to that witnessed during the past three years ( table 7 ). table 7 : india ’ s real gdp growth ( per cent ) sector full year april - june ( base : 1999 - 2000 ) 2004 - 05 ( qe ) 2005 - 06 ( re ) 2005 2006 agriculture and allied activities 10. 0 0. 7 3. 9 3. 4 3. 4 industry 6. 6 7. 4 7. 6 9. 5 9. 7 2. 1 mining and quarrying 5. 3 5. 8 0. 9 3. 1 3. 4 2. 2 manufacturing 7. 1 8. 1 9. 0 10. 7 11. 3 2. 3 electricity, gas and water supply 4. 8 4. 3 5. 3 5. 4 7. 4 services 8. 5 10. 2 10. 3 10. 1 10. 5 3. 1 construction 10. 9 12. 5 12. 1 12. 4 9. 5 3. 2 trade, hotels and restaurants, transport, storage and communication 12. 0 10. 6 11. 5 11. 7 13. 2 3. 3 financing, insurance, real estate and business services 4. 5 9. 2 9. 7 8. 8 8. 9 3. 4 community, social and personal services 5. 4 9. 2 7. 8 7. 3 9. 5 8. 5 7. 5 8. 4 8. 5 8. 9 gross domestic product agriculture assuming trend growth in agriculture under normal monsoon conditions and barring domestic or external shocks, the reserve bank in its annual policy statement for 2006 - 07 ( april 2006 ) placed real gdp growth, for policy purposes, in the range of 7. 5 - 8. 0 per cent during 2006 - 07. the reserve bank reaffirmed its forecast for gdp growth in july 2006 in its first quarter review of the annual statement on monetary policy. the reserve bank revised upwards its forecast for gdp growth to around 8. 0 per cent in october 2006 in its mid - term review on the back of improvement in industrial outlook and expected sustenance of growth momentum in services. other agencies have also placed their growth estimates close to 8 per cent. industry and infrastructure led by manufacturing, the upturn in the industrial sector is entering its fifth year of expansion in 200607. manufacturing activity has remained stronger than expected in the current fiscal year so far. based on movements in the index of industrial production ( iip ), growth in manufacturing activity accelerated to 11. 8 per cent

7 10. 5 2006 - 07 ( be ) 5. 3 5. 9 11. 2 re : revised estimates. be : budget estimates. financial sector the financial system in india, through a measured, gradual, cautious, and steady process, has undergone substantial transformation. it has been transformed into a reasonably sophisticated, diverse and resilient system through well - sequenced and coordinated policy measures aimed at making the indian financial sector more competitive, efficient, and stable. it is noteworthy that despite a series of exogenous shocks such as the asian crisis, sanctions due to nuclear explosions, the sharp rise in oil prices to record highs, large corrections in stock markets, financial stability has been maintained. the asset quality of the banking sector has recorded a significant improvement : the ratio of net non - performing assets to net advances has declined from 8. 1 per cent at end - march 1997 to 2. 0 per cent at end - march 2006 despite tightening of prudential norms. there is growing competition in the banking sector, as indicated by the rising share of private sector banks in total banking assets. the overall capital adequacy ratio of the banking sector as a whole has increased from 10. 4 per at endmarch 1997 to 12. 8 per cent at end - march 2006. operating expenses of scheduled commercial banks have declined from 2. 1 per cent of total assets in 1992 to 1. 8 per cent in 2004 indicative of improvements in efficiency. intermediation cost of banks has declined from 2. 9 per cent in 1995 - 96 to 2. 1 per cent by 2005 - 06. the financial system is now robust and resilient, and is enabling accelerated economic growth in an environment of stability ( charts 14 - 17 ). ii. world economic situation as noted earlier, the openness of the indian economy has nearly trebled between 1990 - 91 and 200506. the indian economy is thus now much more intertwined with the global economy. in order to assess the prospects for the domestic economy, it would, therefore, be relevant to review the prospects of the global economy. according to the latest assessment of the imf in its world economic outlook ( september 2006 ), the global economy ( using exchange rates based on purchasing power parities ) is expected to record an accelerated growth of 5. 1 per cent in 2006, higher than that of 4. 9 per cent in 2005. this is the fourth successive year of strong, above trend, growth despite continuous headwinds form