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ANNUAL REPORT 2007-08

08 continued to cushion the impact of widening of merchandise trade deficit. As a result the current account deficit, as proportion of GDP was 1.5 per cent in 2007-08 higher than that of last year at 1.1 per cent. Favourable domestic financial and economic conditions, further liberalisation of capital account, sustained growth momentum of India resulted in a surge of capital inflows to India during 2007-08. The net capital flows (inflows minus outflows) at US Dollar 108 billion constituted 9.2 per cent of GDP in 2007-08 and was 2.4 times higher than that of 2006-07. India emerged as second most favoured FDI destination after China. Net FDI flows amounted to US Dollar 15.5 billion in 2007-08 as compared with US Dollar 8.5 billion in 2006-07. Most of FDI flows were in the form of equity while portfolio flows comprised investments by FIIs. India received external assistance (net) of US Dollar 2.1 billion during 2007-08 as compared with US Dollar 1.8 billion during 2006-07 . India contributed US Dollar 451 million to other countries in the form of grants and loans, with Bhutan, Nepal and Bangladesh being the major beneficiaries

First Quarter Review

The global economy has continued to slow down during 2008 so far mainly due to low growth in advanced economies. According to International Monetary Fund (IMF), the global GDP is expected to decelerate from 5 per cent in 2007 to 4.1 per cent in 2008. Though the growth process in the developing economies has not so far affected, the global financial market turbulence may have an impact in the financial systems and economic activity of the developing countries. Industrial production growth in India duringApril-June 2008 was lower at 5.2 per cent compared with 10.3 per cent recorded in the same period of last year. This was mainly on account of slowdown in the manufacturing growth from 11.1 per cent, a year ago to 5.6 per cent in the current year. The growth in the electricity sector was at 2 per cent compared with 8.3 per cent a year ago. In terms of use-based classification, the slowdown was reflected in all the sectors. The capital goods sector recorded a much lower growth of 6.5 per cent during April-June 2008 from 19.1 per cent observed in April to June 2007. DuringApril-June 2008, the growth of core infrastructure industries was placed at 3.5 per cent as compared with 6.3 per cent a year ago. The overall inflation firmed up in the current financial year to 12.6 per cent on August 9, 2008

reflecting the upward revision in the prices of administered petroleum products, intermittent but sharp increases in the basic metals prices, and primary articles.

The Indian financial market up toAugust 2008 remained largely orderly. Brief spells of volatility were observed in the money market. Interest rates in the collateralized segment of the over night money market remained below the call rate. In the foreign exchange market the Indian rupee depreciated against the US Dollars. Yields in the government securities market hardened. The Indian equity markets witnessed correction amidst high volatility. Growth in merchantised exports accelerated while imports showed moderation during the first quarter of 2007-08. Capital flows have been volatile and net capital inflows during 2008-09 so far were lower than those in the corresponding period of 2007-08 mainly on account of outflows by FIIs. As on August 15, 2008, foreign exchange reserves declined by US Dollar 13.5 billion over the end March 2008 level. Considering all the factors the outlook for the Indian economy is contingent upon unfolding of domestic risks in the wake of global risks. The economic activity in industry and services sector had moderated and the prices of food items heavily depend on agriculture production. Unlike the global economy, the Indian economy is likely to witness a moderation of the growth with increased inflation risks.

B. APPRAISAL OF INSURANCE MARKET

TABLE 1 KEY MARKET INDICATORS

Life and non-life market in India

Rs. 2,29,175 crore

(Total Premium) Global insurance market

US Dollar 54.375 billion* US Dollar 4061 billion

Inflation adjusted growth in total

13.0 per cent

premium in India:

(35.0 per cent in 2006-07)

Growth in premium (world) underwritten 2007-08

Life: 5.4 per cent Non-life: 0.7 per cent

Geographical restriction for

None

new players Equity restriction

Foreign promoter can hold up to 26 per cent of the equity

Registration restriction

Source: Swiss Re

  • *

    US Dollar 40.334 billion in 2006-07

Composite registration not available

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