Annual Report 2000-2001

The Economic Scenario: 2000-2001

The Background
Sharp decline in the growth rate of the service sector resulted in continued deceleration in the growth of the Indian economy during the year 2000-01 which was further aggravated by low agricultural productivity for the second consecutive year. The real GDP growth during the year came down to 5.2% as against the 6.4% growth rate witnessed during the year 1999-2000. A hike in the world petroleum price also led to significant inflationary pressure during the initial part of the year. However, this pressure eased towards the end of the year.

The Indian economy, however, continued to exhibit the characteristic resilience with relatively stable price trend in essential commodities and manufactured goods sector and a sustained export sector performance. The major bottlenecks facing the economy after a decade of first generation of economic reforms that started in 1991, are inadequate agrarian reforms, non-acceleration of industrial growth, inadequate fiscal adjustments, insufficient public sector resources to facilitate investment in infrastructure and social sectors and inadequate infrastructure climate for increased private sector investments.

The Union Budget for the year 2001-02 broadly outlined an all-encompassing strategy for overall economic growth which includes :
• speedy agrarian reforms
• deepening of infrastructure investment and structural reforms
• continued reforms in the financial sector and capital market
• human resource development through increased opportunities and social security
• stringent expenditure control measures and rationalisation of subsidies
• acceleration in privatisation and restructuring of public sector
• widening and rationalisation of tax regime to enhance revenue base

Successful realisation of the strategies outlined in the Union Budget would place the Indian economy in a position to attain a higher growth path. If the measures outlined above are accomplished in a focussed and time-bound manner, then there is a likelihood that many of the untapped potentials of the economy would be realised and a higher level of economic activity would emerge.

Monetary Policy Stance of the Reserve Bank of India (RBI)

The Annual Monetary and Credit Policy of the Reserve Bank of India for the year 2000-01 was announced in April, 2000 in the backdrop of certain distractions creeping in at some important segments of the financial system. The central theme of the policy continued to be growth with stability and it also aimed at imposing certain prudential measures to further strengthen the financial sector. On the interest rate front, RBI in April, 2000 effected a reduction of hundred basis points in both the Bank Rate and Cash Reserve Ratio (CRR). However, in July, 2000 it decided to increase the Bank rate by 100 basis points and CRR by 50 basis points in view of the developments witnessed in the international and domestic financial markets. Subsequently in February, 2001, RBI reduced the Bank Rate and CRR by 50 basis points. The Bank rate was further reduced by 50 basis points in March,2001, thus reverting back to the position prior to July, 2000.