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RBI cuts GDP forecast to 5-5.5%

Rediff Money Desk

Announcing the mid-term review of the Monetary and Credit Policy for 2002-03 on Tuesday, RBI Governor Bimal Jalan said that the central bank had lowered the forecast for the nation's GDP growth for the year to 5.0-5.5 per cent.

The RBI's earlier estimate was of 6.0-6.5 per cent.

Jalan said that the government's borrowing programme might be impacted by lower gross domestic product growth.

The Monetary and Credit Policy for the first half released on April 29, 2002 had projected a GDP growth of 6.0 to 6.5 per cent for the year 2002-03, based on the assumption of a normal monsoon.

The latest estimate, released by the Central Statistical Organisation for the first quarter (April-June) of 2002-03 is 6.0 per cent (as against 3.5 per cent in the corresponding period of the previous year).

While the CSO estimate for the first quarter of the current year is in line with the projected rate of growth of 6.0 to 6.5 per cent, it is likely that for the year as a whole, the rate of growth in GDP will be lower in view of the poor rainfall in some parts of the country.

The mid-term review of the Credit Policy for 2002-03 says: "Taking into account the performance of the south-west monsoon, it is expected that production of foodgrains this year will be lower than last year by about 5.0 per cent."

"Production of non-foodgrains is, however, likely to show a positive growth. On balance, the present indications are that agricultural GDP for the year 2002-03 will decline by around 1.5 per cent," the RBI statement says.

"On the other hand, there are indications of a recovery in industrial production during the first half of the current year. The composite index of six infrastructure industries, viz., electricity, coal, steel, cement, crude petroleum and refinery products registered a growth of 6.0 per cent during April-September 2002, substantially higher than 1.5 per cent in the corresponding period of the previous year," the RBI adds.

"During this period, all infrastructure industries recorded higher growth as compared to the corresponding period of the previous year. There are also indications of recovery in the production of basic goods, capital goods and consumer goods," the RBI has hoped.

"On the whole, taking these developments into account, it appears that overall GDP growth for the year 2002-03 is likely to be in the range of 5.0 to 5.5 per cent as against the earlier projection of 6.0 to 6.5 per cent," says the RBI statement.

Apart from credit growth, the RBI said that "various business expectation surveys point to a positive industrial outlook for the current year. However, while taking a view on the industrial outlook, the impact of deficient South-West monsoon may have to be considered in view of the linkages among the various sectors of the economy."

The feedback on industry-wise credit flows received from banks for April-August 2002 reveals that, at a disaggregated level, there was discernible increase in credit to coal, iron & steel, cotton & other textiles, tea, tobacco & tobacco products, paper & paper products, fertiliser, drugs & pharmaceuticals, cement, construction, gems & jewellery, petroleum, computer software, automobiles, power and residual industries.

On the other hand, decline in credit was observed in mining, other metal & metal products, all engineering, electricity, sugar, vegetable oils & vanaspati, food processing, petrochemicals, rubber & rubber products, leather & leather products and telecommunications.

"The deficiency in rainfall, which was more pronounced in the first two months of this year's monsoon season, exerted pressure on the prices of many agricultural commodities," says the RBI statement.

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