OREANDA-NEWS. November 11, 2011. The Reserve Bank of India today released the November 2011 issue of its monthly RBI Bulletin. The Bulletin carries three articles by top management of the Reserve Bank and five special articles, namely, (i) Financial Inclusion : A road India needs to travel (ii) Monetary Policy: Key factors Shaping Trajectory (iii)  Inflation:  Decoding the Dynamics  (iv) Developments in India's Balance of Payments during First Quarter  (April-June) of 2011-12 (v) Composition and Ownership Pattern of Deposits with Scheduled Commercial Banks: March 2010 (vi) India’s External Debt: Trend, Policy Changes and Cross-country Comparison (vii) Finances of Foreign Direct Investment Companies: 2009-10 (viii) South-West Monsoon 2011 :  A Review  (June 1 to September 30, 2011).

Highlights:

1. Developments in India's Balance of Payments during First Quarter (April-June) of 2011-12

Imports and Exports rise; Current Account Deficit widens

This article provides details on developments in India's balance of payments during April-March 2011. It also covers disaggregated data on invisibles for 2009-10 and 2010-11 as well as for Q1 of 2011-12, through Q1 to Q4 of 2010-11.

Main Findings

During Q1 of 2011-12, a rise in trade deficit, despite sharper increase in exports than imports and increase in net export of services, led to widening of current account deficit (CAD) as compared with Q1 of the previous year.

During Q1 of 2011-12, while growth in goods exports was higher than growth in imports, trade deficit in absolute terms widened to USD  35.4 billion (USD  32.3 billion a year ago).

Growth in services receipts and payments remained moderate during Q1 of 2011-12 as compared with that recorded in Q1 of 2010-11. Net exports of services recorded a growth of 19.1 per cent led by higher growth in receipts led by ‘transportation’, ‘telecommunication, computer and information services’ and ‘other business services’.

There has been rise in net secondary income but it was partly offset by net outflow on account of primary income.

During the period, despite improvement in net services and secondary income, higher trade deficit coupled with deterioration in the primary income led to increase in absolute size of current account deficit. However, as a proportion of GDP, CAD remained at the previous year level during the quarter.

Financial account witnessed a surge primarily on account of foreign direct investment and other investment led by loans particularly banking capital.

There was a net accretion to foreign exchange reserves of USD  5.4 billion during Q1 of 2011-12 (excluding valuation).

2. Composition and Ownership Pattern of Deposits with Scheduled Commercial Banks: March 2010

Share of Term Deposits largest in Incremental Deposits

The article presents data on ownership of deposits as collected from a sample of branches of scheduled commercial banks, under the reporting system of the Basic Statistical Return (BSR)-4. BSR-4 captures data on outstanding deposits as on March 31, according to type of deposits accounts (viz., current, savings and term deposits) and classified by broad institutional sectors, (viz., ‘Household’, ‘Government’, ‘Private Corporate (Non-Financial)’, ‘Financial’ and ‘Foreign' sectors) of the economy. The ownership pattern of estimated deposits is analysed according to the population groups, States/Union Territories and bank groups. The article also provides comparative position of composition and ownership pattern of bank deposits in March 2010.

Main Findings

Current, savings and term deposits accounted for 12.0 per cent, 25.5 per cent and 62.5 per cent, respectively, in the total deposits in March 2010. The share of term deposits declined by 2.2 percentage points during 2009-10, while that of savings deposits registered an increase by the same percentage points (2.2 per cent). 

'Household' sector with 58.0 per cent share in total deposits was the largest holder of outstanding deposits as on March 31, 2010; its share was 58.3 per cent a year ago. By end-March 2010, the share of 'Private Corporate (Non-Financial)' and ‘Financial’ sector in total deposits recorded a rise, while ’Government’ and 'Foreign' sectors depicted a decline as compared with the previous year.

Term deposits contributed 51.8 per cent to incremental deposits during 2009-10 (73.5 per cent during 2008-09), while current and savings deposits accounted for an accretion at 11.6 per cent (5.2 per cent in 2008-09) and 36.6 per cent (21.3 per cent in 2008-09), respectively.

The share of current deposits in total deposits recorded an increase in case of 'Private Corporate (Non-Financial)' sector, while it registered a decline in case of all other sectors. On the other hand, the relative share of term deposits in total deposits decreased in the case of 'Private Corporate (Non-Financial)' , 'Foreign' sectors and 'Household' sectors, and increased in case of' ‘Financial’ sector; it has remained unchanged in the case of 'Government' sector.

The share of term deposits in total deposits for the metropolitan areas stood at 70.5 per cent as on March 31, 2010, somewhat lower compared to 72.4 per cent of the previous year. Savings deposits accounted for 46.9 per cent and 43.0 per cent share in total deposits of rural and semi-urban areas, respectively, whereas their shares increased for the urban and metropolitan areas during 2009-10.

3. India’s External Debt: Trend, Policy Changes and Cross-country Comparison

Rise in Debt Servicing Ratio but External Debt to Reserves Ratio Comfortable

The article reviews India’s external debt position as of end-June 2011, provides cross-country comparison of external debt among select developing countries and presents recent policy measures undertaken by the Reserve Bank of India and Government of India for effective management of external debt. The article, among other things, provides details about the components of external debt, its currency composition, instrument wise classification and maturity profile as at end-June 2011.

Main Findings

India’s external debt, as of end-June 2011, was at USD  317 billion.

The long-term debt at USD  248.5 billion and short-term debt at USD  68.5 billion accounted for 78.4 per cent and 21.6 per cent, respectively, of the total external debt.

Based on residual maturity, short-term debt accounted for 43.3 per cent of total external debt.

In terms of currency composition, USD accounted for 54 per cent of total external debt.

While, debt servicing ratio rose marginally, the ratio of external debt to reserves ratio has remained almost at the same level as at end-June 2011.

4. Finances of Foreign Direct Investment Companies: 2009-10

Share of External Sources of Funds declined

The article presents the financial performance of select 681 non-government non-financial foreign direct investment companies during the financial year 2009-10, based on their audited annual accounts.

Main Findings

The aggregate results of the select companies in 2009-10 showed signs of recovery since 2008-09.

While the growth rates in major parameters like sales, value of production and manufacturing expenses further moderated, various measures of profit like PBDIT, gross profits, profit after tax and gross savings recorded higher growth in 2009-10 after witnessing a decline in 2008-09.

Profitability and profit allocation ratios such as profit margin, return on equity and dividends to net worth improved in 2009-10 as compared to those in 2008-09.

However, growth in borrowings was at a much lower level in 2009-10 as compared with the previous year, as increase in profitability could have led to significant cut down in the borrowing requirement.

The share of external sources of funds (i.e., other than own sources), which has been playing a major role in financing the asset formation and other activities during the last few years, witnessed a significant decline in 2009-10 mainly due to the fall in incremental borrowings and equity raising. Correspondingly, the share of the internal sources of funds increased and became major source of finance, backed by higher accretion in reserves and surplus in 2009-10.

The FDI companies experienced lower growth is sales and higher growth in gross profits and profit after tax compared to those of non-FDI companies in 2009-10. The profit margins, return on equity and effective tax rate of FDI companies were higher as compared with that of non-FDI companies in 2009-10.

5. South-West Monsoon 2011 :  A Review  (June 1 to September 30, 2011)

Good Monsoon augurs well for Agriculture and Allied Activities

The article notes that the South-west Monsoon during June-September 2011 crossed the India Meteorological Department’s (IMD) long period average (LPA) (average rainfall of 89 cm during 1941-1990) by 1 per cent as against 2 per cent of LPA during June-September 2010. This augurs well for the growth of agriculture and allied activities.

Main Findings

Due to favourable inter-temporal and inter spatial distribution of rainfall during monsoon 2011 area sown during kharif 2011-12 has surpassed that sown during 2010-11 barring that for pulses and coarse cereals. 

Area sown under most commercial crops has surpassed even the normal sowing area for the season.

Improved sowing, in turn, has been reflected in better prospects of kharif harvest as per the First Advance Estimates.

Production of kharif foodgrains during 2011-12 is estimated to be 3.1 per cent higher than the record production of 120.2 million tonnes achieved during 2010-11.

Higher sowing under commercial crops has also been reflected in estimated increase in production of cotton, jute & mesta, and sugarcane for the kharif season 2011-12.