The Annual Report of Reserve Bank of India is eagerly awaited by bankers, economists, academicians, researchers and the members of the general public every year. The 242-pages latest Annual Report of RBI released recently has proved once again to be a document of immense value which analyses the Indian economy as a whole, besides dwelling on the working and operations of the Reserve Bank of India and presenting the Reserve Bank’s accounts for the year 1999-2000. Part-1 of the structured report deals with policy environment, real economy, money credit and prices, government finances, financial markets, external sector, assessment and prospects, while Part-II of the report highlights the organisational matters and operations of RBI in terms of its role in commercial banking, co-operative banking, exchange management, internal debt management and payment & settlement systems.
The report points out three distinct developments impacting on domestic economic situation, viz (i), two months’ Kargil conflict creating considerable pressure on government finances and uncertainty in financial markets, (ii) economic sanctions imposed by USA, Japan and some Western countries following Pokhran tests and lastly (iii) the hike in international oil prices inflating oil bill of India. In this backdrop of external environment, RBI’s cautious liberalisation of the external sector through several measures like liberalisation of external commercial borrowings and foreign direct investments, permitting knowledge-based sector to acquire overseas companies engaged in similar line of activity, permitting Indian parties to invest up to US$ 50 million in joint venture/own subsidiaries abroad without prior approval of RBI/Government, permitting authorised dealers to provide forward exchange cover to FIIS to the extent of 15% of their outstanding equity investments and allowing Indian companies to issue rights / bonus shares and non-convertible debentures to non-residents, helped acceleration of capital flows during the year. The monetary policy of the Reserve Bank, however, was to be tuned in the second phase of the year because of the volatility in the foreign exchange market. It is to RBI’s credit that orderly conditions in the forex markets were restored through monetary policy and interest rate mechanism using mostly open market operations and money market support to banks and primary dealers.
The important guidelines that have been issued by the Reserve Bank of India and cited in the report are of special attraction. These are :-
(i) Policy actions announcement of RBI on May 25, 2000, to reduce the uncertainty in foreign exchange market;
(ii) The introduction of the liquidity adjustment facility effective June 5, 2000;
(iii) Several measures undertaken by RBI to further facilitate deregulation and flexibility in interest rates;
(iv) Guidelines for entry of banks and non-banking financial companies into Indian business;
(v) Revised guidelines to PSBs on setting up Settlement Advisory Committees (SACs) for timely and speedier settlement of NPAs;
(vi) Guidelines on asset liability management system;
(vii) Detailed guidelines for risk management systems in banks;
(viii) Greater disclosure in the ‘Notes to Accounts’ in the balance sheets of banks from the accounting year ended March 31, 2000
Concerns expressed by RBI In the Annual Report encompass the range from unduly high level of NPAs with the banking system, greater accountability through adoption of disclosures and transparency practices and corporate governance principles, RBI promises its continued pursuit of risk-based provision and preparation of setting up of credit information bureau. Most important anxiety expressed by RBI is that the fiscal position has not been strong enough to share the burden of macro-economic adjustment. The fiscal imbalance of the Central and State Government, as reflected in the combined Gross Fiscal Deficit, touched a high level of 9.9% of GDP in 1999-2000. RBI has, therefore, cautioned that any further erosion of the fiscal position could turn out to be unsustainable. Chapter VII of the current Report indicates Real GDP growth for the year 1999-2000 at 6.4%, annual rate of inflation on a point-to-point basis at 6.5% and the accretion to forex reserves at US $ 5,546 million, with external current account deficit at below 1% of GDP.
RBI has continued its thrust on monetary management on the twin objectives of pursuing price stability and ensuring adequate availability of credit for productive activities in line with economic priorities of the country. The following remarks made in the Report sum up the RBI mind on its monetary policy
”Monetary authorities may announce a nominal anchor such as inflation target or an exchange rate target, but they would still need to have an operational ‘implementation aid’ that could be frequently adjusted. In a strict sense, therefore, monetary policy cannot be predetermined and has to react to evolving conditions and new information flows.”
of the Annual Report especially during the last
couple of years has been not only immensely informative, but also makes
the readers engrossed in unfolding of concepts, opinions and theories through
interesting boxes and charts covering a variety of topics. The Annual
Report of RBI should continue to find its place of pride in
the institutional and individual libraries.