The prevailing tensions on the Indo-Pakistan border is expected to have an adverse impact on the current account deficit and an economic slowdown could only worsen the gross domestic product and gross fiscal deficit, according to the Centre for Monitoring Indian Economy (CMIE).The revised (actual) fiscal deficit in 2001-02 turns out to be higher at 5.9 per cent of GDP, CMIE said in its monthly review (June) of the Indian economy issued here on Monday. War clouds preceded monsoon clouds in May 2002 as the government engaged in coercive diplomacy over cross-border terrorism, it said, adding political and military posturings by India and Pakistan have led to several developed nations urging their citizens to leave the sub-continent. By early June, the possibility of a war had receded but the brinksmanship had already vitiated the economic environment by then, CMIE said.Foreign investors were likely to remain nervous with respect to both India and Pakistan, it said, adding trade and investment were likely to be adversely impacted.In May 2002, the overall liquidity conditions remained tight due to war conditions. The downward trends in interest rates were arrested as yields on treasury bills and long term Government of India securities devolved on RBI, CMIE said.In April 2002, inflation was 1.4 per cent as compared to 1.7 per cent in the previous month. Since January 2002, inflation has remained below two per cent, it added.The CMIE said the corporate sector as a whole reported an 18 per cent rise in net profits in the quarter ended March 31, a major reversal from the 17 and 23 per cent decline in profits reported in the preceding two quarters.However, unlike the case in sales, there is a sharp distinction between manufacturing and services companies, it said, adding the profits growth is concentrated in the services sector while the manufacturing sector recorded a 13 per cent cent fall in profits.
