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ANNUAL REPORT 2011-12
PART - I
POLICIES AND PROGRAMME
I.1 GENERAL ECONOMIC ENVIRONMENT
I.1.1 The Indian economy grew at the rate of 6.5 per
cent in 2011-12. It is the lowest growth rate achieved
in the past nine year period. Such dismal growth was
preceded by two successive years of robust growth of
8.4 per cent. The slowdown in economy was refl ected
across all sectors of the Indian economy, but the
weakest performance was reported in the industrial
sector. During 2011-12, the agricultural sector grew at
the rate of 2.8 per cent, substantially lower than the
growth of 7.0 per cent recorded in the previous year.
The year 2010-11 saw simultaneous occurrence of a
normal and well distributed south-west monsoon as
also an excess north-east monsoon, which was not
observed in the last decade. The north-east monsoon
witnessed a deficit by 48 per cent in 2011-12, although
the south-west monsoon remained normal during
2011-12. With this the production level of foodgrains
stood at 257.4 million tonnes in 2011-12 (244.8 million
tonnes in 2010-11).
I.1.2 The industrial sector reported a growth rate of
2.6 per cent during 2011-12, as compared to 6.8 per
cent of previous year and an average growth rate of
6.3 per cent in the last fi ve years. The slowdown in
industrial production appeared to be across all subsectors
except electricity leading to the slowdown in
overall growth of the economy during 2011-12. Various
macro-economic factors, such as, the moderation in
demand (both domestic and external), hardening of
interest rates, slowdown in consumption expenditure,
especially in interest rate sensitive commodities,
subdued business confi dence and global economic
uncertainty contributed to the weakening of Indian
economy.
I.1.3 The services sector, the main contributor of
India’s success story in recent years, reported slower
growth of 8.5 per cent compared to 9.2 per cent growth
achieved in the previous year. The deceleration in
services sector appeared to be on account of both
weakening demand as well as inter-linkages with the
industrial sector. The savings and investment rates
continued to decline. The average savings rate has
witnessed consistent decline since 2008-09, led by a
sharp decline in public sector savings rate, which was
not offset by private savings. As per the preliminary
estimates of RBI, the net fi nancial savings of the
household sector reduced to 7.8 per cent of GDP in
2011-12 from 9.3 per cent in the previous year and
12.2 per cent in 2009-10. This moderation in the net
fi nancial savings rate of the household sector during
the year mainly refl ected an absolute decline in small
savings and slower growth in households’ holdings of
bank deposits, currency as well as life funds.
Furthermore, with real interest rates on bank deposits
and instruments such as small savings remaining
relatively low on account of the persistent high inflation,
and the stock market adversely impacted by global
developments, households seemed to have favored
investment in valuables such as gold, which impacted
the pace of their investment in physical assets such
as housing in 2011-12 (RBI Annual Report, 2011-12).
I.1.4 The headline infl ation rate continued to rule at
high levels. It remained high at 9.6 per cent and 8.9
per cent during 2010-11 and 2011-12 respectively, as
measured through annual average Wholesale Price
Index (WPI). These levels appeared to be very high
as compared to the same for the average of last 10
years (2000-01 to 2009-10), which remained at a
substantially low level at 5.4 per cent. Due to high
infl ation rate, Reserve Bank continued its stance of
high interest rates. Comparatively, interest rates
hovered at higher levels in 2011-12, as compared to
2010-11. The average Call Money rate stood at 8.2
per cent in 2011-12 compared to 5.8 per cent in the
previous year. The yield on 10-year Government
Securities hovered at around 8.4 per cent in 2011-12,
higher from the 7.9 per cent of previous year. The
weighted average interest rate on Central Government
Borrowings went up from 7.9 per cent in 2010-11 to
8.5 per cent in 2011-12.
I.1.5 The benchmark defi cit indicators widened in
2011-12 on account of many external and domestic
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