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RBI (Reserve Bank of India): Annual Policy Statement for the Year 2010-11

20 April, 2010

- By Dr. D. Subbarao, Governor of RBI

1. The Monetary Policy for 2010-11 is set against a rather complex economic backdrop. Although the situation is more reassuring than it was a quarter ago, uncertainty about the shape and pace of global recovery persists. Private spending in advanced economies continues to be constrained and inflation remains generally subdued making it likely that fiscal and monetary stimuli in these economies will continue for an extended period. Emerging market economies (EMEs) are significantly ahead on the recovery curve, but some of them are also facing inflationary pressures.

2. India’s growth-inflation dynamics are in contrast to the overall global scenario. The economy is recovering rapidly from the growth slowdown but inflationary pressures, which were triggered by supply side factors, are now developing into a wider inflationary process. As the domestic balance of risks shifts from growth slowdown to inflation, our policy stance must recognise and respond to this transition. While global policy co-ordination was critical in dealing with a worldwide crisis, the exit process will necessarily be differentiated on the basis of the macroeconomic condition in each country. India’s rapid turnaround after the crisis induced slowdown evidences the resilience of our economy and our financial sector. However, this should not divert us from the need to bring back into focus the twin challenges of macroeconomic stability and financial sector development.

3. This statement is organised in two parts. Part A covers Monetary Policy and is divided into four Sections: Section I provides an overview of global and domestic macroeconomic developments; Section II sets out the outlook and projections for growth, inflation and monetary aggregates; Section III explains the stance of monetary policy; and Section IV specifies the monetary measures.Part B covers Developmental and Regulatory Policies and is organised into six sections: Financial Stability (Section I), Interest Rate Policy (Section II), Financial Markets (Section III), Credit Delivery and Financial Inclusion (Section IV), Regulatory and Supervisory Measures for Commercial Banks (Section V) and Institutional Developments (Section VI).

4. Part A of this Statement should be read and understood together with the detailed review in Macroeconomic and Monetary Developments released yesterday by the Reserve Bank.

Please click here for the Full Text: RBI Annual Policy Statement for 2010-11

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Notes from Indian Budget 2010-11

27 Feb 2010

The Union Budget was released amidst a lot of expectations from the industry.

Highlights of Budget 2010-11

* Rs 16,500 crore has been provided to ensure that Public Sector Banks are able to attain a minimum 8% Tier-I capital by March 31, 2011

Rs 1,73,552 crore has been provided for infrastructure development, which accounts for over 46% of the total plan allocation. Allocation for road transport has been increased by over 13% from Rs 17,520 crore to Rs 19,894 crore

* Plan allocation for the power sector excluding Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) doubled from Rs 2,230 crore in 2009-10 to Rs 5,130 crore in 2010-11

* The Plan and Non-Plan expenditures in BE 2010-11 are estimated at Rs 3,73,092 crore and Rs 7,35,657 crore, respectively. While there is a 15% increase in Plan expenditure, the increase in Non-Plan expenditure is only 6% over the BE of the previous year Fiscal deficit for BE 2010-11 has been estimated at 5.5% of GDP, which works out to Rs 3,81,408 crore

Direct Taxes

* Income tax slabs for individual taxpayers to be as follows

Income up to Rs 1.6 lakh – Nil
Income above Rs 1.6 lakh and up to Rs 5 lakh – 10%
Income above Rs 5 lakh and up to Rs 8 lakh – 20%
Income above Rs 8 lakh – 30%

* Deduction of an additional amount of Rs 20,000 allowed, over and above the existing limit of Rs 1 lakh on tax savings, for investment in long-term infrastructure bonds as notified by the Central Government

* Rate of minimum alternate tax (MAT) increased from the current rate of 15% to 18% of book profits

Indirect Taxes

* Rate reduction in central excise duties to be partially rolled back and the standard rate on all non-petroleum products enhanced from 8% to 10% ad valorem

* The specific rates of duty applicable to portland cement and cement clinker has also been adjusted upwards proportionately. Similarly, the ad valorem component of excise duty on large cars, multi-utility vehicles and sports-utility vehicles has been increased by 2 percentage points to 22%

* The basic duty of 5% on crude petroleum, 7.5% on diesel and petrol and 10% on other refined products has been restored. Central excise duty on petrol and diesel has been enhanced by Re 1 per liter each

Overall, we believe the budget is aimed to achieve consumption-driven growth, but it is inflationary, and the government will have to really work hard to ensure that the consumption SOPs offered to the middle class do not crush the poorer sections of the society. Controlling food price inflation is a must.