annual report 2008-09 - IRDA

ANNUAL REPORT 2008-09
PART I
POLICIES AND PROGRAMMES
A. GENERAL ECONOMIC ENVIRONMENT
The global economic conditions in 2008-09 remained
very weak, largely on account of financial meltdown
in many developed as well as developing countries,
especially in the later part of the year. The impact of
the crisis was deep and prolonged in the developed
economies on account of their direct exposure to subprime
assets and other exotic financial instruments.
India along with China, appeared to be relatively less
affected by the financial shocks. In India, several
conventional and un-conventional measures were
taken during 2008-09 by the Government of India and
Reserve Bank of India to lessen the impact of the
financial shock. The Indian economy, however,
remained on the positive growth track, in all the
quarters of the year though at lower levels. The affect
was milder because of strong banking system and
lower exposure to the tainted assets. The volatility in
the markets was seen to be largely short-term because
of suitable measures taken at the appropriate time.
The gross domestic product at factor cost (at constant
prices) decelerated to 6.7 per cent in the year 2008-
09, lower by 2.1 percentage points from the 5-year
average growth rate of 8.8 per cent. The fall in GDP
was mostly in the third quarter at 5.8 per cent. Across
the sectors, only two sectors, viz. “mining and
quarrying”, and “community, social and personal
services” witnessed a higher growth rate as compared
to their respective growth rates in the previous year.
Agriculture and allied activities grew by a mere 1.6
per cent, as against 4.6 per cent in the previous year.
Manufacturing, electricity and construction sectors
recorded lower growth rates of 2.4 (previous year 8.2),
3.4 (previous year 5.3) and 7.2 (previous year 10.1)
per cent respectively. The industrial growth measured
in terms of increase in IIP, was at around 2.4 per cent
as against 8.5 per cent recorded in the previous year.
As per latest estimates released by CSO, the gross
domestic capital formation (GDCF) continued to rise
and stood at 39.1 per cent of the GDP in 2007-08, as
against 25.2 per cent in 2002-03. This was mainly
because of rise in the rate of investment in the
corporate sector. The gross domestic savings as a
percentage of GDP at current market prices surged
further to 37.7 per cent in 2007-08 as against 29.8
per cent in 2003-04. As per the preliminary estimates
of RBI, the net financial saving of the household sector
in 2008-09 is 10.9 per cent of GDP at current market
prices, is lower than 11.5 per cent in 2007-08. Decline
in the household investments in shares and
debentures was the main factor responsible for the
lower household financial saving in 2008-09.
Household saving in other instruments, viz., currency,
deposits, contractual instruments and claims on
government, however, remained broadly stable during
the year.
Inflation pressures across the globe, which began to
firm up during the second half of 2007-08, magnified
during the first half of 2008-09. The inflation
environment remained highly volatile during 2008-09;
WPI inflation rose to a high of 12.9 per cent in August
2008 and sharply declined thereafter and recorded
below 1 per cent by the end March 2009. The average
(52 weeks) WPI inflation for 2008-09 was 8.3 per cent
as against 4.7 per cent in 2007-08. Amongst the major
commodity groups, primary articles inflation year on
year, increased from 9.7 per cent at end-March 2008
to a peak of 12.7 per cent on November 15, 2008.
This mainly reflected in the increase of prices of food
articles as well as non-food articles. Primary articles
inflation eased substantially starting from January
2009 and reached 5.2 per cent as on March 28, 2009
as prices declined for food articles, especially
vegetables and fruits. Various measures of consumer
price inflation remained high in the range of 8.0-9.7
per cent in March 2009 as compared with 6.0-7.9 per
cent in March 2008. The CPI inflation was higher
compared to WPI inflation.
The contagion from the global crises enhanced
volatility in the Indian financial markets, in particular,
the foreign exchange market, the capital market and
the money market. RBI and SEBI have taken
appropriate measures to strengthen the financial
markets to ensure market safety and towards
safeguarding the interests of the investors. The direct
impact of the sub-prime crises on Indian banks /
financial institutions was negligible until mid
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