In this Issue
(April 1999)
South Asia Region
India's Foreign Relations
Economy & Trade
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Opinion: Kerala: Asia's Cradle of Christianity
Feature: Interview with ISRO Chairman
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ANNUAL REPORT OF
MINISTRY OF FINANCE RELEASED
Improved
agricultural output, controlled inflation, improved balance of payment situation, increase
in FDI, deceleration in industrial production and infrastructure sector and increased
outlay for social sector are the highlights of the Finance ministry’s annual report
for 1998-99.
The foodgrain production in 1998-99 is expected to be 195 MT, which is higher than 192.4
MT of 1997-98. The rice, wheat and pulses output is estimated to be 82.2, 69.1 and 14.8 MT
respectively. The production of oilseeds is likely to be 24.2 MT, about 2.2 MT more than
1997-98. Cotton production will be about 29 lakh bales (of 170 kg) more than 1997-98. Jute
and mesta will be 18 lakh bales (of 180 kg) less than last year. The sugarcane production
will be 289.7 MT, about 13.5 Mt more than last year.
The annual inflation rate based on
wholesale price index (WPI) rose gradually from 5.3% in the first week of this financial
year to the peak level of 8.84 in September and then declined to 4.4% by the second week
of January 1999. It was 5.14% as on 20.2.1999. The inflationary pressure observed during
the current year was particularly due to the sharp rise in the price of primary products
especially vegetables, fruits, oilseeds and pulses.
The overall performance of the
industrial production during April-December 1998-99 has shown a lower growth rate of 3.5%
as compared to 6.7% in April–December 1997-98. The growth in manufacturing was 3.7%,
in electricity generation 6.6%, while mining showed a decline of 1.1%. In terms of use
based classification, the performance of capital good sector during the period April to
December 1998-99 experienced the highest growth of 9.8%. However, basic goods,
intermediate goods and consumer goods grew at lower rates of 1.4%, 4.7% and 2.8%
respectively.
Several infrastructure and core industries,
namely, electricity generation, coal, steel, crude oil, refinery output, cement and
fertilizer recorded a growth rate of 2% during April-December 1998-99 as compared to 5% in
April – November, 1997-98. Growth of sectors such as ports railways and
telecommunications, which do not appear in the IIP, showed divergent trend, while the
telecommunication sector maintained the high level of growth, in both net switching
capacity and net telephone connections.
Reflecting the concern of the monetary authority to prevent a rise in inflation rates, the
annual growth rate in broad money (M3) remained same at 15.0-15.5% in 1998-99. The broad
money (M3) growth in the current financial year till January 15, 1999 was 13.2 % as
against 11.2% in the corresponding period of 1997-98. The RBI credit to commercial sector
and banks registered a significant growth at 53.7% and 86.4% in the current financial
year. Except for a brief period in August 1998, call money rate did not come under
significant pressure in the current financial year.
The mid term review of Monetary & Credit Policy announced by RBI on October 30, 1998
contained decisions in regard to prudential measures like increase in minimum capital to
risk weighted assessed ratio (CRAR) to 9% with effect from the year ending March 31, 2000;
income recognition and portioning norms on government guaranteed advances on par with
other advances from 2000-2001; provision at the rate of 0.25% for standard assets from
year ending March 31, 2000; risk weight of 2.5% in respect of government/approved
securities, risk weight for government guaranteed advances going into default from 31,
2000; hundred per cent risk weight for foreign exchange positions with effect from March
31, 1999 and uniform risk weight of 20% on investment in bonds, debentures of public
financial institutions.
The Non-Performing Assets of public sector banks registered
a reduction in 1997-98. In gross terms, the ratio of NPAs to total advances in respect of
public sector banks declined from 17.8% in 1996-97 to 16% in 1997-98. Based on
recommendations made by the task force on Non-Banking Financial Companies (NBFCs), Reserve
Bank amended the deposit norms in respect of NBFCs belonging to equipment/hire purchase
companies and loan/investment companies. During April to December, 1998-99, the All India
Financial Institutions sanctioned Rs.67667 crore, which represented an increase of 36.9%
over the corresponding period of 1997-98. Despite the dormancy in primary segment of
capital market, the amount raised through rights and public issues in April to December,
1998 increased by about 27% (Rs.3929 crore) over the corresponding period of pervious
year.
The balance of payment situation in 1998-99 was under
control. The deficit in the current account of BOP widened to 1.6% of GDP in 1997-98
against the background of sharp deterioration in international trading and financial
market conditions. In 1998-99, the current account deficit as a percentage of GDP is
expected to come down from the 1997-98 level. The sluggishness of exports continued in
first 10 months of the current financial year, with exports recording a decline of 2% as
compared to an increase of 2.4% in corresponding period last year. Whereas POL imports
during April to January 1998-99 has declined by 25.4%, non-POL imports showed a buoyant
growth of 12.5%. Both global and domestic factors have contributed to the slowdown in
export growth since 1996-97. The recovery has been hampered by Rupee’s appreciation
in real term in 1997 against currencies of India’s major trading partners, depressed
international commodity prices and the subtle protectionist measures from the developed
countries in the form of anti-dumping and subsidy related investigations.
The net inflow of invisible continued to be a major support to the viability of the
balance of payment. On an average, invisible receipts have grown at a rate of about 20%
per annum from US $ 9.3 billion in 1992-93 to US $ 23.0 billion in 1997-98. Total net
capital inflows in 1998-99 is expected to be lower than the levels in 1997-98, reflecting
considerable deceleration in the inflows of foreign direct investment and commercial
borrowings and significant out flow of portfolio investment by FIIs. Foreign direct
investment during April to December 1998 was US $ 1562 million compared with US $ 2511
million during the corresponding period of last year. The deceleration in private capital
flows in 1998-99 was partly offset by an inflow of US $ 4.2 billion from Resurgent India
Bonds (RIBs) to NRIs/OCBs.
During the first 10 months of 1998-99 foreign currency assets have increased by US $ 1454
million to reach at US $ 27429 million at the end of January 1999. Total Foreign Exchange
Reserves (including gold and SDRs) at the end of January, 1999 were US $ 30.4 billion.
Since September 1998 the Rupee has shown reasonable stability against the US dollar. It
depreciated against the US $ by about 7.1% from Rs.39.50 per US $ in March 1998 to
Rs.42.50 in January 1999. India’s external debts at the end of September 1998 stood
at US $ 95.2 billion as against US $ 93.9 billion by the end of March 1998.
The Central Plan Allocation for social sectors and poverty alleviation program have
increased to Rs.20804 crore in 1998-99 budget showing an increase of 13.1% over 1997-98
(BE). The outlay for women and child development increased by about 36% from Rs.900 crore
in 1997-98 (BE) to Rs.1226 crore in 1998-99 (BE) and Health & Family Welfare by about
32% from Rs.2784 crore (BE) to Rs.3684 crore in 1998-99 (BE). A sum of Rs.3760 crore
including Rs.350 crores for slum development was provided for Basic Minimum Services in
1998-99 (BE) as against the sum of Rs.3300 crore in 1997-98 (BE).
Among various decisions/actions taken during the year for expenditure management include,
i) identifying 1735 surplus posts leading to a net direct economy of Rs.18.27 crores, ii)
detailed guidelines issued on expenditure management, fiscal prudence and austerity, iii)
reducing the central government staff strength by 1.57 lakh posts, iv) creating a
women’s cell to redress the grievances of women.
Also, the government implemented a number of left over recommendations of the 5th Central
Pay commission and extended the revised pay scales to the employees of autonomous and
statutory bodies. The Non-Plan revenue deficit grant of Rs.258.76 crores and center’s
share to the calamity relief fund of the states amounting to Rs.977.57 crores were given
to states. An amount of Rs.407.67 crores was released to states under upgradation and
special problem grants as per the recommendations of 10th Finance Commission. An amount of
Rs.437.51 crores and Rs.109.86 crores were also released to states for PRI and urban local
bodies respectively. A special debt relief to the states with high fiscal stress will also
be given to these states during 1995-2000.
The revenue collection, both direct and indirect taxes, showed an upward trend during the
last year. An amount of Rs.104230.67 crores was collected during the year till January
1999, an increase of 6.66% over last year’s. While the collection of customs duty
recorded a downward trend (-1.57%), the upward trend under other tax heads ranged between
6.64% for central excise to 20.20% under corporation tax.
During the year the drive against smuggling, tax evasion etc. continued and till December
1998 34 detention orders were issued under COFEPOSA Act and 39 were actually detained. The
Income Tax Department conducted 4439 searches (till 31st January 1999) and
seized assets worth 201.41 crores. During the period April 1998 to November 1998, 84056
(Provisional) premises were surveyed leading to the addition of 937236 (Provisional) new
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