requirement is expected to increase, while the availability of finance is expected to show some decline (Table 10).
Table 10: Net Response on 'A Quarter Ahead' Expectations About the Industrial Performance |
|||||||
(Per cent) |
|||||||
Parameter |
Response |
Oct-Dec. |
Jan-March |
April-June |
July-Sept. |
Oct-Dec. |
|
2005 |
2006 |
2006 |
2006 |
2006 |
|||
(961) |
(934) |
(1086) |
(1073) |
(1138) |
|||
1 |
2 |
3 |
4 |
5 |
6 |
7 |
|
1 |
Overall business situation |
Better |
51.3 |
49.8 |
46.3 |
53.1 |
51.8 |
2 |
Financial situation |
Better |
42.3 |
40.7 |
40.4 |
43.4 |
41.9 |
3 |
Working capital finance requirement |
Increase |
32.7 |
31.9 |
30.6 |
32.7 |
35.4 |
4 |
Availability of finance |
Improve |
34.1 |
34.1 |
33.8 |
35.0 |
33.4 |
5 |
Production |
Increase |
46.9 |
46.3 |
42.5 |
49.4 |
49.7 |
6 |
Order books |
Increase |
43.7 |
41.0 |
39.1 |
45.2 |
46.3 |
7 |
Cost of raw material |
Decrease |
-30.0 |
-35.9 |
-37.3 |
-45.8 |
-49.2 |
8 |
Inventory of raw material |
Below average |
-6.9 |
-6.8 |
-5.0 |
-6.3 |
-6.1 |
9 |
Inventory of finished goods |
Below average |
-3.3 |
-4.7 |
-4.5 |
-2.6 |
-4.9 |
10 |
Capacity utilisation |
Increase |
31.1 |
29.6 |
24.8 |
32.1 |
33.2 |
11 |
Level of capacity utilisation |
Above normal |
10.9 |
11.4 |
9.4 |
11.8 |
10.9 |
12 |
Assessment of the production capacity |
More than adequate |
5.0 |
4.9 |
4.1 |
3.6 |
5.1 |
13 |
Employment in the company |
Increase |
12.7 |
13.3 |
14.5 |
16.4 |
17.9 |
14 |
Exports, if applicable |
Increase |
33.3 |
31.8 |
31.0 |
38.3 |
34.2 |
15 |
Imports, if any |
Increase |
19.2 |
20.8 |
22.7 |
23.8 |
23.4 |
16 |
Selling prices are expected to |
Increase |
7.8 |
10.8 |
12.4 |
16.6 |
16.8 |
17 |
If increase expected in selling prices |
Increase at lower rate |
16.6 |
16.3 |
12.0 |
10.5 |
14.5 |
18 |
Profit margin |
Increase |
9.6 |
12.6 |
9.3 |
11.1 |
9.2 |
Note : |
Table 11: Projections of Real Gross Domestic Product for India by Various Agencies: 2006-07 |
|||||||
Agency |
Growth Projections for 2006-07 |
(per cent) |
Month of Projection |
||||
Overall Growth |
Agriculture |
Industry |
Services |
||||
1 |
2 |
3 |
4 |
5 |
6 |
||
ADB |
a) |
7.6 |
– |
– |
– |
April 2006 |
|
b) |
7.8 |
– |
– |
– |
September 2006 |
||
CDE-DSE |
a) |
7.7 |
2.4 |
9.5 |
9.2 |
May 2006 |
|
b) |
8.0 |
2.4 |
9.7 |
9.8 |
October 2006 |
||
CII |
a) |
Around 8.0 |
– |
– |
– |
June 2006 |
|
b) |
8.0 |
3.0 |
8.5 |
9.6 |
September 2006 |
||
EAC |
7.9 |
– |
– |
– |
September 2006 |
||
ESCAP |
7.9 |
– |
– |
– |
March 2006 |
||
ICRA |
a) |
7.4-8.2 |
2.0 |
8.2-9.7 |
9.1-9.7 |
January 2006 |
|
b) |
8.1 |
1.0 |
10.8 |
9.5 |
July 2006 |
||
IMF |
a) |
7.3 @ |
– |
– |
– |
April 2006 |
|
b) |
8.3 @ |
– |
– |
– |
September 2006 |
||
NCAER |
7.9 |
– |
– |
– |
August 2006 |
||
Reserve Bank of India |
7.5-8.0 |
April 2006/July 2006 |
|||||
– : Not Available.@ : Calendar year 2006. |
Although some of the surveys show a dip in business confidence and expectations, the buoyancy in manufacturing and services sector activities coupled with the recovery in domestic stock markets and positive
investment climate suggest that the recent growth momentum in the Indian economy is likely to be maintained in 2006-07, as has also been projected by different agencies (Table 11).