The average price of the Indian basket of international crude increased by 27.6 per cent from US $ 62.4 per barrel during 2006-07 to US $ 79.7 per barrel in 2007-08. Money supply (M3) increased by 20.7 per cent (Rs.6,86,096 crore) in 2007-08 as compared with 21.5 per cent (Rs.5,86,548 crore) in 2006-07.

Reserve money increased by 30.9 per cent (Rs.2,19,326 crore) during 2007-08 as compared with 23.7 per cent (Rs.1,35,935 crore) in the previous year. Aggregate deposits of SCBs increased by 22.2 per cent (Rs.5,80,208 crore) during 2007-08 as compared with 23.8 per cent (Rs.5,02,885 crore) in the previous year.

Non-food credit extended by the scheduled commercial banks (SCBs) increased by 22.3 per cent (Rs.4,19,425 crore) as compared with 28.5 per cent (Rs.4,18,282 crore) in the previous year.

The incremental non-food credit-deposit ratio for the banking system declined to 72.3 per cent during 2007-08 from 83.2 per cent in 2006-07, 109.3 per cent in 2005-06 and 130.0 per cent in 2004-05.

The total flow of funds from SCBs to the commercial sector, including non-SLR investments, increased by 21.9 per cent (Rs.4,31,256 crore) in 2007-08 as against 27.3 per cent (Rs.4,22,363 crore) in 2006-07.

During 2007-08, the financial markets experienced alternating shifts in liquidity conditions.

The total overhang of liquidity as reflected in the balances under the LAF, the MSS and surplus cash balances of the Central Government taken together increased to the intra-year peak of Rs.2,73,694 crore on March 27, 2008 before declining to Rs.2,43,879 crore on April 25, 2008.

Movements in interest rates in the domestic financial markets reflected the factors driving changes in liquidity with the banking system during 2007-08.

The average daily turnover in the foreign exchange market increased to US $ 57.3 billion at end-March 2008 from US $ 33.2 billion at end-March 2007.

Commercial banks'' investment in Government and other approved securities increased by 22.9 per cent (Rs.1,81,222 crore) during 2007-08, significantly higher than 10.3 per cent (Rs.74,062 crore) in 2006-07.

Commercial banks'' stock of statutory liquidity ratio (SLR) eligible securities marginally increased to 27.4 per cent of the banking system''s net demand and time liabilities (NDTL) in March 2008 from 27.3 per cent in March 2007.

Interest rates offered by the public sector banks (PSBs) on deposits of above one year maturity moved from the range of 7.25-9.50 per cent in March 2007 to 8.00-9.25 per cent in March 2008.

The benchmark prime lending rates (BPLRs) of PSBs increased by 75 basis points from a range of 12.25-12.75 per cent to 12.25-13.50 per cent during 2007-08. The BSE Sensex (1978-79=100) increased by 19.7 per cent during the year from 13072 at end-March 2007 to 15644 at end-March 2008.

The weighted average yield on primary issuance of the Central Government''s dated securities increased by 23 basis points to 8.12 per cent in 2007-08 from 7.89 per cent in the previous year.

External Developments

Information available from the DGCI&S indicates that merchandise exports increased by 22.8 per cent in US dollar terms during April-February 2007-08 as compared with 23.2 per cent in the corresponding period of the previous year. Imports showed an increase of 30.1 per cent as compared with 25.2 per cent during the same period.

While the increase in oil imports was lower at 26.4 per cent as compared with 31.2 per cent, non-oil import recorded a higher growth of 31.8 per cent as compared with 22.6 per cent.

During April-February 2007-08, the trade deficit widened to US $ 72.5 billion which was 46.8 per cent higher than the deficit of US $ 49.4 billion in the corresponding period of the previous year.

The sustained strength of capital flows during 2007-08 is noteworthy as the foreign exchange reserves increased by US $ 110.5 billion to US $ 309.7 billion by end-March 2008.

The Indian foreign exchange market witnessed generally orderly conditions during 2007-08 with the exchange rate exhibiting two-way movements. The rupee appreciated by 9.1 per cent against the US dollar and by 7.5 per cent against pound sterling but depreciated by 7.7 per cent against the Japanese yen and by 7.8 per cent against the euro during 2007-08.