Annual Report 2002-2003

The Domestic Economy: 2002-03

The growth momentum observed in the industry and services sector in the previous year continued during 2002-03 and showed stronger signs of revival. These positive trends despite a global economic slowdown, volatile geo-political situations, continued monsoon deficiency and challenge of cross-border terrorism once again proved the resilience of the macro-economic fundamentals of the Indian economy. As a welcome sign these growth recoveries went hand in hand with low inflation, comfortable reserves and stable market conditions. Unlike the earlier years, the drought situations in several parts of the country were tackled through an organized distribution network that prevented any unwelcome flare-up in prices of essential commodities.

Although the money supply growth was slow, the economy observed easy liquidity conditions. The increase in foreign exchange assets and cuts in CRR also added to the liquidity. Besides, the absence of alternative avenues of investment also led to an increase in bank deposits despite falling deposit rates. The softening of the interest rates continued while the non-food credit showed signs of picking up. A revival in industrial activity is expected to lead to a further increase in the off-take of non-food credit.

As per the Central Statistical Organisation data, GDP at factor cost grew at 5.6 percent in the previous year as against the earlier estimates of 5.4% growth. This was mainly due to an upward revision in growth rates of the manufacturing, trade, transport and communication sectors. However, the growth rate of agriculture and allied activities remained steady without any marked improvement.

While the mid-term Review of Monetary and Credit Policy released i

n October 2002 by the Reserve Bank of India had projected the GDP growth in the range of 5.0 to 5.5 per cent during 2002-03, the advance estimates for 2002-03 released by the CSO in January 2003 has placed GDP growth at 4.4 per cent, assuming an estimated decline in the output from agriculture and allied activities.