A PRESENTATION BY VIMAL PRAKASH RENJITH VIJAYAN SARAVANAN SHIVANATH BADRI NARAYAN

Monetary Measures

On the basis of the current macroeconomic assessment, it has been decided to: Keep the cash reserve ratio (CRR) unchanged at 6 per cent Keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 8.5 per cent. Consequently, the reverse repo rate under the LAF will remain unchanged at 7.5 per cent and the marginal standing facility (MSF) rate at 9.5 per cent.

y Domestic economy

Growth GDP growth moderated to 6.9 per cent in Q2 of 2011-12 from 7.7 per cent in Q1 and 8.8 per cent in the corresponding quarter a year ago. y The deceleration in economic activity in Q2 was mainly on account of a sharp moderation in industrial growth.

y On the expenditure side, investment showed a

significant slowdown. y Overall, during the first half (April-September) of 2011-12, GDP growth slowed down to 7.3 per cent from 8.6 per cent last year. y Corporate margins in Q2 of 2011-12 moderated significantly as compared with their levels in Q1. The decline in margins was largely on account of higher input and interest costs. y Pricing power is evidently declining.

y Yields on government securities are likely to fall

further in the coming weeks due to the announcement of liquidity-easing measures by the Reserve Bank in its mid-term policy review last Friday, bank officials say. y Other treasury officials said though yields will ease, they will not ease to a great extent, as the market has already factored in the positives of the monetary policy announcement.

y The government's borrowing programme will largely

determine the yields on government bonds. y The government said it would borrow an additional Rs 53,000 crore from the market over-and-above the Rs 4.17 lakh crore estimated earlier, which will translate into a higher flow of government securities for subscription during this period.

y The rupee slipped to sub-54 level for the first time in

its history in early trade against dollar, but staged a smart recovery, possibly on RBI's intervention, to settle seven paise higher at 53.64/65 after a highly volatile trade. y The local currency swung wildly between 54.30 and 53.64, after slipping to sub 54-level in the opening trade itself at the Inter-bank Foreign Exchange here.

y In tune with the fag-end recovery in the equity

markets, the rupee reversed the trend to break the seven-day long losing streak on the back of sudden selling of dollars from banks and exporters. y Rupee has slided in early trade owing to weak IIP(Index of Industrial Production) numbers and high current account deficit in the economy.

y Rupee was also impacted by growing worries of

slowdown in economic growth,

y widening fiscal deficit and y current account deficit on domestic front, and y lingering euro zone crisis which has strengthened the

dollar in overseas markets.

y A near five per cent drop in gold prices in the global

market dragged the yellow metal three per cent in the domestic market. y Standard gold (99.5 per cent purity) that is used in making jewellery dropped by Rs 775 to Rs 27,685 for 10 gm. y In the global market, gold initially gained $1.40 in the US at $1,588.30 as the euro strengthened but then nosedived to $1,578.

y The crash in the bullion market led to panic sales by

stockists here. y With gold price falling below 200 day moving average, it could slip further. y Deliverable ratio on the NSE for Gold BEES jumped 52 per cent against 44 per cent, signaling more genuine buyers.

y It is believed that, in 2012, of all metals gold will be the

worst performing.

y Reflecting uncertainty in the economy, the third

advance corporate tax paid by the top 100 Mumbaibased companies for this fiscal has remained almost flat.

y It was a mixed bag for the banking sector, oil

companies were the worst performers and cement makers sprung a surprise. y At the current pace, it is unlikely that the tax department will be able to meet the revised direct collection target of Rs 5.85 lakh crore against Rs 4.46 lakh crore achieved for FY11. y Oil marketing company HPCL, which paid a tax of Rs 107 crore last year, has skipped payment this time around.

y Reason:

The slowdown in credit off take on the back of rising interest rate and rise in loans under stress has hit the banking sector's performance. y The country's largest public sector bank SBI's payment was lower by eight per cent at Rs 1,700 crore (Rs 1,850 crore), while private sector major ICICI's remained flat at Rs 450 crore.

y Bank of India's payout was lower at Rs 100 crore (Rs 150

crore), while Union Bank's was down 37 per cent at Rs 220 crore (Rs 350 crore). Central Bank tax outgo was down 44 per cent at Rs 100 crore (Rs 180 crore). y Advance tax payment is a clear reflection of the health of a company in particular and the economy in general and a lower payout indicates their lower profitability.

y Companies pay advance taxes in four installments. In

the current quarter, they are bound to pay up 30% of their annual tax liability. y Oil companies normally do not pay advance taxes in the initial quarters, but in the last quarter, when the government pays them the subsidy compensation.

y The Indian economy is firmly on the recovery path. y Exports have been expanding, a trend that is expected

to continue. y The industrial sector recovery is increasingly becoming broad-based and is expected to take firmer hold going forward on the back of rising domestic and external demand.

y On balance, under the assumption of a

y normal monsoon , y sustenance of good performance of the industrial and

services sectors on the back of rising domestic y external demand, for policy purposes the baseline projection of real GDP growth for 2010-11 is placed at 8.0 per cent with an upside bias and for 2011-12 it is placed at 7.70 per cent with a downside bias.