annual report 2009-10 - IRDA

ANNUAL REPORT 2009-10PART IPOLICIES AND PROGRAMMES1. GENERAL ECONOMIC ENVIRONMENTI.1.1 The Indian economy exhibited good recovery in2009-10 and recorded a Gross Domestic Product(GDP) growth rate of 7.4 per cent, higher than thegrowth of 6.7 per cent of the previous year. Therecovery was pertinent against the backdrop of theslowdown witnessed in the economy in the latter partof 2008-09. Except agriculture sector, which grew bya mere 0.2 per cent, other sectors of the economyreported positive growth rates. While industrial sectorreported 10.4 per cent growth (3.1 per cent in previousyear), the growth rate for services sector was 8.3 percent (9.3 per cent in previous year). The low growthrate reported in agricultural sector was on account ofdeficiency in the South-West Monsoon, which caused6.9 per cent fall in food production to 218.2 milliontonnes. In spite of a decline in food grains production,the growth rate of GDP from agriculture was positivedue to growth in other areas of agriculture such ashorticulture, livestock, forestry and logging, andfisheries.I.1.2 During 2009-10, the industrial sector witnessed10.4 per cent growth, which was higher than the 9.1per cent annual average growth rate achieved duringthe pre-global financial crisis years, 2003-08. TheIndex of Industrial Production (IIP) clocked a growthof 10.5 per cent during 2009-10 (8.7 per cent during2003-08). The growth was observed in all three subsectorsviz., mining (9.9 per cent), manufacturing (10.9per cent) and electricity (6.0 per cent). On Use-basedclassification of sectors, capital goods andintermediate goods reported a growth of 19.2 per centand 13.6 per cent respectively.I.1.3 The services sector exhibited significantresilience to the contagion from the global crisis.During 2009-10, the services sector’s contribution tothe GDP, registered an 8.3 per cent growth (10.1 percent during pre-crisis years 2003-08). Domesticdemand driven services such as commercial vehiclesales, cell-phone connections, railway traffic andconstruction activity showed higher rate of growth.Services dependent on external demand such astourist arrivals, cargo handled at major ports andpassengers handled at international terminalsrecovered during 2009-10, although it still remainedbelow the pre-crisis levels. In the road sector,construction and widening of national highwayscontinued at a fast pace during 2009-10, while freighttraffic carried by the railways also increased.I.1.4 The growth in Private Final ConsumptionExpenditure (PFCE) moderated to 4.3 per cent in2009-10 (the average for 2003-08 was 7.6 per cent).The moderation reflects the sluggish demand fromthe private sector. With a view to compensating forthe slowdown in PFCE, the Government has resortedto expansionary fiscal measures supported byexpansionary monetary policy by the Reserve Bankof India (RBI). This has resulted in Government FinalConsumption Expenditure (GFCE) nearly doubling at10.5 per cent during 2009-10 (as against five-yearaverage of 5.6 per cent during 2003-08). The increasein GFCE has led to a decline in public sector savingswhich has come down from 5.0 per cent in 2007-08 to1.4 per cent in 2008-09. However, the saving rate ofhousehold sector and private corporates remainedstable at 22.6 per cent and 8.4 per cent respectively(22.6 per cent and 8.7 per cent during 2007-08).I.1.5 During 2009-10, inflation changed its coursesignificantly over two distinct phases. While Year-on-Year Wholesale Price Index (WPI) inflation remainedlow during first half of the year (negative during June-August 2009), it accelerated in the second half to reach11.0 per cent by March, 2010. The base effect of highprices in the first half of 2008-09 contributed to thelow rate of inflation during the first half of 2009-10.The decline in the base effect, along with sharpincrease in prices of food items and oil pricescontributed to the increase in inflation during thesecond half of 2009-10. Lower agricultural productionand increase in oil prices at the international levelswere also the contributory factors. The domestic equitymarkets witnessed a substantial rebound in activitydue to strong domestic recovery and improvedexternal conditions in 2009-10. The benchmarkBombay Stock Exchange (BSE) Sensex closed at17,529 points as on 31 st March, 2010 surpassing 9,709points as on 31 st March, 2009, although stillsignificantly lower than its peak levels. The corporatesector raised `32,607 crore through public issues9