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EXPORTS AND IMPORTS DATA FOR 2011-12
Exports for the period April- Dec 2011 have registered a growth of 25.8%, at US $ 217.6 billion.
During the period AprilDec 2011, the imports were US $ 350.9 billion with a growth of 30.4%
Balance of Trade stood at US $ -133.3 billion, during the same period.
During April-December 2011, the following sectors have done well viz., engineering, (US $ 45.3
billion) which registered the growth of 21.6%; petroleum & oil products, 55% (US $ 43.9 billion);
Gems & Jewellery registered the growth of 38.5% (US $ 33.5 billion); Drugs and pharmaceuticals
21.5% (US $ 9.1 billion US $);leather 25.8% (US $ 3.4 billion) Cotton yarn and fabric made-up
13% (US $ 5.1 billion) ; electronics, 21.1% (US $ 6.7 billion); Readymade garments, 23.7% ( US $
9.6 billion).
As regards to imports during April-December 2011, the growth estimates on the following
sectors are: POL, 40.4% (US $ 105.6 billion); Gold and silver 53.8% (US 45.5 billion),; machinery,
27.7% (US $ 25.8 billion), electronics, 24% (US $ 25.2 billion), fertilizers 35% (US $ 8.2 billion )
and coal 62% (US $ 12.5 billion US $).
As a result of robust imports, Commerce Secretary said he expected the trade deficit for fiscal
2011/12 to rise to about $155-160 billion, in line with forecasts he has made in recent months.
Exports are expected to be close to $300 billion. Last quarter exports are nearly always 10-15
percent higher than all preceding quarters, and this time there will also be the effect of the
nominal exchange rate depreciation
MACROECONOMIC AND MONETARY DEVELOPMENTS: THIRD QUARTER REVIEW 2011-12
The Reserve Bank of India released the Macroeconomic and Monetary Developments Third Quarter
Review 2011-12 on Jan 24, 2012. The following are the highlights of the report.
Overall Outlook
While growth outlook weakens, inflation risks remain
The Growth outlook has weakened as a result of adverse global and domestic factors. However,
inflation and expectations of inflation remain high and upside risks emanate from exchange rate
pass-through, revisions in administered prices and higher-than-expected government revenue
spending. Consequently, monetary actions will need to strike a balance between risks to growth
and inflation.
Growth in 2011-12 is moderating more than was expected earlier. The business climate has
weakened. The slack in investment and net external demand may keep the pace of recovery
slow in 2012-13.
While in the short run, moderating inflation will provide some space for monetary policy to
address growth concerns, in the absence of structural measures to address supply bottlenecks,

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this will be, at best, a temporary respite. In addition, the expansionary fiscal stance has emerged
as an upside risk to inflation.
Global Economic Conditions
Global growth moderates, financial market stress rises
The global economy seems to be headed for another downturn after just three years. The
recovery is likely to lose traction due to the continuing euro area debt crisis. As fiscal austerity
progresses, the euro area could enter into a recession. With growth decelerating even in
emerging and developing economies (EDEs), the spillovers from euro area are likely to pull down
global growth.
An adverse feedback loop between bank and sovereign debt brought euro area closer to
contagion across the region. Tightening credit conditions, rising risk premia, deleveraging,
weakening growth in the euro area are keeping global financial markets under stress. Going
forward, further softening in commodity prices on the back of weaker global growth is likely in
2012-13. However, upside risks to the oil price remain, including from recent geo-political
uncertainty.
Indian Economy
Output
Global linkages reinforce domestic factors to slow down economy
Agricultural prospects remain encouraging but moderation is visible in industrial activity and
some services. Industrial slack has emerged as export and domestic demand has decelerated. A
strong co-movement between domestic and global IIP series is observed. The RBI survey shows
significant growth in new orders for some industries, but flat capacity utilisation in Q2 of 2011-
12.
Growth in 2011-12 is likely to moderate to below trend given the external conditions, dampened
investment demand and prevailing high level of inflation. Growth outlook will depend on global
conditions and domestic policy reforms
Aggregate Demand
External and investment demand may drag growth
Growth has been impacted by lower external and investment demand which may also act as a
drag during 2012-13. There has been a sharp decline in planned corporate fixed investment
since H2 of 2010-11 and this trend has accentuated further in Q2 of 2011-12.

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Private consumption continues to moderate. There has been some slackening of corporate sales
growth, reflecting a gradual waning of demand. Available early results for Q3 of 2011-12,
however, indicate healthy sales growth.
The central governments deficit indicators are under duress due to higher subsidies and lower
tax collections. Fiscal slippages during 2011-12 may complicate the task of aggregate demand
management. Fiscal reforms, including the Direct Tax Code and the Goods and Services Tax are,
therefore, needed to contain deficits in 2012-13.
With a widening current account deficit (CAD), larger fiscal spending could affect growth and
stability in the economy. The mounting revenue deficit is already putting fiscal position under
strain and impacting the Governments ability for capital spending. There is need for budgetary
solutions to growing subsidy commitments and to rebalance public spending from consumption
to investment, in order to enhance the potential growth rate of the economy.
External Sector
CAD risks have amplified as capital flows moderate
Current Account Deficit is expected to remain under pressure after having widened sequentially to
3.7 per cent of GDP in Q2 of 2011-12 from 3.4 per cent in Q1 of 2011-12
Early indicators suggest that the current account came under increased pressure during Q3 of
2011-12. Notwithstanding rupee depreciation, exports decelerated but import demand remained
strong, with inelastic demand for oil and rising gold imports. Upward risks to CAD have become
more pronounced with likely moderation of software earnings.
As capital flows also moderated since August 2011, financing pressure on the CAD translated into
exchange rate pressures. Currencies of other EDEs running CAD came under similar pressures.
Following the revival of equity flows in January 2012, exchange rate pressures have reduced
somewhat.
The composition of capital inflows has shifted in favour of debt, with a rise in the proportion of
short-term flows. Vulnerability indicators have weakened moderately, though the net international
investment position has improved. Going forward, there is need to reduce dependence on debt
flows by encouraging renewed equity flows through acceleration of policy reforms aimed at
improving the investment climate
Likely shift in financing pattern of CAD as equity flows turned weak:- Risk aversion in the global
financial markets has slackened the pace of capital flows to India. FDI inflows remained robust
averaging US$ 4.9 billion per month during April-August 2011 but moderated to US$ 3.2 billion per
month during September- November 2011. If the pace of FDI inflows does not pick up once again
and FII equity inflows revert to the decelerating trend, CAD may have to be largely financed through
debt creating flows in the coming quarters. Recent pick up in FII flows has been mainly on account of
investment in debt instruments.

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Monetary and Liquidity Conditions
Monetary growth keeps pace even as money market liquidity tightens
Money market liquidity tightened significantly since November 2011 partly due to dollar
sales by RBI. However, monetary growth has kept pace with projections, on account of a rising
money multiplier. The liquidity stress was handled by the Reserve Bank by injecting liquidity
through open market operations, including repos under the LAF.
Credit growth slowed below the indicative projection due to demand as well as supply side
factors. Demand for credit weakened in response to slack in real activity. Supply also slowed
down with rising risk aversion stemming from deteriorating macroeconomic conditions and
rising non-performing loans.
Monetary policy has been significantly tightened since February 2010 with an effective
increase of 525 bps in policy rates and a 100 bps increase in CRR. Factoring in increased
downside risks to growth and the expected moderation in inflation, the policy rate was kept on
hold in December 2011. The trajectory of the monetary cycle ahead will be shaped by the
evolving growth-inflation dynamics.
Financial Markets
Financial markets come under pressure from global spillovers
Global spillovers and macroeconomic deterioration resulted in pressures on the equity and
currency markets. The sharp depreciation of the rupee during August-December 2011
contributed to a drop in foreign equity inflows which in turn, further weakened the rupee. The
sudden stop in equity inflows also impacted investment financing. The impact was compounded
by poor resource mobilisation in the primary capital market.
The stress in the financial markets was mitigated by policy measures that included infusion of
rupee and dollar liquidity. As a result, the rupee exchange rate appreciated and equity markets
recovered in January 2012. Call money rates have largely remained within the interest rate
corridor and spikes were effectively contained.
Price Situation
Inflation is trending down, but upside risks remains significant
Inflation is moderating led by sharp decline in food inflation and is broadly in line with the 7
per cent projection for March 2012.
Primary food inflation declined sharply reflecting seasonal fall in vegetable prices and high base.
However, as protein inflation continues due to structural demand-supply imbalances, the
decline is expected to be short-lived.

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Inflation in non-food manufactured products remains persistently high, reflecting input cost
pressures, partly resulting from the rupee depreciation that has offset the impact of softer
global prices of some commodities.
Upside risks to inflation persist from insufficient supply responses, exchange rate pass-through,
suppressed inflation and an expansionary fiscal stance.
REVIEW OF MONETARY POLICY BY RBI Jan 24,2012
1. Based on an assessment of the current macroeconomic situation, we have decided to:
a. Cut the cash reserve ratio (CRR) of scheduled banks by 50 basis points from 6.0 per cent to
5.5 per cent of their net demand and time liabilities (NDTL). This will be effective the
fortnight beginning January 28, 2012. This reduction in the CRR will inject around ` 320
billion of primary liquidity into the system.
2. There is no change in the policy interest rate. Accordingly, the repo rate under the liquidity
adjustment facility (LAF) remains at 8.5 per cent.
3. Consequently, the reverse repo rate under the LAF, determined with a spread of 100 basis point
below the repo rate, will continue at 7.5 per cent, and the marginal standing facility (MSF) rate,
determined with a spread of 100 bps above the repo rate, at 9.5 per cent.
Considerations Behind the Policy Move
Three major considerations why RBI reduced the CRR
1. First, growth is decelerating. This reflects the combined impact of several factors: the uncertain
global environment, the cumulative impact of past monetary policy tightening and domestic policy
uncertainties. While some slowdown in the growth of demand was the expected outcome of our
earlier monetary policy actions to contain inflation, at this juncture, risk to growth has increased.
2. Second, even as headline WPI inflation is moderating, it is coming largely from a sharp deceleration
in prices of seasonal food items. In respect of other key components, particularly protein-based
food items and non-food manufactured products, inflation remains high. Moreover, there are
upside risks to inflation from global crude oil prices, the lingering impact of rupee depreciation, and
slippage in the fiscal deficit.
3. The third consideration that informed our decision is that liquidity conditions have remained tight
beyond the comfort zone of the Reserve Bank. Although the Reserve Bank has conducted open
market operations, and injected liquidity of over Rs. 700 billion, the structural deficit in the system
has increased significantly. This could hurt credit flow to productive sectors of the economy. The
large structural deficit in the system presented a strong case for injecting permanent primary
liquidity into the system.
Guidance

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1. In reducing the CRR, the Reserve Bank has attempted to address the structural pressures on liquidity
in a way that is not inconsistent with the prevailing monetary stance.
2. Based on the current inflation trajectory, including the fact that there is considerable suppressed
inflation, it is premature to begin reducing the policy rate. The reduction in the policy rate will be
conditioned by signs of a sustainable moderation in inflation. At the same time, the persistence of
tight liquidity conditions could disrupt credit flow, and further exacerbate growth risks. In this
context, the CRR is the most effective instrument for permanent liquidity injection over a sustained
period of time. The CRR reduction can also be viewed as a reinforcement of the guidance that the
interest rate cycle has peaked and that future rate actions will be towards lowering the policy
interest rate.
3. The timing and magnitude of future rate actions will depend on a number of factors. Policy and
administrative actions, which encourage investment that will help ease supply constraints in food
and infrastructure, are critical. Initiatives to narrow skill mismatches in labour markets will help ease
the pressure on wages. The anticipated fiscal slippage, which is caused largely by high levels of
consumption spending by the government, poses a significant threat to both inflation management,
and more broadly, to macroeconomic stability.
Expected Outcomes of Policy Action
First, liquidity conditions will ease.
Second, downside risks to growth will be mitigated.
Finally, medium-term inflation expectations will remain anchored on the basis of a credible
commitment to low and stable inflation.
Global and Domestic Developments
RBIs policy decision has been based on a detailed assessment of both the global and domestic
macroeconomic developments.
Global Economy
1. Since the Reserve Banks October Review, there have been significant changes in the global
scenario.
2. On the one hand, concerns over the sustainability of sovereign debt problem in the euro area have
intensified.
3. On the other, there are modest signs of improvement in the US.
4. In the emerging and developing economies (EDEs), growth has been moderating, reflecting the
sluggishness in the advanced economies and the impact of earlier monetary tightening.
5. Overall, notwithstanding the signs of recovery in the US, global growth prospects have weakened
since the October Review. In September last year, IMF projected that global growth during 2012
would be 4 per cent. RBI now expects it to be lower.

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Indian Economy
1. Moving on to the domestic economy, real GDP growth moderated from 7.7 per cent in the first
quarter of 2011-12 to 6.9 per cent in the second quarter. This was mainly due to deceleration in
industrial growth, while the services sector held up relatively well. GDP growth in the first half of
2011-12 slowed to 7.3 per cent, down from 8.6 per cent in the first half of last year.
2. On the demand side, the contraction in fixed capital formation in the second quarter was the main
factor behind the slowdown in growth. This pattern, should it persist, will hurt medium-term growth
prospects, further aggravate inflationary pressures, and threaten external and internal stability.
3. The global environment is only partly responsible for the weak industrial performance and sluggish
investment activity; several domestic factors the unhealthy fiscal situation, high interest rates and
policy and administrative uncertainty are also playing a role.
4. In its October 2011 Review, the Reserve Bank projected GDP growth of 7.6 per cent for 2011-12,
though with significant downside risks. These downside risks have since materialised. Accordingly,
the baseline projection of GDP growth for this year is revised downwards from 7.6 per cent to 7.0
per cent.
Inflation
Inflation is beginning to moderate as projected despite the significant depreciation of the rupee.
Headline WPI inflation, which averaged 9.7 per cent (y-o-y) during April-October 2011, moderated
to 9.1 per cent in November and further to 7.5 per cent in December.
The higher than expected deceleration in food inflation has provided some relief. In particular, food
articles inflation has come down sharply from 8.5 per cent in November to 0.7 per cent in
December. The prices of vegetables have had a big role in this sharp decline. If we exclude
vegetables, the decline in food articles inflation is modest - from 8.0 per cent in November to only
7.1 per cent in December. We should also note that inflation in protein items eggs, fish and meat,
milk and pulses remains high, evidencing the structural component of food inflation.
Non-food manufactured products inflation continues to remain elevated and well above the
comfort zone. While indicators of pricing power suggest that the moderating trend will continue,
upside risks remain significant. The momentum indicator of non-food manufactured products
inflation is yet to show a discernible downward trend. Accordingly, while the Reserve Banks policy
stance has to become more sensitive to growth risks, it also needs to guard against persistent
inflation risks.
Keeping in view the expected moderation in non-food manufactured products inflation, domestic
supply factors and global trends in commodity prices, the baseline projection for WPI inflation for
March 2012 is retained at 7 per cent as set out in our October Review.
Forex Market Developments
Developments in the foreign exchange market, which remained under pressure in the third quarter of
2011-12, reflected adverse global sentiments and moderation in capital inflows. The Reserve Bank took

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a number of steps to stimulate capital inflows and curb speculation, besides also intervening in the
market, consistent with our policy of containing volatility and preventing disruptive movements. The
Reserve Bank continues to closely monitor developments in the external sector and their impact on the
exchange rate. We will take action, as and when appropriate.
Risk Factors
The risks to our projections of growth and inflation for 2011-12 are:-
1. first, sovereign debt concerns in the euro area pose a major downside risk to the overall growth
outlook.
2. the second major risk emanates from the slowdown of capital flows in the face of a widening
current account deficit.
3. third, global energy prices continue to pose a risk to growth and inflation due to geo-political factors
and the global macroeconomic situation.
4. fourth on our list of risks is that there are signals of increasing risk aversion by banks, which could
adversely affect credit flow to productive sectors of the economy.
5. fifth, inflation in respect of protein-based items remains high due to structural imbalances. In the
absence of appropriate supply responses, risk to food inflation will continue to be on the upside.
6. Next, there is a large element of suppressed inflation as domestic prices of some administered
products do not reflect the underlying market conditions. Revision in domestic administered prices
will add to inflationary pressures, although such revisions are necessary to maintain the balance
between supply and demand.
7. finally, the fiscal deficit of the government could potentially crowd out credit to the private sector.
Moreover, slippage in the fiscal deficit has been adding to inflationary pressures and it continues to
be a risk for inflation.
Growth in direct tax collections drops to 8.3 per cent
India's annual growth in net direct tax collections slowed to 8.3% in the first nine months of the
fiscal, deepening concerns that the government will miss its revenue targets.
Net direct tax collections had grown at 9% between April and November. Data released by the
Central Board of Direct Taxes showed a mop up of Rs 3,23,955 crore between April and December
2011, up from Rs 2,98,957 crore in the year-ago period.
Growth in gross direct tax collections also slackened to 14.5% during the period, reflecting a fall in
tax buoyancy as the economy slows down.
A slowing growth in direct taxes collection implies that the government could miss the budget target
of Rs 5.33 lakh crore by about Rs 20,000 crore, said an income tax department official. Experts are
also sceptical about the Centre's ability to meet the budget estimate.
Indirect tax collection on target despite ups & downs in growth

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The government seems on course to achieve, or even exceed marginally, its indirect taxes
collections target for the current financial year despite the economic slowdown.
With a quarter to go, indirect tax collections have touched 72% of the budgeted Rs 3.97 lakh crore
for the current fiscal, data released by the government on Tuesday showed.
During April-December, the Customs collection was Rs 1,12,670 crore, up 13.8% year-on-year. S K
Goel, chairman, Central Board of Excise and Customs said a tightened administration and focussed
audits had contributed to the rise in collections. Small businesses have started paying the levy...Also,
businesses that have exhausted their CENVAT credit had begun to pay in cash.
Excise collection was Rs 1,05,411 crore in the first three quarters. Service tax collection was Rs 9,665
crore in December and Rs 67,706 crore during April-December. The CBEC chief said that the
extension of date to file service tax to January 6 has helped in increasing the collection of levy. He
indicated that the deadline for service tax return may be further extended.
Fiscal deficit may be more than projected: FM
Finance Minister Pranab Mukherjee today said the fiscal deficit for 2011-12 could be more than the
projected figure. Observing that Indias fiscal deficit rose to 6.5 per cent in 2008-09 due to the global
financial crisis, he said in 2009-10 it was brought to 4.5 per cent.
But unfortunately, the fiscal deficit may be more in 2011-12 than projected. In the Budget, the
fiscal deficit is projected at 4.6 per cent of the (gross domestic product) GDP. Fiscal deficit is the
difference between the total expenditure and the total revenue.
India's fiscal deficit for the first eight months of the financial year ballooned to 3.53 trillion rupees,
or nearly 86 percent of the full-year target, reinforcing expectations the government will be forced
to tap the bond market for additional borrowing.
Many private economists see the deficit for the year overshooting by a full percentage point on
slowing growth and weak federal finances. India has acknowledged that meeting the fiscal gap
target would be a "great challenge", but officials said they would try to keep the deficit under 5
percent of GDP by pruning expenditure.