I.

THE REAL ECONOMY

The Indian economy continued to record robust growth in 2007-08,
although marginally lower than the last year. According to the revised estimates
released by the Central Statistical Organisation (CSO) in May 2008, the real GDP
growth was placed at 9.0 per cent during 2007-08 as compared with 9.6 per cent
in 2006-07. The deceleration in growth was on account of industry and services,
offset partially by recovery in agriculture. The overall growth momentum
moderated particularly during the second half of the year (Table 1 and Chart 1).

Table 1: Growth Rates of Real GDP @

(Per cent)
2000-01 2005-06 2006-07 * 2007-08 # 2006-07 2007-08
Sector to
2007-08 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
(Average)

1 2 3 4 5 6 7 8 9 10 11 12 13

1. Agriculture and 2.9 5.9 3.8 4.5 2.7 3.2 4.0 4.9 4.4 4.7 6.0 2.9
Allied Activities (20.9) (19.6) (18.5) (17.8)

2. Industry 7.1 8.0 10.6 8.1 10.0 10.7 10.3 11.5 9.6 8.6 8.6 5.8
(19.6) (19.4) (19.5) (19.4)

2.1 Mining and Quarrying 4.9 4.9 5.7 4.7 4.1 3.9 6.0 8.2 1.7 5.5 5.7 5.9

2.2 Manufacturing 7.8 9.0 12.0 8.8 11.7 12.2 11.3 12.8 10.9 9.2 9.6 5.8

2.3 Electricity, Gas and

Water Supply 4.8 4.7 6.0 6.3 4.3 6.6 7.6 5.4 7.9 6.9 4.8 5.6

3. Services 9.0 11.0 11.2 10.7 11.7 11.6 11.1 10.5 10.6 10.7 10.0 11.4
(59.6) (61.1) (61.9) (62.9)
3.1 Trade, Hotels,
Restaurants, Transport,
Storage and
Communication 10.3 11.5 11.8 12.0 10.9 12.7 12.1 11.6 13.1 11.0 11.5 12.4

3.2 Financing, Insurance,

Real Estate and
Business Services 8.8 11.4 13.9 11.8 13.6 13.9 14.7 13.4 12.6 12.4 11.9 10.5

3.3 Community, Social

and Personal services 5.8 7.2 6.9 7.3 10.3 7.2 5.6 5.1 5.2 7.7 6.2 9.5

3.4 Construction 10.6 16.5 12.0 9.8 13.1 12.0 10.8 12.2 7.7 11.8 7.1 12.6

4. Real GDP at Factor Cost 7.3 9.4 9.6 9.0 9.6 10.1 9.3 9.7 9.2 9.3 8.8 8.8
(100) (100) (100) (100)

Memo: (Amount in Rupees crore)

a) Real GDP at Factor Cost 26,12,847 28,64,310 31,22,862
b) GDP at Current Market Prices 35,80,344 41,45,810 47,13,148
@ : At 1999-2000 prices. * : Quick Estimates. # : Revised Estimates.
Note : Figures in parentheses indicate shares in real GDP.
Source : Central Statistical Organisation.

1
 Macroeconomic and Monetary Developments: First Quarter Review 2008-09

Chart 1: Real GDP - Growth Rate

12.0

10.0

8.0
Per cent

6.0

4.0

2.0

0.0
1997-98 Q1

1998-99 Q1

1999-00 Q1

2000-01 Q1

2001-02 Q1

2002-03 Q1

2003-04 Q1

2004-05 Q1

2005-06 Q1

2006-07 Q1

2007-08 Q1
Q3

Q3

Q3

Q3

Q3

Q3

Q3

Q3

Q3

Q3

Q3
Quarter

Agricultural Situation
According to the revised forecast of the India Meteorological Department
(IMD) released in June 2008, the rainfall during the 2008 South-West monsoon
season (June to September) is likely to be 100 per cent of the long period average
(LPA) with a model error of (+/-) 4 per cent. Monsoon set in over Kerala on May
31, 2008 coinciding almost with its normal date of arrival (June 1). It advanced
rapidly and covered parts of south peninsula and entire north-eastern States by
June 2, 2008. Northward advance of monsoon over east and central India also
has been near normal. Advance of this year’s monsoon has been smooth and
rapid, unlike last year when it was marked by a hiatus of about one week over
south peninsula. Rainfall during this year’s monsoon so far (up to July 23) has
been less satisfactory, with rainfall over the entire country amounting to 2 per
cent below normal as against 4 per cent above normal during corresponding
period of the previous year (Table 2). Out of the 36 meteorological sub-divisions,
21 have received excess/normal rainfall this year (up to July 23) as compared
with 29 last year. As on July 17, 2008, the total live water storage of 81
important reservoirs accounting for around 72 per cent of the total reservoir
capacity of the country was 28 per cent of the full reservoir level (FRL) as
compared to 45 per cent recorded during the corresponding period of the previous
year. The average live water storage as per cent of FRL for the last ten years has
been much lower at 25 per cent.
Kharif sowing is progressing with the advent of the South-West monsoon in
various States. Area coverage under kharif crops up to July 18, 2008 was higher

2
 The Real Economy

Table 2: Cumulative Rainfall

(Number of Meteorological Divisions)
Year South-West Monsoon North-East Monsoon
Cumulative Spatial Distribution Cumulative Spatial Distribution
Rainfall: Excess Normal Deficient Scanty/ Rainfall: Excess Normal Deficient Scanty/
Above(+)/ Rainfall Rainfall Rainfall No Rain Above(+)/ Rainfall Rainfall Rainfall No Rain
Below (-) Below (-)
Normal Normal
(per cent) (per cent)
1 2 3 4 5 6 7 8 9 10 11
1998 6 12 21 3 0 - 28 6 1 1
1999 -4 3 26 7 0 - 20 7 6 3
2000 -8 5 23 8 0 - 0 4 13 19
2001 -8 1 30 5 0 - 14 10 9 3
2002 -19 1 14 19 2 -33 3 7 12 14
2003 2 7 26 3 0 9 9 9 6 12
2004 -13 0 23 13 0 -11 8 10 17 1
2005 -1 9 23 4 0 10 11 6 5 14
2006 -1 6 20 10 0 -21 3 6 14 13
2007 5 13 17 6 0 -32 2 7 9 18
2008* -2 9 12 14 1
(4) (14) (15) (7) (0)
* : up to July 23. Excess : +20 per cent or more. Normal : +19 per cent to -19 per cent.
Deficient : -20 per cent to -59 per cent. Scanty : -60 per cent to -99 per cent. No Rain : -100 per cent.
Note : Figures in parentheses indicate comparative position during the corresponding period of 2007.
Source : India Meteorological Department.

by 1.3 million hectares over the corresponding period of the previous year. Among
food crops, rice exhibited significant increase in sown area along with coarse
cereals and oilseeds (Table 3).

Table 3: Progress of Area under Kharif Crops 2008-09

(Million hectares)
Crop Normal Area Area Coverage (As on July 18, 2008)
2007 2008 Variation

1 2 3 4 5

Rice 39.1 12.1 14.9 2.8

Coarse Cereals 22.7 9.6 9.9 0.3
of which:
Bajra 9.2 3.2 4.0 0.8
Jowar 4.2 1.8 1.3 -0.5
Maize 6.4 4.3 4.1 -0.2
Total Pulses 10.9 4.2 4.2 0.0
Total Oilseeds 15.9 9.9 10.1 0.2
of which:
Groundnut 5.4 3.0 2.7 -0.3
Soyabean 7.3 5.5 6.5 1.0
Sugarcane 4.1 5.3 4.3 -1.0
Cotton 8.4 7.0 5.8 -1.2
All Crops 101.9 48.8 50.1 1.3

Source : Ministry of Agriculture, Government of India.

3
 Macroeconomic and Monetary Developments: First Quarter Review 2008-09

According to the Fourth Advance Estimates, the foodgrains production

during 2007-08 was placed at an all-time high of 230.7 million tonnes, indicating
an increase of 6.2 per cent over the previous year predominantly on account of
kharif foodgrains production. Barring sugarcane, all foodgrains and non-
foodgrains are estimated to reach an all-time record production during 2007-08
(Table 4). Crops witnessing significant increase in production included coarse
cereals (20.1 per cent) and oilseeds (18.6 per cent).

Food Management
The procurement of foodgrains (rice and wheat) during 2008-09 (up to July
18, 2008) aggregated to 27.3 million tonnes, 78.6 per cent higher than that in
the corresponding period of the previous year (Table 5). This was mainly on
account of a more than two-fold increase in wheat procurement during the
current year as compared with the previous year. The offtake of foodgrains (rice
and wheat) during 2007-08 at 37.4 million tonnes was marginally higher by 1.8

Table 4: Agricultural Production

(Million tonnes)

Crop 2003-04 2004-05 2005-06 2006-07 2007-08

Target Achievement @

1 2 3 4 5 6 7

Rice 88.5 83.1 91.8 93.4 93.0 96.4

Kharif 78.6 72.2 78.3 80.2 80.0 82.8
Rabi 9.9 10.9 13.5 13.2 13.0 13.6
Wheat 72.2 68.6 69.4 75.8 75.5 78.4
Coarse Cereals 37.6 33.5 34.1 33.9 37.5 40.7
Kharif 32.2 26.4 26.7 25.6 28.7 31.7
Rabi 5.4 7.1 7.3 8.3 8.8 9.0
Pulses 14.9 13.1 13.4 14.2 15.5 15.1
Kharif 6.2 4.7 4.9 4.8 5.5 6.5
Rabi 8.7 8.4 8.5 9.4 10.0 8.7
Total Foodgrains 213.2 198.4 208.6 217.3 221.5 230.7
Kharif 117.0 103.3 109.9 110.6 114.2 121.0
Rabi 96.2 95.1 98.7 106.7 107.3 109.7
Total Oilseeds 25.2 24.4 28.0 24.3 30.0 28.8
Kharif 16.7 14.1 16.8 14.0 18.5 19.8
Rabi 8.5 10.2 11.2 10.3 11.5 9.0
Sugarcane 233.9 237.1 281.2 355.5 310.0 340.6
Cotton # 13.7 16.4 18.5 22.6 22.0 25.8
Jute and Mesta ## 11.2 10.3 10.8 11.3 11.0 11.2
@ : Fourth Advance Estimates as on July 9, 2008.
# : Million bales of 170 kgs each. ## : Million bales of 180 kgs each.
Source : Ministry of Agriculture, Government of India.

4
 The Real Economy

Table 5: Management of Food Stocks

(Million tonnes)
Month Opening Stock of Procurement of
Foodgrains Foodgrains Foodgrains Offtake
Closing Norms
Rice Wheat Total Rice Wheat Total PDS OWS OMS- Exports Total Stock
Domestic
1 2 3 4 5 6 7 8 9 10 11 12 13 14

2004-05 13.1 6.9 20.7 24.0 16.8 40.8 29.7 10.6 0.2 1.0 41.5 18.0
2005-06 13.3 4.1 18.0 26.7 14.8 41.5 31.4 9.8 1.1 0.0 42.3 16.6
2006-07 13.7 2.0 16.6 26.3 9.2 35.5 31.6 5.1 0.0 0.0 36.8 17.9
2007-08 13.2 4.7 17.9 26.4 11.1 37.5 33.5 3.9 0.0 0.0 37.4 19.8
2008-09 @ 13.8 5.8 19.8 4.7 22.5 27.3 .. .. .. .. .. ..
(4.2) (11.1) (15.3)
2007
January 12.0 5.4 17.5 4.3 0.0 4.3 2.7 0.4 0.0 0.0 3.1 18.1 20.0
February 12.6 5.4 18.1 2.4 0.0 2.4 2.7 0.5 0.0 0.0 3.1 19.1
March 14.0 5.1 19.1 1.2 0.0 1.2 2.7 0.5 0.0 0.0 3.2 17.9
April 13.2 4.7 17.9 0.9 7.9 8.7 2.6 0.2 0.0 0.0 2.8 25.1 16.2
May 13.5 11.6 25.1 1.5 2.6 4.0 2.8 0.2 0.0 0.0 3.0 25.9
June 12.6 13.3 25.9 1.3 0.7 2.0 2.7 0.4 0.0 0.0 3.0 23.9
July 11.0 12.9 23.9 0.8 0.0 0.8 2.9 0.4 0.0 0.0 3.2 21.2 26.9
August 9.2 12.0 21.2 0.1 0.0 0.1 2.8 0.3 0.0 0.0 3.0 17.9
September 6.9 11.0 17.9 0.1 0.0 0.1 2.7 0.3 0.0 0.0 2.9 15.6
October 5.5 10.1 15.6 7.4 0.0 7.4 2.7 0.3 0.0 0.0 2.9 19.7 16.2
November 10.7 9.0 19.7 1.8 0.0 1.8 2.7 0.3 0.0 0.0 2.9 18.5
December 10.1 8.4 18.5 3.5 0.0 3.5 2.7 0.3 0.0 0.0 3.0 19.2
2008
January 11.5 7.7 19.2 4.5 0.0 4.5 2.9 0.3 0.0 0.0 3.2 21.4 20.0
February 14.0 7.2 21.4 3.0 0.0 3.0 2.9 0.4 0.0 0.0 3.4 21.4
March 14.7 6.5 21.4 1.6 0.0 1.6 3.1 0.5 0.0 0.0 3.5 19.8
April 13.8 5.8 19.8 1.1 12.6 13.7 .. .. .. .. .. .. 16.2
May .. .. .. 2.1 8.8 10.9 .. .. .. .. .. ..
June .. .. .. 1.2 0.9 2.2 .. .. .. .. .. ..
July @ .. .. .. 0.3 0.2 0.5 .. .. .. .. .. .. 26.9

PDS : Public Distribution System. OWS : Other Welfare Schemes. OMS : Open Market Sales. .. : Not Available.
@ : Procurement up to July 18, 2008.
Note : 1. Closing stock figures may differ from those arrived at by adding the opening stocks and procurement and deducting
offtake, as stocks include coarse grains also.
2. Figures in parentheses indicate procurement of foodgrains during the corresponding period of 2007-08.
3. Total minimum stocks are to be maintained, as on April 1, July 1, October 1, and January 1, by public agencies under the
'new buffer stocking policy' with effect from March 29, 2005.
Source : Ministry of Consumer Affairs, Food and Public Distribution, Government of India.

per cent than that of the previous year. The total stocks of foodgrains with the
Food Corporation of India (FCI) and other Government agencies were at around
19.8 million tonnes as on April 1, 2008, which was higher by 10.2 per cent than
that a year ago. Both, the stocks of rice (13.8 million tonnes) and of wheat (5.8
million tonnes) were higher than their buffer stock norms (12.2 million tonnes
and 4.0 million tonnes, respectively).

5
 Macroeconomic and Monetary Developments: First Quarter Review 2008-09

Chart 2: Industrial Production

Index of Industrial Production Year-on-Year Growth
310 18.0
300 16.0
Index (1993-94=100)

290 14.0
280 12.0

Per cent
270 10.0
260 8.0
250 6.0
240 4.0
230 2.0
220 0.0
June
April
May

July

January
February
March
August
September
October
November
December

June
April
May

July

January
February
March
August
September
October
November
December
2006-07 2007-08 2008-09 2006-07 2007-08 2008-09

Industrial Performance
Industrial production moderated during April-May 2008, recording year-on-
year expansion of 5.0 per cent as against 10.9 per cent in April-May 2007 (Chart
2 and Table 6). The industrial deceleration was driven by both the manufacturing
and electricity sectors. Manufacturing recorded cumulative growth of 5.3 per cent

Table 6: Index of Industrial Production: Sectoral and

Use-Based Classification of Industries
(Per cent)

Weight Growth Rate Weighted Contribution#

Industry Group in the IIP
2007-08 2007-08 2008-09 P 2007-08 2007-08 2008-09 P
April-May April-May

1 2 3 4 5 6 7 8
Sectoral
Mining 10.5 5.1 3.2 5.6 4.3 2.1 7.5
Manufacturing 79.4 8.8 11.8 5.3 89.4 90.6 89.2
Electricity 10.2 6.3 9.0 1.7 6.4 7.3 3.0
Use-Based
Basic Goods 35.6 7.0 9.5 3.5 25.1 26.4 21.0
Capital Goods 9.3 16.9 16.9 6.5 23.9 16.2 14.4
Intermediate Goods 26.5 8.9 9.7 2.3 27.7 23.6 12.0
Consumer Goods (a+b) 28.7 6.1 11.6 7.9 23.3 34.1 50.9
a) Consumer Durables 5.4 -1.0 0.8 4.8 -1.0 0.6 7.3
b) Consumer Non-durables 23.3 8.5 15.4 8.8 24.4 33.5 43.6
General 100.0 8.3 10.9 5.0 100.0 100.0 100.0
P : Provisional. # : Figures may not add up to 100 due to rounding off.
Source : Central Statistical Organisation.

6
 The Real Economy

during April-May 2008 as compared with 11.8 per cent during the corresponding
period of the previous year. Electricity sector at 1.7 per cent witnessed a sharp
slowdown - the lowest growth since 1994-95 for April-May period on account of
decline in electricity generation in all the three segments. The mining sector
growth, however, accelerated.

The slowdown in manufacturing activity was driven by 13 industry groups

(56.3 per cent weight in the IIP) that recorded decelerated/negative growth in
April-May 2008 (Table 7). Industry groups such as 'metal products and parts',
'other manufacturing industries', 'rubber, plastic, petroleum and coal products',
'food products', 'jute and other vegetable fibre textiles' and 'wood and wood

Table 7: Performance of Manufacturing Groups

(Per cent)
Growth Rate Weighted Contribution #
Industry Group Weight
in the IIP 2007-08 2007-08 2008-09 P 2007-08 2007-08 2008-09 P
April-May April-May
1 2 3 4 5 6 7 8

1. Food products 9.08 7.1 39.3 -7.9 6.4 21.9 -12.3

2. Beverages, tobacco and
related products 2.38 11.9 8.4 30.8 6.9 3.9 30.8
3. Cotton textiles 5.52 4.3 7.4 1.5 2.0 2.7 1.2
4. Wool, silk and man-made
fibre textiles 2.26 4.8 4.1 3.6 1.6 1.0 1.9
5. Jute and other vegetable
fibre textiles (except cotton) 0.59 33.0 27.8 -10.1 1.0 0.7 -0.6
6. Textile products (including
wearing apparel) 2.54 3.7 7.5 2.6 1.4 2.3 1.7
7. Wood and wood products,
furniture & fixtures 2.70 39.6 87.9 -17.4 5.3 6.9 -5.1
8. Paper and paper products
and printing , publishing
and allied Industries 2.65 2.7 0.8 2.5 1.0 0.2 1.4
9. Leather and leather & fur products 1.14 11.5 8.9 8.5 1.1 0.6 1.3
10. Chemicals and chemical
products (except products of
petroleum & coal) 14.00 10.6 6.6 12.2 22.8 11.6 45.9
11. Rubber, plastic, petroleum
and coal products 5.73 8.9 13.2 -5.2 6.2 7.1 -6.4
12. Non-metallic mineral products 4.40 5.7 8.1 1.4 4.2 4.6 1.7
13. Basic metal and alloy industries 7.45 12.1 19.6 4.6 13.7 15.7 8.8
14. Metal products and parts
(except machinery and equipment) 2.81 -5.6 4.2 -0.8 -1.6 0.8 -0.3
15. Machinery and equipment
other than transport equipment 9.57 9.5 16.1 5.7 17.6 20.6 17.0
16. Transport equipment and parts 3.98 2.9 1.8 11.6 2.3 1.1 14.0
17. Other manufacturing industries 2.56 19.8 -4.8 -1.5 8.2 -1.6 -0.9
Manufacturing - Total 79.36 8.8 11.8 5.3 100.0 100.0 100.0
P : Provisional. # : Figures may not add up to 100 due to rounding off.
Source : Central Statistical Organisation.

7
 Macroeconomic and Monetary Developments: First Quarter Review 2008-09

products' recorded a decline in production; while 'leather and leather and fur
products', 'machinery and equipment', 'basic metal and alloy industries', 'wool,
silk and manmade fibre textiles', 'textile products', 'cotton textiles' and 'non-
metallic mineral products' recorded decelerated growth. However, the growth in
'chemicals and chemical products', a dominant segment of the manufacturing
industry, accelerated reflecting sharp expansion in nitrogenous fertilisers segment
and other pharmaceutical drugs.

In terms of use-based classification, the basic goods sector decelerated

during April-May 2008, mainly due to decline in production of certain petroleum
and steel products. The intermediate goods sector also witnessed deceleration,
mainly on account of lower performance of yarn, hessian, sacking and naptha
segments. The capital goods sector that performed well during 2007-08,
decelerated to 6.5 per cent due to lacklustre performance of printing machinery,
material handling equipments, machine tools and computer systems and
peripherals during the period. The consumer goods sector recorded decelerated
growth due to moderated performance of non-durables. The consumer durable
goods industry, which declined in eight months of the last financial year, posted
4.8 per cent growth during April-May 2008 led by the improved performance of
two wheeler tyres, window type air conditioners, washing/laundry machines,
motor cycles, passenger cars and T.V. receivers, among others. The consumer
non-durables segment moderated in April-May 2008 on account of base effect and
decline in production of sugar, wheat flour/maida, and certain edible oils.

Infrastructure

The core sector recorded lower growth at 3.5 per cent during April-May 2008
than 6.9 per cent during April-May 2007-08 (Chart 3). Sharp deceleration in
electricity and subdued performance of petroleum refinery products impacted the
growth of infrastructure during April-May 2008. The coal sector, on the other hand,
recovered and posted robust growth. The electricity sector slowed down mainly on
account of decline in nuclear and hydro electricity generation along with lower
plant load factor in thermal power plants. The cement sector recorded decelerated
growth due to base effect. The steel sector recorded moderate growth on account
of capacity constraints. Increased production in Oil and Natural Gas Corporation
(ONGC) Ltd. and Assam unit of Oil India Ltd. (OIL) contributed to a turnaround
in crude oil sector. The petroleum refinery sector decelerated sharply on account
of base effect and decline in production in some of the public sector refineries.

8
 The Real Economy

Industry-wise Growth

15.0
12.0 15.0
13.0
10.0
11.0

9.3
9.0
9.0

7.8
8.0

6.9
7.0

5.5

5.4
4.5
6.0

3.5
5.0

2.1
2.1
1.7
3.0

-0.1
0.5
4.0 1.0

2.0 -1.0

0.0

2006-07 2007-08 2008-09 April-May 2007-08 April-May 2008-09

Services Sector
The services sector continued to record double digit growth during 2007-
08, although there was some moderation. Accelerated growth in 'trade, hotels,
transport, storage and communication' and 'community, social and personal
services' was more than offset by deceleration in 'financing, insurance, real estate
and business services' and 'construction'. Notwithstanding some moderation,
services sector remained the major contributor to the GDP growth (Table 8).

Table 8: Services Sectors – Contribution to Real GDP Growth

(percentage points)
Trade, Hotels, Financing, Insurance, Community, Social Total
Year/Quarter Construction Transport and Real Estate and and Personal Services
Communication Business Services Services

1 2 3 4 5 6
2000-01 0.4 1.6 0.5 0.7 3.2
2001-02 0.2 2.0 0.9 0.6 3.8
2002-03 0.5 2.2 1.1 0.6 4.3
2003-04 0.7 2.9 0.8 0.8 5.2
2004-05 1.0 2.7 1.2 1.0 5.8
2005-06 1.1 3.0 1.5 1.0 6.6
2006-07 0.8 3.1 1.9 1.0 6.8
2007-08 0.7 3.2 1.7 1.0 6.6
2006-07 : Q1 0.9 2.8 1.9 1.4 7.1
: Q2 0.9 3.4 2.0 1.1 7.4
: Q3 0.7 3.1 1.9 0.7 6.5
: Q4 0.8 3.1 1.8 0.7 6.5
2007-08 : Q1 0.6 3.4 1.8 0.7 6.5
: Q2 0.9 3.0 1.9 1.1 6.9
: Q3 0.5 3.0 1.6 0.8 5.9
: Q4 0.9 3.4 1.5 1.3 7.1
Source : Central Statistical Organisation.

9
 Macroeconomic and Monetary Developments: First Quarter Review 2008-09

The leading indicators of services sector activity for 2008-09 so far suggest
acceleration in growth in respect of some indicators such as railway revenue
earning freight traffic, tourist arrivals and export cargo handled by civil aviation
during April-May 2008 as compared with April-May 2007. On the other hand,
growth decelerated in respect of cargo handled at major ports, various indicators
of civil aviation excluding export cargo and commercial vehicles production. Some
deceleration was also observed in production of cement and steel during
April-May 2008, which are among the important indicators of construction
industry (Table 9).

Aggregate Demand

The Indian economy continued to be driven by domestic demand with

consumption accounting for more than two-thirds and investment little less than
one-third of real GDP. During 2007-08, the share of final consumption
expenditure declined to 67.8 per cent, while that of gross fixed capital formation
rose to 31.9 per cent (Table 10).

Savings and Investment

Gross Domestic Saving (GDS), as percentage of GDP at current market

prices, increased to 34.8 per cent in 2006-07 from 34.3 per cent in 2005-06

Table 9: Indicators of Services Sector Activity

(Growth rates in per cent)
Sub-sector 2006-07 2007-08 2007-08 2008-09
April-May
1 2 3 4 5
1. Tourist arrivals 13.0 11.3 8.2 * 10.2 *
2. Commercial vehicles production # 11.2 -0.2 10.6 4.6
3. Railway revenue earning freight traffic 5.1 10.9 6.2 10.2
4. New cell phone connections 85.4 38.3 50.4 42.9
5. Cargo handled at major ports 22.1 14.7 17.7 10.3
6. Civil aviation
a) Export cargo handled 3.6 7.5 1.6 7.6
b) Import cargo handled 19.4 19.7 21.7 9.3
c) Passengers handled at international terminals 12.1 11.9 13.1 9.0
d) Passengers handled at domestic terminals 34.0 20.6 24.4 5.9
7. Cement ** 5.8 6.9 7.8 5.4
8. Steel ** 2.7 4.0 5.5 4.5
9. Aggregate deposits of SCBs 23.8 22.4 4.1 @ 3.5 @
10.Non-food credit of SCBs 28.5 23.0 -0.7 @ 1.7 @
* : April-June # : Leading Indicator for transportation. ** : Leading indicators for construction.
@ : Up to July 4. SCBs : Scheduled Commercial Banks.
Source : Ministry of Tourism; Ministry of Commerce and Industry; Ministry of Statistics and Programme
Implementation; Reserve Bank of India; and Centre for Monitoring Indian Economy.

10
 The Real Economy

Table 10: Expenditure Side of GDP (at 1999-2000 Prices)

(Rates as per cent of GDP)
Item 2006-07* 2007-08# 2006-07 2007-08
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
1 2 3 4 5 6 7 8 9 10 11
1. Total Final Consumption
Expenditure 68.4 67.8 72.2 68.9 69.3 64.2 70.1 68.2 69.0 64.6
(i) Private Final
Consumption Expenditure 58.6 58.2 60.7 60.3 60.4 53.7 59.8 59.5 60.7 53.4
(ii) Government Final
Consumption Expenditure 9.8 9.6 11.5 8.6 8.9 10.5 10.3 8.7 8.3 11.2
2. Gross Fixed Capital
Formation 30.6 31.9 30.8 31.2 29.6 30.9 32.0 33.4 31.0 31.6
3. Change in Stocks 2.1 2.0 2.1 2.2 2.0 2.0 2.1 2.1 1.9 1.9
4. Valuables 1.2 1.3 1.3 1.3 1.2 1.1 1.2 1.3 1.4 1.1
5. Exports 20.6 20.3 24.5 18.8 17.9 21.4 23.8 16.8 19.0 21.6
6. Less: Imports 24.7 24.4 25.6 27.0 24.2 22.6 24.9 24.8 25.4 22.8
7. Discrepancies 1.8 1.1 -5.3 4.6 4.3 3.0 -4.3 3.1 3.0 1.9
Memo: (Rupees crore)
Real GDP at market prices 31,17,372 33,98,767 7,04,841 7,22,355 8,25,401 8,64,774 7,69,871 7,88,514 8,99,098 9,41,283
* : Quick Estimates. # : Revised Estimates.
Source : Central Statistical Organisation.

mainly due to improvement in the saving performance by the private corporate

and public sectors. On the other hand, the household saving rate declined
marginally in 2006-07 from the previous year on account of decline in the
financial saving rate (Table 11). The rate of gross domestic capital formation
(GDCF) was estimated to be marginally higher at 35.9 per cent of GDP in 2006-
07 than 35.5 per cent in 2005-06. During 2006-07, while the overall saving rate
increased by 0.5 percentage point in 2006-07, the overall investment rate
increased by 0.4 percentage point, reflecting a marginal narrowing down of
current account deficit.

Corporate Performance

The performance of non-government non-financial companies moderated

during 2007-08 relative to the previous year (Table 12). Sales growth, which
slowed down in the first two quarters of the year, accelerated in the third and
fourth quarters. On the whole, sales growth during 2007-08 at 18.5 per cent was
lower than 26.2 per cent registered in the previous year. Growth in gross profits
and net profits also decelerated during 2007-08. The gross profits to sales ratio,
however, improved marginally over the same period. Growth in sales and net
profits in the fourth quarter of 2007-08 were at 20.6 per cent and 14.1 per cent,
respectively, as compared with 22.5 per cent and 39.6 per cent in the fourth
quarter of 2006-07.

11
 Macroeconomic and Monetary Developments: First Quarter Review 2008-09

Table 11: Rates of Gross Domestic Saving and Investment

(Per cent of GDP at current market prices)
Item 2001-02 2002-03 2003-04 2004-05 2005-06 PE 2006-07 QE 10th Plan
Average
1 2 3 4 5 6 7 8
1. Household Saving 22.1 23.2 24.4 23.0 24.2 23.8 23.7
of which :
a) Financial assets 10.9 10.3 11.4 10.1 11.8 11.3 11.0
b) Physical assets 11.3 12.9 13.0 12.9 12.5 12.5 12.7
2. Private Corporate Saving 3.4 3.9 4.4 6.6 7.5 7.8 6.0
3. Public Sector Saving -2.0 -0.6 1.1 2.2 2.6 3.2 1.7
4. Gross Domestic Saving 23.5 26.4 29.8 31.8 34.3 34.8 31.4
5. Net capital inflow -0.6 -1.2 -1.6 0.4 1.2 1.1 0.0
6. Gross Domestic Capital Formation # 22.8 25.2 28.2 32.2 35.5 35.9 31.4
7. Gross Capital Formation 24.2 25.2 26.8 31.6 34.5 36.0 30.8
of which :
a) Public sector 6.9 6.1 6.3 6.9 7.6 7.8 6.9
b) Private corporate sector 5.4 5.7 6.6 10.5 13.3 14.5 10.1
c) Household sector 11.3 12.9 13.0 12.9 12.5 12.5 12.8
d) Valuables 0.6 0.6 0.9 1.3 1.2 1.2 1.0
8. Total Consumption Expenditure (a+b) 76.7 75.1 73.0 69.2 67.8 66.1 70.2
a) Private Final Consumption
Expenditure 64.4 63.2 61.7 58.4 57.4 55.8 59.3
b) Government Final Consumption
Expenditure 12.4 11.9 11.3 10.7 10.4 10.3 10.9
Memo:
Saving-Investment Balance (4-6) 0.7 1.2 1.6 -0.4 -1.2 -1.1 0.0
Public Sector Balance -8.9 -6.7 -5.3 -4.7 -5.0 -4.5 -5.3
Private Sector Balance 8.8 8.5 9.2 6.1 5.9 4.5 6.8
a) Private Corporate Sector -2.1 -1.9 -2.2 -4.0 -5.8 -6.8 -4.1
b) Household Sector 10.9 10.3 11.4 10.1 11.8 11.3 10.9
PE : Provisional Estimates. QE : Quick Estimates.
# : Adjusted for errors and omissions.
Note : Figures may not add up to the total due to rounding off.
Source : Central Statistical Organisation.

Business Expectation Survey

According to the quarterly business expectations survey of the National
Council of Applied Economic Research (NCAER) released in April 2008, the
overall business confidence index (BCI) for the next six months declined both
over the previous round and the previous year (Table 13). A component-wise
analysis shows that three out of four components, viz., overall economic
conditions, investment climate and financial position of firms declined over the
previous round, while the capacity utilisation did not show any variation. The
BCI in respect of consumer durables, services and intermediates sectors
declined, while modest gains were observed in respect of capital goods and
consumer non-durables.

12
 The Real Economy

Table 12: Corporate Financial Performance

(Growth rates in per cent)
Item 2006-07 2007-08
2005-06 2006-07 2007-08P Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
1 2 3 4 5 6 7 8 9 10 11 12
Sales 16.3 26.2 18.5 25.6 29.2 30.3 22.5 19.2 16.0 18.0 20.6
Other Income 17.3 7.1 47.0 21.6 15.5 9.2 0.4 106.7 45.2 70.2 28.5
Expenditure 16.7 23.4 18.6 24.0 27.7 25.7 20.0 18.0 15.3 18.9 23.3
Depreciation 8.1 15.4 14.8 14.9 16.4 16.8 18.1 18.1 15.8 17.9 15.4
Gross Profits 24.6 41.9 23.3 32.7 46.0 52.9 35.5 31.9 22.5 20.4 16.8
Interest Payments -2.0 17.4 28.8 19.9 18.0 11.9 32.3 4.4 18.4 45.7 35.8
Profits After Tax 32.8 45.2 27.0 34.7 49.4 59.5 39.6 33.9 22.7 29.4 14.1
Select Ratios (Per cent)
Gross Profits to Sales 12.2 15.5 16.3 15.2 15.6 15.8 15.4 16.7 16.3 16.2 15.0
Profits After Tax to Sales 8.2 10.7 11.8 10.6 11.0 11.0 10.6 11.6 11.5 12.2 10.3
Interest to Sales 2.2 2.1 2.3 2.2 2.0 2.0 2.0 2.0 2.1 2.5 2.2
Interest to Gross Profits 18.1 13.4 13.9 14.2 13.1 12.6 12.9 11.8 12.8 15.3 14.6
Interest Coverage (Times) 5.5 7.5 7.2 7.0 7.6 7.9 7.7 8.5 7.8 6.5 6.8
Memo: (Amount in Rupees crore)
No of Companies 2,730 2,388 2,219 2,228 2,263 2,258 2,356 2,342 2,228 2,329 2,357
Sales 7,35,216 10,41,894 10,88,203 2,34,610 2,51,125 2,60,064 2,94,223 2,80,814 2,97,110 3,06,238 3,50,917
Other Income * 17,088 23,895 28,798 4,304 5,282 4,927 8,466 9,151 8,057 9,221 10,082
Expenditure # 6,43,826 8,78,645 9,12,834 2,00,120 2,11,043 2,17,472 2,49,133 2,37,698 2,49,194 2,57,472 3,02,105
Depreciation 28,961 37,095 38,528 8,449 8,892 9,172 10,338 10,173 10,576 10,961 11,805
Gross Profits 90,179 1,61,006 1,76,845 35,761 39,055 40,995 45,424 46,780 48,296 49,717 52,583
Interest Payments 16,302 21,500 24,551 5,083 5,121 5,162 5,862 5,504 6,194 7,609 7,703
Profits After Tax 60,236 1,11,107 1,27,968 24,845 27,710 28,698 31,251 32,699 34,266 37,470 36,109
P : Provisional; data pertain to 2,219 companies available so far.
* : Other income excludes extraordinary income/expenditure if reported explicitly.
# : The increase or decrease in stock in trade is accounted under total income instead of total expenditure as was hitherto done.
Notes : 1. Data for 2005-06 are based on audited annual accounts, while those for 2006-07 and 2007-08 are based on abridged financial results
of the select non-Government non-financial public limited companies.
2. Growth rates are percentage changes in the level for the period under reference over the corresponding period of the previous year for
common set of companies.
3. The quarterly data may not add up to annual data due to differences in the number and composition of companies covered in each
period.

The CII business confidence index (CII-BCI) for April-September 2008

declined by 5.3 per cent as compared with the past six months and 2.9 per cent
as compared with the corresponding period a year ago (Table 13). The decline was

Table 13: Business Expectations Surveys

(Per cent)
Organisation Business Expectations Growth over a Growth over
Period Index year ago previous round

1 2 3 4 5
NCAER April-September 2008 Business Confidence Index -1.7 -3.4
CII April-September 2008 Business Confidence Index -2.9 -5.3
Reserve Bank of India July-September 2008 Business Expectations Index 0.8 -0.9
Dun & Bradstreet July-September 2008 Business Optimism Index -18.0 -11.2

13
 Macroeconomic and Monetary Developments: First Quarter Review 2008-09

on account of uncertain global economic outlook and concerns about high

interest rates. The composite business optimism index for July-September 2008
compiled by Dun and Bradstreet (D&B) declined by 11.2 per cent as compared
with the previous quarter and by 18.0 per cent as compared with the previous
year. All the six optimism indices - volumes of sales, net profits, selling prices,
new orders, inventory levels and employee levels declined as compared with the
previous quarter. Optimism was particularly low among respondents in the
consumer durables and basic goods sectors.

According to the Reserve Bank’s Industrial Outlook Survey of

manufacturing companies in the private sector for April-June 2008, the business
expectations indices based on assessment for April-June 2008 and on
expectations for July-September 2008 declined by 5.4 per cent and 0.9 per cent,
respectively, over the corresponding previous quarters. The indices, however,
increased by 0.3 per cent and 0.8 per cent, respectively, over the corresponding
quarters of the previous year (Chart 4).

The decline in expectations index for July-September 2008 over the

previous quarter was due to lower net responses for major parameters of the
survey such as overall business situation, overall financial situation, production,
order books, cost of raw materials, capacity utilisation, employment, imports and
profit margins than in the previous quarter (Table 14). Most of the corporates
expect increase in raw material prices and the increased production cost is

Chart 4: Reserve Bank’s Industrial Outlook Survey -

Business Expectations Index
130.0

125.0

120.0
Index

115.0

110.0

105.0

100.0
Jan-Mar 2001

Jan-Mar 2003

Jan-Mar 2005

Jan-Mar 2008
Jan-Mar 2007
Jan-Mar 2002

Jan-Mar 2006
Apr-June 2000

Jan-Mar 2004

Assessment Expectations

14
 The Real Economy

Table 14: Reserve Bank’s Industrial Outlook Survey - Net Response on

'A Quarter Ahead' Expectations About the Industrial Performance
(Per cent)
Parameter Response Apr-June July-Sept Oct-Dec Jan-Mar April-June July-Sept
2007 2007 2007 2008 2008 2008
1 2 3 4 5 6 7 8

1. Overall business situation Better 51.7 49.5 50.2 47.7 46.0 41.8
(43.3) (41.2) (42.1) (42.9) (42.7) (42.6)
2. Financial situation Better 43.8 41.3 40.1 40.3 36.6 32.7
(49.8) (49.8) (51.3) (50.3) (51.6) (53.0)
3. Working capital finance requirement Increase 35.3 34.5 32.2 34.7 36.6 33.6
(59.2) (59.2) (62.6) (60.3) (56.5) (57.3)
4. Availability of finance Improve 35.2 32.1 33.8 31.1 32.3 30.2
(57.2) (58.6) (58.8) (59.5) (58.3) (57.9)
5. Production Increase 47.8 46.6 49.0 43.9 45.2 43.5
(41.6) (41.1) (40.9) (42.3) (41.0) (36.6)
6. Order books Increase 45.7 43.6 44.1 37.1 41.5 38.5
(45.4) (46.1) (46.0) (48.6) (44.3) (43.5)
7. Pending orders, if applicable Below normal -2.2 -2.2 -3.5 0.4 -4.3 2.2
(82.8) (82.6) (82.4) (80.2) (81.3) (80.9)
8. Cost of raw material Decrease -42.1 -46.0 -42.4 -44.1 -48.2 -54.7
(52.0) (49.7) (51.0) (49.2) (46.0) (39.1)
9. Inventory of raw material Below average -7.3 -5.4 -6.3 -7.3 -7.0 -3.8
(85.0) (85.0) (85.0) (84.8) (83.2) (81.8)
10. Inventory of finished goods Below average -4.4 -2.7 -3.5 -4.5 -5.8 -1.5
(85.2) (87.1) (86.4) (86.1) (84.5) (84.5)
11. Capacity utilisation (Main product) Increase 29.4 27.0 28.4 24.2 25.6 22.2
(60.4) (61.4) (61.5) (62.3) (59.9) (58.8)
12. Level of capacity utilisation Above normal 11.5 9.4 10.7 6.4 9.4 3.6
(Compared to the average in the (77.1) (76.5) (77.2) (78.3) (77.0) (74.9)
preceding four quarters)
13. Assessment of the production capacity More than 4.0 3.0 4.2 4.7 8.0 4.6
(With regard to expected demand in the adequate (82.2) (82.2) (83.0) (83.8) (81.2) (81.3)
next six months)
14. Employment in the company Increase 18.3 17.4 16.7 14.6 20.8 15.8
(73.3) (73.5) (74.1) (75.6) (68.2) (71.5)
15. Exports, if applicable Increase 33.4 32.6 31.4 24.3 27.7 27.7
(56.8) (55.6) (55.9) (58.3) (53.3) (54.9)
16. Imports, if any Increase 21.6 23.7 20.8 20.1 25.3 21.3
(68.4) (68.2) (68.6) (70.5) (65.6) (66.5)
17. Selling prices are expected to Increase 15.5 19.0 13.0 14.9 19.1 21.0
(68.9) (67.1) (68.5) (67.1) (66.0) (61.5)
18. If increase expected in selling prices Increase at 12.1 10.4 3.7 13.3 9.0 3.0
lower rate (66.7) (65.0) (58.9) (66.7) (64.0) (61.3)
19. Profit margin Increase 9.9 7.5 9.6 5.4 7.2 3.8
(62.5) (62.6) (59.6) (60.0) (61.0) (59.8)

Notes : 1. 'Net response' is measured as the percentage share differential between the companies reporting 'optimistic'
(positive) and 'pessimistic' (negative) responses; responses indicating status quo (no change) are not reckoned.
Higher 'net response' indicates higher level of confidence and vice versa.
2. Figures in parentheses are the percentages of respondents with 'no change over the preceding quarter' as
responses.

15
 Macroeconomic and Monetary Developments: First Quarter Review 2008-09

expected to be adjusted by keeping inventory levels (both raw material and

finished goods) at ‘below average’ and by increasing selling prices.

The recent projections for growth rate of industrial production in 2008-

09 by the Centre for Monitoring Indian Economy (CMIE) present an optimistic
view in the light of large capital investments scheduled for commissioning
during the year. The CMIE expects the industrial growth to accelerate from
the estimated 8.5 per cent in 2007-08 to 11.4 per cent in 2008-09. Growth
rates in the manufacturing, mining and electricity sectors are projected at
10.8 per cent, 8.0 per cent and 6.3 per cent, respectively. As per CMIE, the
industrial rebound is expected to be well spread across all the sectors and
would be fuelled by robust growth in capital goods in the wake of large capital
goods imports and investments, healthy order-book position and a pick-up in
the growth of consumer goods.

The ABN-AMRO Purchasing Managers' Index (PMI)1 for June 2008 rose
to its highest reading in four months at 58.6 (57.4 in May 2008), supported
by increase in the rate of growth of both output and new orders, indicating
strong growth in the manufacturing sector. Manufacturing firms attributed
higher new order levels to improvement in market conditions and robust
underlying demand. However, on the down side, input price inflation
accelerated to its sharpest for nineteen months in June, on account of higher
raw material costs.

Survey of Professional Forecasters2

The results of professional forecasters' survey conducted by the Reserve

Bank in June 2008 suggested moderation in economic activity for each of the
three forthcoming quarters and for 2008-09 on the whole (Table 15). Between
the third round of survey conducted in March 2008 and fourth round survey
in June 2008 forecast of real GDP growth for 2008-09 was revised downward
to 7.9 per cent from 8.1 per cent. The sectoral growth rate forecasts for
industry and services sector were also revised downwards. On the other hand,
1
The PMI is a composite indicator designed to provide an overall view of activity in the manufacturing sector. A PMI of 50.0 indicates no
change while values above or below this level indicate an expansion or a contraction of manufacturing activity.
2
Introduced by the Reserve Bank from the quarter ended September 2007. The forecasts made in the section are that of professional
forecasters and not that of the Reserve Bank.

16
 The Real Economy

Table 15: Median Forecasts of Select Macroeconomic Indicators by

Professional Forecasters 2008-09
Actual 2008-09
Indicators 2007-08 Annual Q1 Q2 Q3 Q4
E L E L E L E L L

1 2 3 4 5 6 7 8 9 10 11

1 Real GDP growth rate at

factor cost (in per cent) 9.0 8.1 7.9 8.1 8.0 8.3 7.7 8.1 7.6 7.5
a. Agriculture & Allied
Activities 4.5 3.0 3.0 3.0 3.1 3.0 3.4 2.9 3.1 3.8
b. Industry 8.1 8.1 7.5 8.4 7.1 8.5 7.0 8.6 7.4 7.3
c. Services 10.7 9.7 9.5 10.0 9.9 9.6 9.6 9.8 9.6 9.5
2 Gross Domestic Saving 34.8 * 35.0 35.0 - - - - - - -
(per cent of GDP
at current market prices)
3 Gross Domestic Capital
Formation 35.9 * 36.0 36.3 36.2 36.6 36.0 36.0 36.0 35.8 36.1
(per cent of GDP at
current market prices)
4 Corporate profit after tax 27.0 24.7 16.0 21.3 20.3 22.6 17.4 23.1 16.0 19.5
(growth rate in per cent)
5 91-day Treasury Bill Yield 7.2 6.8 8.2 - - - - - - -
(per cent-end period)
6 10-year Government Securities
Yield 7.9 7.8 8.8 - - - - - - -
(per cent-end period)
7 Export 23.7 15.8 20.0 - - - - - - -
(growth rate in per cent)
8 Import 29.9 20.0 29.5 - - - - - - -
(Growth rate in per cent)
9 Trade Balance -90.1 -115.5 -126.2 -28.4 -31.1 -27.5 -32.1 -28.1 -31.1 -29.0
(US $ billion)

E : Earlier Projection. L : Latest Projection. * : Pertains to 2006-07. - : Not Available.

Note : The latest round refers to the fourth round for the quarter ended June 2008, while earlier round refers to third
round for the quarter ended March 2008.
Source : Survey of Professional Forecasters, First Quarter 2008-09.

growth rates in export and import were revised upwards to 20 per cent and
30 per cent, respectively. The trade deficit is expected to increase in 2008-09.

Forecasts by various agencies for real GDP growth in 2008-09 are set out
in Table 16.

17
 Macroeconomic and Monetary Developments: First Quarter Review 2008-09

Table 16: Projections of Real GDP for India by Various Agencies - 2008-09
(per cent)
Overall Agriculture Industry Services Month
Agency
Growth of Projection
1 2 3 4 5 6

ASSOCHAM # 7.9 2.6 7.6 9.7 Apr-08

Confederation of Indian Industries (CII) 8.0 -8.5 - - - Mar-08
Citigroup 7.7 3.0 7.5 9.2 Mar-08
8.3 - - - Feb-08
Merrill Lynch 7.9 2.5 7.4 9.6 June-08
8.2 3.0 7.6 9.9 Mar-08
JP Morgan 7.0 - - - Mar-08
7.5 - - - Dec-07
Centre for Monitoring Indian Economy (CMIE) 9.5 3.2 11.4 10.6 July-08
9.1 - - - Feb-08
NCAER @ 8.5-8.8 2.5 8.9-9.4 10.2-10.5 May-08
Standard & Poor’s, CRISIL 7.8 3.0 7.5 9.5 June-08
8.1 3.0 8.3 10.3 Apr-08
8.5 - - - Feb-08
Asian Development Bank 8.0 - - - Apr-08
8.5 - - - Sep-07
International Monetary Fund * 8.0 - - - July-08
7.9 - - - Apr-08
8.4 - - - Oct-07
United Nations Organisation 8.2 - - - Jan-08
Economic Advisory Council to Prime Minister 8.5 - - - Jan-08
Reserve Bank of India 8.0-8.5 - - - Apr-08

- : Not Available. * : Calendar year. # : The Associated Chambers of Commerce and Industry of India.
@ : National Council of Applied Economic Research.

18