RBI released its annual report 2013-14 suppressing the fear of drought

The Reserve Bank of India released its Annual Report for 2013-14.

Created On: Aug 22, 2014 18:54 ISTModified On: Aug 22, 2014 18:56 IST

The Reserve Bank of India on 21 August 2014 released its annual report for 2013-14. In its report. RBI suppressed the fear of drought stating that 'its way better than 2009' and the gaps in the fiscal and current accounts are most likely to remain contained in 2014-15.

The report covers (i) the assessment of the macroeconomic performance during 2013-14 and the prospects for 2014-15, and (ii) the working and operations of the Reserve Bank and its financial accounts for the year 2013-14.

For the first time, the report was provided with a chapter on the Reserve Bank's vision and agenda for 2014-15 for transforming the financial sector, to turn it into a stronger, deeper, more efficient and inclusive system.

Growth Outlook For 2014-15
• The Indian economy could grow in the range of 5 to 6 per cent in 2014-15 with risks broadly in balance around the central estimate of 5.5 per cent. though, risks to the central estimate were more on the downside at that point.
• All-India cumulative rainfall deficiency in the current monsoon season till 13 August 2014 was placed at 18 per cent as against an excess of 12 per cent in the corresponding period of 2013. There has been a marked improvement in the monsoon since mid-July when the deficiency was 43 per cent.
• Area sown under kharif crops (till 14 August2014) was 2.3 per cent lower than the normal and was 8.9 per cent higher than the 2009 drought year.
• Though, the hydro-power generation is decelerating from 18.6 per cent to 14 per cent of the total power supply. In the thermal segment it is nearly 82 per cent of power generation, new capacities planned are expected to add 8.9 per cent to overall installed thermal capacity in the year. Similarly, installed nuclear power capacity is expected to go up by 41.8 per cent during the 2014-15.
• The Union Budget 2014-15 is supportive of both investment and savings. The proposal to increase the deduction limit on account of interest on loan with respect to self-occupied house property is also expected to increase households’ physical savings. The Reserve Bank has complemented these measures by providing incentives for encouraging the flow of bank credit to infrastructure and affordable housing.
• Mining, manufacturing, construction and trade, hotels, transport and communication sectors. These segments account for 50 per cent of GDP compared with about 15 per cent in case of agriculture, forestry and fishing, and electricity.
• Overall, the economy may grow faster than in the 2013-14.
Inflation outlook for 2014-15
• After remaining above 8 per cent during April-May 2014, Consumer Price Index(CPI) inflation moderated to 7.5 percent in June 2014 but was increased to 8.0 percent in July 2014 due to deficient monsoon rainfall. CPI excluding food and fuel inflation, however, eased to 7.4 per cent in July 2014 from close to 8 per cent in April and May 2014.
• Some stability in the exchange rate, has, mitigated the risk to inflation from exchange rate pass-through during 2014-15 so far. Global crude oil prices (Indian basket) declined from above US$ 110 per barrel.
• The revisions in administered prices during 2014-15, which include railway fare and freight fares apart from the staggered increases in diesel prices, could exert some pressure on generalized price levels. and the smaller increases in the minimum support prices (MSPs) will help somewhat in restraining food price pressures.
• Overall, the Reserve Bank of India has committed to a disinflationary glide path of taking CPI inflation to 8 per cent by January 2015 and 6 per cent by January 2016. Though the balance of risks around the medium-term inflation path, and especially the target of 6 per cent by January 2016 are still to the upside, the Reserve Bank remains committed to supporting the disinflationary process.

The report mentioned that the monetary policy has an important role to play in curbing the effects of supply-led inflation and deficient monsoons are also reason for increase in inflation.

Some Challenges For The Indian Economy In The Short And Medium Term
• Lowering high food inflation through supply side management.
• Strengthening the monetary policy framework and transmission.
• Fiscal adjustment through revenue augmentation.
• Strengthening infrastructure by improving contractual arrangements for private sector.
• Removing obstacles and improving access to finance.
• Managing the NPA cycle to improve soundness of the banking system.

Reserve Bank’s Vision And Agenda For 2014-15

This agenda was built on five pillars. The approach encompasses:
• strengthening the monetary policy framework;
• increasing diversity and competition in banking industry while improving governance in existing banks;
• broadening the choice of financial instruments, and deepening and enhancing liquidity in financial markets;
• improving access to finance; and
• reinforcing the financial system’s ability to cope with stress.

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