The Reserve Bank of India today released the June 2013 issue of its monthly Bulletin. The Bulletin includes five special articles: (i) Union Budget 2013-14: An Assessment; (ii) Developments in India's Balance of Payments during Third Quarter (October-December) of 2012-13; (iii) Inflation Expectations Survey of Households: 2012-13; (iv) Finances of Non-Government Non-Financial Public Limited Companies: 2011-12 and (v) Composition and Ownership Pattern of Deposits with Scheduled Commercial Banks: March 2012.

1. Union Budget 2013-14: An Assessment

This article, based on the Union Budget 2013-14 presented to the Parliament on February 28, 2013, presents the key features of the Budget and makes an assessment of the likely impact of various budgetary measures on fiscal and overall macroeconomic situation in 2013-14.

Highlights:

• The gross fiscal deficit (GFD) was contained at 5.2 per cent of GDP in 2012-13 (RE), which is marginally higher than the budget estimate of 5.1 per cent. The containment of GFD in the face of shortfall in tax revenues, telecommunication receipts and disinvestment proceeds was largely brought about by scaling down plan expenditure and capital expenditure. However, sharp increase in non-plan revenue expenditure, particularly subsidies coupled with shortfall in revenue receipts led to a higher revenue deficit-GDP ratio of 3.9 per cent as compared to 3.4 per cent budgeted for 2012-13.
• The GFD-GDP ratio is budgeted to decline to 4.8 per cent in 2013-14 and to 3.0 per cent by 2016-17 in line with the revised road map for fiscal consolidation.
• The Budget envisages a revenue-led fiscal correction for 2013-14. The revenue deficit-GDP ratio is budgeted to record a reduction of 0.6 percentage points in 2013-14 which would be achieved mainly through augmenting revenue receipts and reducing non-plan revenue expenditure. With the reduction in revenue deficit, a large proportion of gross fiscal deficit would be available for capital expenditure in 2013-14, showing some qualitative improvement in the process of fiscal correction.
• The growth in capital and plan expenditure is placed higher at 36.6 per cent and 29.4 per cent, respectively, in 2013-14(BE). This reprioritisation of expenditure in favour of capital expenditure is expected to increase capital outlay-GFD ratio to 38.5 per cent in 2013-14(BE) from 28.1 per cent in 2012-13 (RE).
• The gross fiscal deficit in 2013-14 would continue to be largely financed by market borrowings.

2. Developments in India's Balance of Payments during Third Quarter (October-December) of 2012-13

This article provides details on developments in India's balance of payments during October-December 2012 (Q3 of 2012-13) and (ii) during April-December 2012-13.

Main Findings:

The stress witnessed in the current account of India’s BoP during July-September 2012 intensified further in Q3 of 2012-13 as high trade deficit coupled with lower invisible earnings resulted in current account deficit widening to highest ever level. Capital inflows witnessed improvement as foreign portfolio investments and loans availed by banks and Indian corporate sectors picked up during the quarter which led to a marginal net accretion to foreign exchange reserves. Major developments of BoP during third quarter of 2012-13 are set out below.

• India’s current account deficit (CAD) as a percent of GDP deteriorated further to an all time high of 6.7 per cent in Q3 of 2012-13 on account of widening trade deficit and decline in net invisibles.
• On a BoP basis, merchandise exports did not show any significant growth in Q3 of 2012-13, while imports grew at a rate of 9.4 per cent, spurred largely by oil and gold imports which led to a trade deficit of US$ 59.6 billion during the quarter.
• However, with the surge in capital inflows, CAD during the quarter could be fully financed and foreign exchange reserves on BoP basis increased by 0.8 billion. The surge was mainly in the form of foreign portfolio investment which rose to US$ 8.6 billion and loans availed during the period.
• During April-December 2012-13, India’s BoP deteriorated as trade deficit widened and invisibles remained sluggish. However, with improvement in capital inflows, as foreign portfolio investments, NRI Deposits and trade credits availed by Indian importers picked up, CAD could be fully financed and there has been marginal net accretion to foreign exchange reserve to the tune of US$ 1.1 billion.

3. Inflation Expectations Survey of Households: 2012-13

The Reserve Bank’s quarterly Inflation Expectations Survey of Households (IESH) captures the inflation expectations of 5,000 urban households across 16 cities for the next three-month period and for the next one-year period. This article analyses the changes in inflation perceptions and expectations of households in recent times, especially focussing on the four quarters Q1:2012-13 to Q4:2012-13. The results of the survey are based on replies of the respondents and do not necessarily reflect the perceptions of the Reserve Bank of India.

Main Findings:

• The three-month ahead and one-year ahead mean and median inflation expectations of households decreased in Q4:2012-13 as compared with the other quarters of 2012-13. However, inflation expectations remained higher than current inflation perceptions.
• During the period Q1:2012-13 to Q4:2012-13, about 98 per cent of respondents expected increase in general prices for both three-month ahead and one-year ahead periods. However, the proportion of respondents expecting general price increase at more than current rate in both the periods decreased from 73.3 per cent in Q1: 2012-13 to 59.3 per cent in Q4:2012-13.
• On an average, double-digit inflation expectations persisted throughout the financial year. However, the percentage of respondents perceiving current inflation and expecting future inflation in double digits has declined over the quarters.

4. Finances of Non-Government Non-Financial Public Limited Companies: 2011-12

The article analyses the financial performance of select 3,041 non-government non-financial (NGNF) public limited companies during the financial year 2011-12, based on their audited annual accounts. It also draws a comparative picture over the five year period from 2007-08 to 2011-12 based on the previous studies on public limited companies published earlier.

Main Findings:

• Sales growth moderated during 2011-12. Growth in operating expenses also moderated but was relatively higher than that in value of production. This led to a fall in profits viz.,Earnings before Interest, Taxes, Depreciation and Amortisation (EBITDA) and net profit (PAT). Moreover, EBITDA margin moderated to the lowest level in the last five years.
• The moderation in growth of sales was steeper in the services sector than in the manufacturing sector. However, the fall in EBITDA was better contained in the services sector.
• Slower business activity in 2011-12 was also reflected in the lowest growth in total net assets, at the aggregate level, in the last five years. Growth in net worth and incremental sources and uses of funds during 2011-12 was lower as compared with 2010-11.
• Leverage, measured by debt to equity ratio (debt as percentage of net worth) increased in 2011-12 reversing a four year declining trend since 2007-08. The increase in leverage in 2011-12 as compared with 2010-11 was also observed through alternate measures. Debt serviceability in terms of interest coverage ratio showed a decline.

5. Composition and Ownership Pattern of Deposits with Scheduled Commercial Banks: March 2012

The article presents analysis of composition and ownership pattern of deposits with scheduled commercial banks (including regional rural banks) as on March 31, 2012. The changes in composition by type of deposits accounts, population groups and bank groups and ownership across institutional sectors in March 2012 are compared with those in the earlier years.

Main Findings:

• Term deposits continued to dominate other types of deposits. Current, savings and term deposits comprised 10.8 per cent, 25.5 per cent and 63.6 per cent, respectively of total deposits in March 2012.
• Households sector with 58.1 per cent share in total deposits was the largest contributor in total deposits as on March 31, 2012 followed by government and private corporate sector each contributing 14.6 per cent.
• Term deposits remained dominant followed by savings deposits across metropolitan, urban and semi-urban population groups. In respect of rural population group, savings deposits constituted largest share closely followed by term deposits.
• Bank group wise, public sector banks accounted for the largest share (74.6 per cent) in total deposits in March 2012 followed by private sector banks (18.2 per cent). Foreign and regional rural banks accounted for 4.3 per cent and 2.9 per cent of total deposits, respectively.

Sangeeta Das

Director

Press Release : 2012-2013/2069

Fiscal consolidation strategy emphasises revenue-led correction and reprioritisation toward capital expenditure to improve fiscal quality. The Bulletin assesses the Union Budget 2013-14 as pursuing fiscal consolidation through a revenue-led correction and reprioritisation towards capital expenditure while relying on market borrowings; it records a record widening of the current account deficit in Q3 2012-13 driven by trade deficits, though improved capital inflows fully financed the deficit; it reports persistent household inflation expectations, weakened corporate profitability with higher leverage in 2011-12, and deposit composition dominated by term deposits and public sector banks as of March 2012.