Reserve Bank’s survey of outside professional forecasters shows anticipation of a modest recovery with growth in 2013-14 at 6% from 5% and average WPI inflation to moderate to 6.5% from 7.3%. Surveys show that inflation expectations have moderated slightly, while business expectations remain subdued. In view of macro-financial risks that stay significant, headline inflation remaining above the threshold and consumer price inflation remaining high, the space for action for 2013-14 remains very limited. If some of the risks come to fore, policy re-calibration may become necessary in either direction. Slow-paced recovery is likely later in 2013-14, contingent on improved governance and concerted action to resolve structural bottlenecks, especially in infrastructure sector. Output gap is likely to reduce, but remain negative. Headline inflation is likely to remain range-bound in 2013-14, with some further moderation in H1 due to subdued producers’ pricing power and falling global commodity prices, before it increases somewhat in H2 largely due to base effects. Summary of macroeconomic and monetary developments in 2012-13 During 2012-13, slowdown persisted as mining and manufacturing activity stalled, agriculture output was affected by temporal and spatial deficiency in rains and services sector witnessed moderation. Growth is likely to have stayed low in Q4 of 2012-13. Growth is hobbled by structural bottlenecks. Shortages of power, coal and natural gas, stoppage of mining activity in some states following legal enforcements on illegal mining have emerged as a major constraining factor for industrial growth. Core industries have underperformed in this backdrop. The Reserve Bank’s Order Books, Inventory and Capacity Utilisation Survey show that the slack in capacity utilisation persisted in Q3 of 2012-13. New orders picked up marginally. Inventory as a ratio of sales, reached its lowest for finished goods, but highest for raw materials in the past five quarters. Aggregate demand remained sluggish with inflation adversely impacting real consumption and cyclical and structural factors impeding investment. Investment decline was accompanied by decline in saving rate as persistence of inflation eroded financial savings of the households. Corporate sales growth moderated in Q3 of 2012-13 to its lowest level since Q3 of 2009-10. Operating profits grew at a positive rate. Planned corporate investment moderated sharply in Q3 of 2012-13, thus continuing with the downturn that began in H2 of 2010-11. There is urgency for addressing bottlenecks in coal, power, road and telecommunication sectors to revive investment and growth. Momentum towards fiscal consolidation since middle of 2012-13 continues. As a result, fiscal risks have been lowered but they have not waned. If growth slows down further, it could result in revenue shortfalls and a resurgence of fiscal risks. Removing structural impediments and public investment stimulus to crowd-in private investment can turn around falling investment. However, this would need to be balanced by offsetting reductions in government’s current expenditures. Modest pick-up in exports in Q4 of 2012-13 and some deceleration in imports are likely to help moderate current account deficit (CAD) in Q4 of 2012-13 after a record high of 6.7% of GDP in Q3. Despite this, the CAD/GDP ratio for the year 2012-13 is expected to be around 5%, twice the sustainable level. High CAD in Q3 of 2012-13 was adequately financed by capital inflows, without any reserves depletion. CAD in 2013-14 is likely to benefit from moderation in global commodity prices. Yet, its sustainability continues to face risk from event shocks that may cause a sudden stop or reversal of capital inflows. External vulnerability indicators worsened further in Q3 of 2012-13. India’s external debt rose, reflecting continued dependence on ECBs and short-term borrowings to meet the widening CAD. Short-term debt on a residual maturity basis increased to 44% of total debt and 56% of the foreign exchange reserves by end-December 2012. Headline inflation and demand-side pressures have moderated, but inflation risks remain reflected in double-digit consumer price inflation, food supply constraints and suppressed inflation in energy segment, including diesel, coal and electricity. Persistent pressures from wages remain a major risk to inflation moderation. Although the pace of increase in rural wages moderated a bit, it remains high. Divergence between WPI and CPI inflation has widened on account of higher food inflation and other factors such as increase in housing rents and transportation costs. Globally, growth turned weaker in 2012 and is expected to stay sluggish in 2013. Fiscal adjustments will drag growth down in advanced economies and delay cyclical recovery in emerging market and developing economies. Outlook for global commodity prices, including metals and oil, remains benign. It should help reduce imported inflation, subject to broadly stable exchange rate. However, some risks remain from the large and continuous doses of quantitative easing. Global financial market conditions have improved as a result of unconventional monetary policy easing and supportive policy actions. However, tail risks remain significant, calling for committed action to reduce balance sheet exposures and prepare adequate buffers against possible contagion risks.
Tag Archives: reserve bank of india
Macro Economic and Monetary Developments India
Export Credit in Foreign Currency
RBI has deregulated the ceiling rate on export credit in foreign currency vide RBI Circular No. DBOD.DIR No. 100/04.02.001/2011-12 dated 4.5.2012. Now banks have been allowed to freely determine their interest rates, on both borrowing (from overseas banks) and lending rates of export credit in foreign currency. Ministry of Finance, Department of Financial Services (DoFS) have issued instructions to All Public Sector Banks / Private Sector Banks. The banks have been advised that the foreign exchange available with them may be lent to exporters, either directly or through other small banks. They have also been advised to give special focus on making the export credit in foreign currency available to micro and small sector exporters. The communication issued by DoFS on 2nd July, 2012.
Law of Customer Service of Banks India
The RBI took the following decisions for improving Customer Service of Banks at the Annual Conference of Banking Ombudsmen held in the Reserve Bank of India, Mumbai on Sep 5, 2011:
Indian Banks’ Association (IBA) will standardise most important terms and conditions (MITC) for at least ten important banking transactions and circulate among banks for adaptation.
Banks would initiate the process of providing one view of all bank accounts of a customer including deposits, loans, etc., with the help of available technology, such as, core banking solution. Banks would be complete the process within one year.
Banks would convey to the Reserve Bank, a consensus view on the recommendations of the Damodaran Committee Report on Customer Service in Banks that could be immediately implemented.
To create awareness about the Banking Ombudsman Scheme, the Banking Ombudsmen will annually share with local media, information regarding complaints received and resolved, including important cases and awards given.
A series of town-hall events will be organised by banks to generate awareness about customer service in banks. Bank customers, bank officials and Banking Ombudsmen will participate in these events.
The Reserve Bank/IBA would examine the issues pertaining to monetary compensation for mental harassment suffered by bank customers. Issues that may receive attention in the analysis would be:
Whether only actual loss should be considered for compensation
Whether mental harassment issues can be codified for compensation and whether compensation should be capped
Whether the policies of the banks’ boards on compensation should include mental harassment as a ground for compensation
Banks should issue tax deduction at source (TDS) certificates duly completed in all respects to the account holders and despatch it to their mailing address.
In case of ATM/Internet based banking transactions, in the event of any monetary dispute involving the customer and the bank, the onus should be on the bank to prove the customer’s negligence or mistake. Customer must be compensated for the losses arising out of customers’ non-authorised
transactions.
Banks’ should initiate steps to incorporate in their code of ‘Fair Practices to the Customers’ the following items -
Insurance of some reasonable amount on their customers’ credit and debit card transactions
Providing periodical loan statements to small borrowers
Borrowers should be conveyed information on the annualised all-in cost (Annual Effective Rate) on their loan accounts.
Banks must not recover pre-payment charges in floating rate loans. Banks may also offer long-term fixed rate housing loans to their customers and address their asset liability mismatch (ALM) issues by recourse to the Interest Rate Swaps (IRS) market. Floating rate loans pass on the interest rate risk from banks which are much better placed to manage it to borrowers and, thus, banks only substitute interest rate risk with potential credit risk. The bank will, however, be free to recover / charge appropriate pre-payment penalties in the
case of fixed rate loans.
Foreign Investment in India
At present, India’s GDP is USD 1.237 trillion, which makes it the twelfth-largest economy in the world at market exchange rates and fourth largest in purchasing power. In the late 2000s, India’s economic growth has averaged at about 7.5% a year. A 2007 Goldman Sachs report has projected that “from 2007 to 2020, India’s GDP per capita will quadruple, and the same will surpass the GDP of the United States of America before 2050.” The country managed a reasonable economic growth of 6.1% during the first quarter of the current fiscal (2009) despite the global financial crisis. India’s annual GDP growth is likely to accelerate to 7.2% in the next fiscal and further accelerate until reaching a pace of about 9% in the year 2012-2013.
India is the seventh-largest country in terms of geographical area, the second-most populous country and the world’s largest democracy in the world. India is a republic consisting of 29 States and 6 Union Territories. India has legislative powers distributed between Centre and the States with a parliamentary system of democracy. The official language of the Republic India is Hindi with English as a secondary official language. There are about 16 officially recognized languages spoken across 28 states in India.
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