In annual report 2013-14, RBI sees no big impact of weak monsoon on India's economic growth, agricultural output

Written by PTI | Mumbai | Updated: Aug 22 2014, 01:04am hrs
Raghuram RajanRaghuram Rajan's RBI has previously said it aims to have CPI inflation fall to 8 pct by January 2015 and to 6 pct by January 2016. (Reuters)
The impact of weak monsoon so far this year on India's economic growth and farm production is likely to be limited, the Governor Raghuram Rajan-led Reserve Bank of India (RBI) said today, as rainfall levels have improved considerably over the past one month.

In its annual report for 2013-14 released today, the RBI said even if the rainfall is normal in rest of the monsoon season (June to September), some deficiency will stay but it will not have a debilitating impact on the economy. Read Full Annual Report

"The adverse impact of lower rainfalls on growth, inflation, fiscal and trade deficits is expected to be limited as on the current reckoning the deficiency in quantitative and qualitative terms is likely to be much less than that in 2009 (a drought year)," the RBI report said.

As of August 13, the all-India cumulative rainfall deficiency stood at 18 per cent of the long period average (LPA) as against an excess of 12 per cent in the same period last year.

There has been a marked improvement in the monsoon, which is crucial for agriculture - a source of livelihood for a majority in the country - since July 13 when the deficiency was a whopping 43 per cent.

The report said the area sown under kharif crops was 2.3 per cent lower than the normal but 8.9 per cent higher than the 2009 drought year.

Moreover, the difference between kharif (summer) and rabi (winter) crops have evened out in the past few years, thus eliminating a massive impact on food production due to rainfall shortfall this season.

"On an average basis, for the last five years, rabi crops accounted for 50.7 per cent of total foodgrains output," RBI said, adding "based on the sowing data, it appears that the drop in output may now be restricted mainly to coarse cereals and pulses."

As such, the odds are that agriculture and allied sector could make a positive contribution to overall growth as was the case even in 2009-10, the report said.

The RBI said current water levels in reservoirs are a source of comfort. As of August 13, 85 major reservoirs had 14 per cent higher water levels than the average over the last 10 years, though it was 12 per cent lower than last year's level on the comparable date.

It said in case monsoon weakens again in the rest of the season, there was a risk of modest adverse impact on power production due to fall in water levels of reservoirs.

However, overall prospects for electricity generation remains encouraging despite the likelihood of hydro-power generation decelerating from 18.6 per cent growth registered in the previous year, the report said.

In the thermal power segment, that accounts for nearly 82 per cent of total generation, new capacities planned for the year are expected to add 8.9 per cent to overall installed capacity.

Even the installed nuclear power capacity is expected to go up by 41.8 per cent in the year, the central bank said.

"Thus, any losses in hydro-power are expected to be more than fully compensated by increased thermal and nuclear power, and electricity production could register reasonably good growth," the report said.

RBI says growth picking up, sees 5.5% expansion this year

The Reserve Bank today said the economy is likely to grow at 5.5 per cent in the current fiscal as it sees pick-up in manufacturing and investment.

"Signs of improvement in mining and manufacturing activity, expected pick-up in investments, improved availability of financial resources to the private sector with lower draft of government on financial savings of the households amid fiscal consolidation, improved external demand and stabilising global commodity prices are expected to support the recovery.

"Accordingly, the economy could grow in the range of 5.5 to 6 per cent this fiscal," the RBI said in its annual report for 2013-14.

The central bank, however, warned that the downside risks to growth could play out if global recovery slows, geopolitical tensions intensify or monsoon weakens again in the rest of the season.

The Economic Survey 2013-14 has projected a growth of 5.4 to 5.9 per cent in 2014-15.

As of August 13, the all India cumulative rainfall deficiency in the current monsoon season was placed at 18 per cent of the long period average (LPA) as against an excess of 12 per cent in the year-ago period. The monsoon has improved since mid-July when the deficiency was 43 per cent.

The report said even if rainfall is normal in the rest of the monsoon season, some rainfall deficiency will stay.

The RBI said its inflation outlook remains unchanged from the baseline inflation trajectory it had indicated at the beginning of the year, when it committed to disinflationary glide path of taking consumer price index (CPI) inflation to 8 per cent by January 2015.

After remaining above 8 per cent in April and May, retail inflation moderated to 7.5 per cent in June mainly due to favourable base effect.

However, CPI increased to 8 per cent in July as prices of vegetables increased substantially on the back of deficient monsoon rainfall.

"Recent increase in inflation driven by vegetable price spike could be temporary as there are early indications that the price corrections are underway," the RBI said.

The RBI said while inflation trends during the rest of 2014-15 will also be conditional on several risk factors and the timing and extent of further revisions in administered prices, the inflation projection for 2014-15 will remain within reach.

The report said though the balance of risks around the medium-term inflation path and especially the target of 6 per cent by January 2016 is still to the upside, the RBI will remain committed to supporting the disinflationary process.

The central bank further said the risks associated with twin deficit risks are expected to stay moderate. It said the fiscal deficit is likely to come down further this fiscal.

"The rebuilding of forex reserves in recent months will help the country buffer the economy against potential shocks," the central bank said. According to the latest RBI report, the forex kitty swelled to a little over USD 319 billion for the week to August 8.

During this fiscal, the forex reserves swelled by 12 per cent to USD 316.14 billion as of June 30, 2014, up from USD 282.45 billion a year ago.

The current account deficit though is likely to widen from the levels in 2013-14, it is expected to remain within the sustainable level, the report said.

"The external sector is far more resilient than before, but risks associated with quicker monetary tightening by advanced economies stay," the RBI said.


* The Reserve Bank says its surplus (profit) fell 14.75 per cent to Rs 52,679 crore in FY14

* RBI balance sheet rises 10 per cent; income falls 13.1 per cent to Rs 64,617 crore.

* RBI projects 5.5 per cent GDP growth this fiscal

* RBI rules out too much impact of deficient monsoons

* RBI says disinflationary trends continue; hopeful of meeting price rise index trajectory.

* Economy is much more resilient now but tapering risks stay

RBI surplus falls 14.75% in FY14; transfers entire sum to govt

The Reserve Bank today said its surplus (profit) for the FY'14 fiscal declined 14.75 per cent to Rs 52,679 crore as its interest income from investments in foreign sovereign bonds declined during the year even as its investments increased.

"The year ended with an overall surplus of Rs 52,679 crore, representing a decrease of 14.75 per cent over the previous year," the RBI said in its annual report for the FY'14 fiscal. The central bank follows a July-June fiscal calender.

However, the central bank transfered the entire surplus to the government, making it the largest ever transfer by it.

The RBI's balance sheet size rose 10 per cent to Rs 26,24,400 crore from Rs 23,90,700 crore in the same period last year.

The increase in the asset side was driven mainly by expansion in the foreign currency assets (FCAs), impact of depreciation of the dollar against other major currencies in which the RBI's FCAs are held and depreciation of the rupee against the greenback adjusted for fall in the value of gold reserves on the asset side.

During the year, there was massive fall in the gold value held by RBI, though there was no change in the volume. The RBI holds 557.75 tonnes valued at Rs 1,24,002 crore against Rs 1,28,685 crore.

The increase in the liability side was on account of a rise in currency in circulation and accretion of the currency and gold revaluation account (CGRA), the RBI said.

At the end of the year, the domestic assets constituted 33 per cent of total assets, while foreign assets constituted the remaining 67 per cent as against 36.2 per cent and 63.8 per cent, respectively as on June 30, 2013.

During the year, the RBI's gross income decreased by 13.10 per cent to Rs 64,617 crore. Similarly, its total expenditure fell 4.9 per cent to Rs 11,934 crore from Rs 12,549 crore in the year-ago period.