Annual Report - Bank of Baroda

Management Discussion and Analysis
Economic Scenario in 2010-11
Indian economy witnessed a strong turnaround during 2010-
11 as compared to the previous two years when the economic
growth was below-trend as a result of global financial crisis.
The growth during 2010-11 was contributed by a rebound
in agriculture and sustained levels of activity in industry and
services.
According to the Government of India’s Estimates, Indian
economy grew by 8.5% in 2010-11. Helped by a good monsoon,
agricultural production rebounded in 2010-11 with both kharif
(summer) and rabi (winter) crops turning out to be good.
Foodgrain production, estimated at 235.88 million tonnes was
8.15% higher than that of the previous year. Higher agricultural
growth got translated into better rural incomes and improved
the growth prospects of agro-based industries during the year
under review. While manufacturing sector is estimated to have
grown by 8.3% in 2010-11, the second half of the year saw
some moderation in industrial growth mainly on account of
high base effect. However, the activity in manufacturing sector
became more evenly spread during 2010-11 with fifteen out
of seventeen industries recording positive growth during the
year. According to the Reserve Bank of India’s (RBI) Report
on Macroeconomic and Monetary Developments in 2010-11, a
definite improvement was seen in the capacity utilization rates
and employment generation towards the end of the financial
year 2010-11. Driven by a healthy growth in trade, hotels,
transport & communication and finance, insurance & real estate
etc., even the services sector is estimated to have grown by a
robust 9.0% in 2010-11.
Aggregate demand as measured by aggregate real expenditure
accelerated in 2010-11 with private consumption and investment
expenditure growing at a brisk pace. While private consumption
expenditure grew by 8.2% (y-o-y) in real terms, gross fixed
capital formation as per cent of GDP stood at a healthy 31.6%
during 2010-11. Non-food credit of scheduled commercial banks
(SCBs) grew by 21.4% (y-o-y) this year, as banks are the major
source of finance for the Indian commercial sector.
On the back of strong global recovery, India’s merchandise
exports grew by a robust 37.5% (y-o-y) during 2010-11 to
US $ 245.87 billion surpassing the Government’s indicative
target of US $ 225 billion for the year. Exports had declined by
4.7% in the previous year 2009-10 due to the global financial
meltdown. The robust growth in India’s exports reflects
diversification of products from labour intensive manufacturers
to higher value-added products in engineering & petroleum
sectors and to destinations across emerging markets and
developing economies. India’s merchandise imports rose by
21.6% (y-o-y) to US $ 350.70 billion during 2010-11 resulting
into narrowing of the trade deficit from US $ 109.62 billion in
2009-10 to US $ 104.83 billion. India’s Current Account Deficit
(CAD) that amounted to 3.7% of GDP in H1, 2010-11 moderated
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