"The erratic progress of the monsoon in July, war in Kashmir, the first major international default by an Indian corporate, the telecom muddle and the political circus have had no impact on sentiment, which continues to remain exalted," the report said. The country faces mid-term parliamentary polls in five phases from September 5.

In an optimistic review of the economy, it said the growth in industry was widespread and expanding to other sectors. Corporates recorded an increase in net profits after three consecutive years of decline. ``The secondary markets apparently reflect this turnaround in theeconomy. The CMIE Overall Share Price index increased by 11.6 per cent in July. Several mutual funds outperformed the indices in July 1999,'' it said.

CMIE maintained its growth estimate for index of industrial production at 6.0 per cent for 1999/2000 against last year's 3.9 per cent. The manufacturing sector registered a four per cent rise in profits and sales grew 16 percent in the first quarter of the year after three years of decline. But growth in expenses was more than growth in sales and the growth was mostly among multinationals and software companies, it said.

"Offtake of energy sources - coal, petroleum and electricity - was robust in the first quarter of the year. Traffic on the railways scaled eight per cent during the period and ports' traffic increased by ten per cent," the report said.

Lower foreign direct investment (FDI) flows and foreign aid were more than compensated by foreign institutional investors' (FII) investment, it said. FDI and foreign aid dipped to $450 million duringApril-May 1999 from $749 million in the same period a year ago while FII investments were at $651 million against an outflow of $441 million, CMIE said.

It also maintained forecasts for wholesale price index at 6 per cent and current account deficit at 1.2 per cent of GDP. Continuing its free fall, the annual rate of inflation plummeted to a record low of 1.19 per cent for the week ended July 24.

The gross fiscal deficit during April-May 1999 stood 6 per cent lower than its level a year ago. ``Capital expenditure has dropped 48 per cent. Even though growth in credit by commercial banks slowed down to 14 per cent by June 1999 from 16 per cent last year, flow of funds to the commercial sectors (including investments in corporate securities) was higher by 17 per cent as against a little under 14 per cent rise in normal non-food credit,'' CMIE said.

During the first quarter of 1999-2000, balance of payments position remained satisfactory. Foreign exchange reserves are at a comfortable level of $ 33.474billion as on July 30. Exports, on customs basis, rose by 6.5 per cent during April-June 1999 against a decline of 7.8 per cent in April-June 1998.

However, agricultural production will grow 1.3 per cent against last year's 7.8, it said. The absence of rains in some kharif (winter harvest) sowing regions for three weeks from the last week of June to mid-July will not affect the crop output, it said. The report maintained the kharif output in 1999/2000 at 104.8 million tonnes, up from last year's 102.7 million, while rabi (summer harvest) output will be up at 100.3 million tonnes compared with last year's 99.8 million.