Annual Report 2004-2005

The Domestic Economy 2004-05

Strong industrial and services sector along with a modestly buoyant agricultural sector continued to help the Indian Economy register a steady growth, notwithstanding that the GDP growth at 6.9% (estimates of Central Statistical Organisation) was lower than 8.2 % in the previous year. Though the growth rate for 2004-05 is less than that of 2003-04, this may be viewed in the context of adverse effects of uneven monsoon on the production of kharif crop. High growth rates in the manufacturing industry and the service sectors provided a conducive impetus to the Indian economy. Relatively stable price levels also made a positive contribution to the growth and stability of the Indian economy.

The downward trend in interest rates continued in 2004-05, with bank rate remaining pegged at 6%. With orderly and liquid conditions prevailing in the financial markets mainly on account of fund flow both from domestic and international sources, interest rates continued to remain soft in 2004. Appropriate and timely monetary and fiscal policy responses helped in containing the inflationary pressures emanating particularly from international crude oil prices.

The money supply (M3), on an annualized basis, grew at the rate of 14.1% during the year as compared to 12.1% during 2003-04. The monetary instruments like Market Stabilisation Scheme and Liquidity Adjustment Facility etc. as adopted by RBI helped in containing the money supply despite increase in capital inflows. In view of these measures, the financial market remained generally stable. The interest rates, though displayed some upward movements, particularly at the longer end, the overall interest rates remained benign during the year 2004-05. (Source: Macroeconomic and Monetary Developments in 2004-05 by RBI).

The closure of the year 2004 saw the Tsunami cyclone striking parts of India, Sri Lanka, Indonesia & Thailand causing unprecedented loss to life and property. The Government and various other institutions came forward to extend all possible support to rehabilitate the affected people and restore normal life.

Housing & Related Issues

Housing sector continued to draw funds from financing institutions particularly the Banks. The southward movement in interest rates stimulated demand for housing loans as the housing sector experienced steady growth. There was a marked preference for floating rate option as it suited both the borrowers and lenders. The interest rates in the housing sector have responded well to the market dynamics. During 2004-05, the aggregate housing finance disbursed by HFCs was Rs. 26,042.48 crore as against Rs. 20, 862.23 crore in 2003-04 thus registering a 24% growth.