The Reserve Bank of India today released the December 2014 issue of its monthly Bulletin. The Bulletin includes the Fifth Bi-Monthly Monetary Policy Statement for 2014-15 and regular features like speeches of the Top Management and Current Statistics. Four special articles are also included in the Bulletin: (1) Flow of Funds Accounts of the Indian Economy: 2012-13; (2) Survey of Professional Forecasters: 2014-15; (3) Developments in India's Balance of Payments during the First Quarter (April – June) of 2014-15; and (4) India’s External Debt at end of June 2014.
Flow of Funds Accounts of the Indian Economy: 2012-13
The Reserve Bank of India compiles the flow of funds (FoF) accounts which depict all transactions in financial instruments in the Indian economy on a ‘from whom-to-whom basis’. Six major sectors of the economy are considered - banking, other financial institutions (OFIs), private corporate business (PCB), Government, rest of the world (ROW) and households. Transactions between sectors are classified under nine major categories of financial instruments, namely, currency and deposits, investments, loans and advances, small savings, life funds, provident funds, trade debts, foreign claims not elsewhere classified (NEC) and other claims not elsewhere classified. This article presents an analysis of the FoF accounts for the fiscal year 2012-13 along with revised/updated data for 2011-12.
Aggregate funds raised by all sectors declined as a ratio of net national product (NNP) for the second consecutive year in 2012-13, reflecting the deceleration in economic activity; as a result, the finance ratio – ratio of total financial claims to net national product (NNP), the financial interrelations ratio – ratio of total issues to net domestic capital formation, and the new issues ratio – ratio of primary issues to net domestic capital formation, dipped below their levels a year ago.
The overall resource gap of the domestic economy (i.e., the current account deficit), as a proportion to NNP, widened over the previous year (2011-12), mainly reflecting the spill-over of the public sector deficit since the financial surplus of the household sector remained more or less unchanged and the financial deficit of the private corporate sector declined.
In contrast to the reduction in financial claims of PCB, banking, and the (central) government sectors, financial claims issued by the ROW sector increased as a proportion to NNP during the year.
There was a substantial increase in the share of the ROW sector (via foreign investment and loans) in the financing of the PCB sector’s deficit; the share of the banking sector also increased while that of the OFIs declined.
The share of OFIs in financing the resource gap of the government sector increased sharply during 2012-13.
With outflows under small savings significantly lower and accruals under government provident and pension funds higher in 2012-13, the share of households in funding the resource gap of the government sector also increased.
Net financial claims issued by the ROW sector picked up mainly on account of accretion to the foreign exchange reserves; net financial assets of the ROW sector also increased in 2012-13, mostly on the PCB sector.
Instrument-wise financial flows during 2012-13 showed that loans and advances remained the most preferred instrument, followed by investments, currency and deposits.
In the accompanying Statements 1 to 9, data on instrument-wise FOF accounts for each of the sectors are presented in Statements 1 to 6; the annual inter-sectoral flows are summarised for the years 2010-11 to 2012-13 in Statements 7.1 to 7.3; instrument-wise financial flows are summarised for each year separately in Statements 8.1 to 8.3; and the details of the resource gap/ financial surplus of the PCB Sector, Government Sector and the Household Sector are given in Statements 9.1 to 9.3, respectively.
Survey of Professional Forecasters: 2014-15
The Reserve Bank has been conducting Survey of Professional Forecasters (SPF) since September 2007 at quarterly intervals till March 2014. From 2014-15, the survey has been made bi-monthly in line with the change in monetary policy review to a two-monthly cycle. This article presents the results of SPF for the years 2014-15 and 2015-16 based on the 30th Round of the Survey conducted during September 2014. The performance of quarterly growth and inflation forecasts has been evaluated. Finally, based on the forecast of probability distribution of GDP growth and inflation, uncertainty of forecasts has been estimated. It must be noted that the survey results are those of the respondents and are not necessarily shared by the Reserve Bank of India.
Forecasters expect that Indian economy will grow by 5.5. per cent in 2014-15 and by 6.5 per cent in 2015-16.
Industry growth is expected to be 3.9 per cent in 2014-15, which is likely to improve to 5.0 per cent in 2015-16. Services sector is likely to grow by 7.0 per cent in 2014-15 and further by 7.6 per cent in 2015-16.
The Central Government fiscal deficit is expected at 4.2 per cent of GDP in 2014-15 and is likely to improve to 3.9 per cent of GDP in 2015-16.
The current account deficit is expected at 2.0 per cent of GDP in 2014-15 and at 2.2 per cent of GDP in 2015-16.
The medium and long-term inflation expectations, measured by both wholesale and consumer price indices, have moderated in the recent period.
Empirical results suggest decline in uncertainty at near forecast horizon. Further, the extent of uncertainty has declined in the recent round as compared to the earlier round across the forecast horizons.
Developments in India's Balance of Payments during the First Quarter (April - June) of 2014-15
India’s balance of payments improved in Q1 of 2014-15, with the current account deficit (CAD) narrowing on a contraction of the trade deficit.
During Q1 of 2014-15, net services receipts improved marginally on a pick-up in construction, financial services, telecommunication, computer and information services and other business services from their levels a year ago.
The net outflow of primary income, comprising investment income and compensation of employees, continued in Q1 of 2014-15.
Net receipts under secondary income, comprising mainly remittances, also exhibited some moderation in relation to their level a year ago.
There was a sharp contraction in the CAD in Q1 of 2014-15 to 1.7 per cent of GDP from 4.8 per cent in Q1 of 2013-14.
Net capital flows were driven by robust FDI inflows and a sharp turnaround in FII inflows, particularly in the debt segment.
These developments resulted in an accretion to India’s foreign exchange reserves (on BoP basis) to the tune of US$ 11.2 billion in Q1 of 2014-15.
India’s External Debt at end of June 2014
India’s external debt at end-June 2014 was placed at US$ 450.1 billion (23.2 per cent of GDP), recording an increase of US$ 7.9 billion (1.8 per cent) over its level at end-March 2014. Four-fifth of the increase in external debt up to end-June 2014 was on account of external commercial borrowings, followed by non-resident Indian (NRI) deposits.
Instrument-wise across borrower categories, the overall outstanding debt of both Government and non-Government sectors increased, but there has been a shift towards long-term debt; in the case of the Government, in fact, short-term debt declined.
The external debt to GDP ratio declined and this improvement was also evident in a range of indicators, including the ratio of India’s foreign exchange reserves to total external debt.