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Mumbai , Aug. 27

THE real GDP growth for the year 2003-04 is expected to "significantly exceed" the earlier projection of 6.0 per cent made in the April credit policy, said the Reserve Bank of India in its Annual Report for the year 2002-03.

"As per the latest assessment of rainfall conditions, a strong recovery in agricultural output is likely during the year. This along with the continuance of the upturn in the industrial and the services sectors, the expected growth for 2003-04 may significantly exceed the earlier projection, if output growth in agriculture shows a sizeable increase over the low base of 2003-03," adds the Report.

In April 2003, the RBI in its Monetary and Credit Policy 2003-04 had projected a real GDP growth of 6.0 per cent based on the assumption of below normal rainfall forecast by the Meteorological Department. A re-assessment of the projected growth rate will be attempted in the Credit policy of October 2003.

States the Report, "The momentum of industrial growth has been sustained with manufacturing output rising strongly in the first quarter. The outlook for the industrial sector is expected to be reinforced by the renewal of agriculture activity, the strength of exports and the improved environment for new investments."

However, achieving the growth projections related to overall economic performance will be dependent on a significant increase in investment, both public and private. Such a change in expenditure composition towards higher investment could also lead to the re-emergence of a current account deficit, which would then enable better absorption of capital inflows for investment purposes.

For growth prospects in agriculture, the RBI is of the opinion that any further improvement in agricultural income will have to come from value additions such as agro-processing or agro-based industries rather than plain vanilla agricultural production.

The Annual Report pointed to a specific point compounding the fiscal situation of the Central Government, which is the delay in completion of projects undertaken by it as in the case of the Golden Quadrilateral project and several other road, rail and power projects.

Delays in the completion of major Central Government projects has led to the huge cost escalation, which currently accounts for 59 per cent of the actual cost of delayed projects. According to the Ministry of Statistics and Programme Implementation, control on time overruns may reduce the cost overruns by 75 per cent.

With regards to financial sector issues, the Report has stated that in the application of the 90-day norm for loan impairment recognition amongst commercial banks, effective end-March 2004, "It is expected that banks would have built-in adequate levels of provisioning for the gradual transition. Nevertheless, banks need to be on guard against any upsurge in the measured NPAs consequent upon the movement to the 90-day norm."

RBI has reiterated a word of caution to banks on holding un-hedged lending in foreign currency, thereby running an exchange rate risk. Most FCNR borrowers refuse to cover their foreign exchange exposure in the event of the consistent appreciation of the Indian rupee over the last two years.

Argues the report, "Banks need to exercise caution in un-hedged lending in foreign currency since exchange rate risk could easily turn into credit risk if exchange rate movements turn adverse. Banks also need to put in place a system for monitoring such un-hedged external liabilities.''

The apex bank has also expressed its apathy towards banks improving their profitability by "passively investing largely in government securities, reaping trading gains with declining yields and rising prices."

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Triggered by farm rebound, industrial upturn — GDP growth may top 6 pc: RBI

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