RBI Monthly Bulletin, September 2013

The Reserve Bank of India today released the September 2013 issue of its monthly Bulletin. The Bulletin includes four special articles: (1) Corporate Investment: Growth in 2012-13 and Prospects for 2013-14; (2) Developments in India™s Balance of Payments during Fourth Quarter (January-March) of 2012-13; (3) India™s External Debt as at end-March 2013; and (4) Consumer Confidence Survey Q2:2012-13 to Q1:2013-14

1. Corporate Investment: Growth in 2012-13 and Prospects for 2013-14

This article captures capital expenditure (Capex) intentions of the companies in private and joint business sector in order to assess broadly the short-term changes in business sentiments. The estimation of capital investment likely to be incurred during a year is based on time phasing details of the investment intentions indicated by the companies while raising funds through banks/FIs, ECBs/FCCBs and domestic equity. Capex envisaged from pipeline projects are also estimated for the year 2013-14.

Main Findings:

• The cost of projects which were sanctioned institutional assistance during 2012-13, aggregated to `1,963 billion which is marginally greater than `1,916 billion envisaged in 2011-12. Together with sanctioned ECBs/FCCBs (`660 billion) and resources raised through equity issues (`11 billion) for Capex purposes, investment intentions during the year are estimated at `2,634 billion. It may however be noted that some of the proposed projects are cancelled at a later date.
• The investment plan in 2012-13 was led by high value projects envisaged in power, metal & metal products and telecom industries. However, industries such as power, chemicals & pesticides, hotel & restaurants, and textiles witnessed decline in their share in new investment intentions when compared to the previous year.
• Spatial pattern of projects proposed during 2012-13 revealed that Odisha was the most preferred State followed by Maharashtra and Punjab. The share of Maharashtra in total cost of projects decreased in 2012-13 when compared with the previous year. Shares of project investment have also declined for Karnataka, Gujarat and Tamil Nadu when compared with the previous year.
• The envisaged investment by the private corporate sector in 2013-14 is expected to be lower than that in the previous year.

2. Developments in India™s Balance of Payments during Fourth Quarter (January- March) of 2012-13

This article provides details on developments in India’s balance of payments during January-March 2013 (Q4 of 2012-13) and (ii) during 2012-13. The quarter ending March 2013 saw some signs of recovery as India™s merchandise exports increased and imports moderated, leading to narrowing down of trade deficit. However, a decline in net invisible receipts owing to repayments partly countered the positive impact of the narrowing trade deficit on current account deficit (CAD). The continued surge in capital flows, however, could fully finance the CAD leading to an accretion of foreign exchange reserves.

Main Findings:

• India™s CAD moderated sharply to 3.6 per cent of GDP in Q4 of 2012-13 after reaching a historically high level of 6.5 per cent in Q3 of 2012-13, mainly on account of narrowing down of trade deficit during this period.
• In Q4 of 2012-13 merchandise exports (BoP basis) recorded a growth of 5.9 per cent while imports declined marginally by 1 per cent owing mainly to a decline in non-oil non-gold imports reflecting a decline in domestic activity. As a result, trade deficit narrowed down toUS$ 45.6 billion in Q4 of 2012-13.
• Net invisibles recorded a decline of 7.7 per cent in Q4 of 2012-13 on account of decline in net services, transfers and income receipts.
• Net capital inflows under financial account moderated in Q4 of 2012-13 due to slowdown in net portfolio investment and net repayment of loans by banks and corporate but were adequate to finance CAD, resulting in accretion of US$ 2.7 billion to the foreign exchange reserves.
• Trade deficit in 2012-13 remained at an elevated level of US$ 195.7 billion which coupled with the decline in net invisible earnings due to higher outgo of investment income payments and only a modest rise in net services receipts led to a widening of CAD. Nevertheless, higher inflows under financial account enabled full financing of CAD and led to an accretion to the foreign exchange reserves of US$ 3.8 billion.

3. India™s External Debt as at end-March 2013

Major Findings:

• India™s external debt, as at end-March 2013, was placed at US$ 390.0 billion (21.2 per cent of GDP) recording an increase of US$ 44.6 billion (12.9 per cent) over the end-March 2012 level on account of significant increase in short-term trade credit, External Commercial Borrowings (ECBs) and rupee denominated Non-resident Indian (NRI) deposits.
• Excluding the valuation change (gain) due to the movement of US dollar (appreciation) against major international currencies and Indian rupee, the external debt as at end-March 2013 would have increased by US$ 55.8 billion over end-March 2012.
• In terms of major components, the share of ECBs continued to be the highest at 31 per cent of total external debt, followed by short term debt (24.8 per cent) and NRI deposits (18.2 per cent).
• The short-term debt increased by US$ 18.5 billion or 23.7 per cent during 2012-13 over the previous year™s level. There has been a distinct rise in share of trade related credits in short-term debt to around 90 per cent at end-March 2013 from around 83 per cent in the previous year. The share of short term FII investments in total short term investment, however, declined to 5.6 per cent at end-March 2013 from 12 per cent a year ago.
• The share of short-term debt in total debt, by original maturity, was 24.8 per cent. Based on residual maturity, short-term debt accounted for 44.2 per cent of the total external debt as at end-March 2013. Of this, the share of NRI deposits was 28.4 per cent.
• The ratio of short-term debt (residual maturity) to foreign exchange reserves at 59 per cent at end-March 2013 was higher compared to 50.1 per cent as at end-March 2012.
• The debt service ratio declined marginally to 5.9 per cent during 2012-13 as compared with 6 per cent during 2011-12.
• India™s foreign exchange reserves provided a cover of 74.9 per cent to the external debt stock at the end of March 2013 as compared with 85.2 per cent at end-March 2012.
• The US dollar denominated debt accounted for 57.2 per cent of the total external debt stock as at end-March 2013 followed by that in Indian rupee (24 per cent) and SDR (7.5 per cent).

4. Consumer Confidence Survey Q2:2012-13 to Q1:2013-14

The Reserve Bank™s quarterly Consumer Confidence Survey of Households provides an assessment of the consumer sentiments of around 5,400 urban respondents across six cities based on their perceptions of the economic conditions, household circumstances, income and spending, prices and employment prospects. The responses are analysed in two parts, viz., current situation as compared with a year ago and expectations for a year ahead. Mainly, this article presents an analysis of survey results of the last four rounds (Q2:2012-13 to Q1:2013-14) of the survey. The survey results are those of the respondents and are not necessarily shared by the Reserve Bank of India.

Main Findings:

• The net response on current economic conditions declined to negative zone since Q2:2012-13.
• Net response on current household circumstances showed a declining trend since Q3:2011-12. It is observed that the outlook on household circumstances has been better than the current scenario.
• The net response on income perceptions in respect of the current income has remained consistently lower as compared to net response on future income.
• Consumers generally exhibit optimism for future (by Future Expectations Index (FEI)) as compared to current situation (by Current Situation Index (CSI)).
• The consumer confidence has remained subdued in terms of CSI remaining at 101.7 in the last two rounds which is the lowest in the history of the survey.