The  Annual  Report  of Reserve Bank  of  India  is  eagerly awaited by bankers, economists, academicians, researchers and the members  of the general public every year. The  242-pages  latest Annual  Report of RBI released recently has proved once again  to be a document of immense value which analyses the Indian  economy as a whole, besides dwelling on the working and operations of the Reserve Bank of India and presenting the Reserve Bank’s  accounts for  the year 1999-2000.  Part-1 of the structured  report  deals with  policy environment, real economy, money credit and  prices, government finances, financial  markets, external sector, assessment  and prospects, while Part-II of the report highlights the organisational matters and operations of RBI in terms of  its role  in  commercial  banking,  co-operative  banking, exchange management,  internal  debt management and payment  &  settlement systems. 

The report points out three distinct developments  impacting on domestic economic situation, viz (i), two months’ Kargil conflict creating considerable  pressure  on  government  finances and uncertainty  in financial markets, (ii) economic sanctions imposed  by USA, Japan and some Western countries following Pokhran tests and lastly (iii) the hike in international oil prices inflating oil bill of India.  In this backdrop of external environment, RBI’s  cautious liberalisation  of the external sector through  several  measures like liberalisation of external commercial borrowings and foreign direct investments, permitting knowledge-based sector to  acquire overseas companies  engaged  in  similar  line of activity, permitting  Indian  parties to invest up to US$  50  million  in joint  venture/own subsidiaries abroad without prior approval  of RBI/Government, permitting authorised dealers to provide  forward exchange cover to FIIS to the extent of 15% of their  outstanding equity investments and allowing Indian companies to issue  rights /  bonus shares and non-convertible debentures to  non-residents, helped  acceleration  of  capital flows  during  the  year. The monetary policy of the Reserve Bank, however, was to be tuned  in the  second  phase of the year because of the volatility  in  the foreign exchange market.  It is to RBI’s  credit that  orderly conditions  in the forex markets were restored  through  monetary policy  and  interest  rate mechanism using  mostly  open  market operations  and  money  market  support  to  banks  and  primary dealers. 

The  important  guidelines that have  been  issued  by  the Reserve  Bank  of India and cited in the report  are  of  special attraction.  These are :-

(i) Policy  actions  announcement of RBI on May 25,  2000, to reduce the uncertainty in foreign exchange market;

(ii) The  introduction  of the  liquidity  adjustment  facility effective June 5, 2000; 

(iii) Several  measures undertaken by RBI to further  facilitate deregulation and flexibility in interest rates;

(iv) Guidelines  for entry of banks and  non-banking  financial companies into Indian business; 

(v) Revised  guidelines  to  PSBs  on  setting  up  Settlement Advisory Committees  (SACs)  for  timely and speedier settlement of NPAs;

(vi) Guidelines on asset liability management system; 

(vii) Detailed guidelines for risk management systems in banks; 

(viii) Greater  disclosure  in  the ‘Notes to  Accounts’  in  the balance  sheets  of banks from the accounting  year  ended March 31, 2000

Concerns expressed by RBI In the Annual Report encompass the range  from  unduly high level of NPAs with the  banking  system, greater  accountability  through  adoption  of  disclosures and transparency  practices and corporate governance principles,  RBI promises  its  continued  pursuit  of  risk-based  provision  and preparation  of  setting up of credit information  bureau. Most important  anxiety expressed by RBI is that the  fiscal  position has not been strong enough to share the burden of  macro-economic adjustment. The  fiscal  imbalance of  the  Central  and  State Government,  as reflected in the combined Gross  Fiscal  Deficit, touched  a  high  level of 9.9% of GDP in  1999-2000. RBI  has, therefore,  cautioned  that  any further erosion  of  the  fiscal position  could turn out to be unsustainable. Chapter VII of  the current  Report indicates Real GDP growth for the year  1999-2000 at  6.4%, annual rate of inflation on a point-to-point  basis  at 6.5%  and  the accretion to forex reserves at US $ 5,546  million, with external current account deficit at below 1% of GDP. 

RBI has continued its thrust on monetary management on the twin objectives of pursuing price stability and ensuring adequate availability  of  credit for productive activities in  line  with economic  priorities of the country.  The following remarks  made in the Report sum up the RBI mind on its monetary policy 

”Monetary authorities may announce a nominal anchor such  as inflation target or an exchange rate target, but they would still need  to  have an operational ‘implementation aid’ that  could  be frequently  adjusted. In a strict  sense,  therefore,  monetary policy  cannot  be  predetermined and has to  react  to  evolving conditions and new information flows.”

Presentation of  the Annual  Report especially during  the  last couple of years has been not only immensely informative, but also makes the readers engrossed in unfolding of concepts, opinions and theories through interesting boxes and charts covering a variety of topics. The  Annual Report of RBI should continue to  find  its place of pride in the institutional and individual libraries.