aiefs newsletter nov 2014

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AIEFS NEWSLETTER AIEFS is a non-profit academic organization founded in 1975 at Bloomsburg State University, Pennsylvania

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AIEFS Contact: Chandana Chakraborty, Department of Econ. & Finance, Montclair State University, NJ 07043 Phone: (973)-655-4125

A Brief Review of the Indian EconomyCharan Singh and Sharada Shimpi 1

The year 2014-15 has been a landmark national election year in India. The formation ofa stable government has gradually created an upbeat sentiment and the growth in thecountry has picked up some pace. Business confidence and the consumer confidence are

beginning to improve, and the capital inflows have risen. Reform plans, such as the fuelsubsidies lately, are favorable steps for the country. The previous year, 2013-14 was a

bumpy ride for the Indian economy. While the economy was growing at a slow pace, italso had challenges on aspects such as the current account deficit (CAD), exchange rateand rising prices. Although inflation has been relatively better in the recent past, itcontinues to be an area of concern in 2014-15. Industrial production expanded in Q1 of2014-15 but, went down later in the following two months. Further, on the externalfront, it is imperative to keep a watch over probable hangovers of the quantitative easing

process, an end of the easy-money era, on India.

GrowthGross Domestic Product (GDP) rebounded and increased by 5.7 per cent during April-June 2014 (Q1) compared to 4.7 percent during April-June 2013 (Table 1). This is thehighest growth recorded in last nine quarters. The industries sector, which was in the

negative zone in most quarters of 2013-14, rose to a positive growth of 4 per cent in Q1of 2014-15. While agricultural activity slowed down in Q1 of 2014-15, the servicessector expanded and recorded a growth of 6.6 per cent in Q1 of 2014-15. While the firstquarter of the year recorded a better growth, Reserve Bank of India (RBI) has alsoremarked that sustaining the momentum of activity over the second and third quarters of2014-15 would be difficult in view of risks to agriculture due to monsoon and the slow-moving expectation from the service sector.

1 1RBI Chair Professor of Economics, and Research Associate, respectively, at IIM Bangalore.

Volume 7 Issue 2 November 15, 2014

Association Objectives Promote interest inthe study of IndianEconomics & Finance Encourage inquiryinto, and analysis of theproblems facing theIndian economy Facilitate communi-cation and discussionamong Scholars

Executive Committee

2013-2015PresidentAmitrajeet BatabyalRochester Inst. ofTechnology

Executive DirectorChandana ChakrabortyMontclair State UniversityAssistant Executive DirectorMeenakshi Rishi

Seattle University

TreasurerArtatrana RathaSt. Cloud University

Elected MembersKalyan Chakraborty Emporia State UniversityShailendra Gajanan University of Pittsburgh-Bradford Jyoti KhannaColgate UniversitySushanta MallickQueen Mary Univ. London Artatrana RathaSt. Cloud UniversityBansi SawhneyUniversity of Baltimore

Ex-officio MemberKusum Ketkar


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Table 1: Real GDP Growth (in percent)

Sector 2013-14 2013-142014-15

Share Growth Q1 Q2 Q3 Q4 Q1I. Agriculture, forestry & fishing 13.9 4.7 4.0 5.0 3.7 6.3 3.8II. Industry 18.7 -0.1 -0.9 1.8 -0.9 -0.5 4.0(i) Mining & quarrying 1.9 -1.4 -3.9 0.0 -1.2 -0.5 2.1(ii) Manufacturing 14.9 -0.7 -1.2 1.3 -1.5 -1.4 3.5(iii) Electricity, gas & water supply 1.9 5.9 3.8 7.8 5.0 7.2 10.2III. Services 67.4 6.2 6.5 6.1 6.4 5.8 6.6(i) Construction 7.4 1.6 1.1 4.4 0.6 0.7 4.8(ii) Trade, hotels, transport &communication 26.4 3.0 1.6 3.6 2.9 3.9 2.8

(iii) Financing, insurance, real estate and business services 20.6 12.9 12.9 12.1 14.1 12.4 10.4

(iv) Community, social & personal services 12.9 5.6 10.6 3.6 5.7 3.3 9.1IV. GDP at factor cost 100.0 4.7 4.7 5.2 4.6 4.6 5.7Source: Reserve Bank of India.

The RBI projects the real GDP growth rate to pick up to 5.5 per cent in 2014-15, and for 2015-16 it is projected to increase to 6.3 per cent. As per the World Economic Outlook (IMF), India has recoveredfrom its relative slump. Also, the World Bank expects growth in India to increase to 5.6 per cent in FY2015.

Industrial activity

Investment demand in the country is weak presently. There was a pick-up in industrial activity in the Q1,wherein growth as measured by the Index of Industrial Production (IIP) was at 3.9 per cent, over thecorresponding period last year. However, IIP growth declined to 0.5 per cent in July 2014 and thendropped to 0.4 per cent in August 2014. Consumer goods had an overall negative growth of 6.9 per cent,wherein consumer durables contracted by 15 per cent in August 2014. As displayed in Table 2, negativegrowth in manufacturing sector has also impacted the industrial growth. The durables goods sectorcontinues to record significant negative growth illustratively, -12.9 percent during April-August 2014and -11.2 percent during April to August 2013.

Table 2: Index of Industrial Production (Growth over the corresponding period of previous year)Period Mining Manufacturing Electricity General

2013-14 2014-15 2013-14 2014-15 2013-14 2014-15 2013-14 2014-15

Apr-Jun -4.6 3.2 -1.1 3.1 3.5 11.3 -1.0 3.9

July -3.0 2.1 3.0 -1.0 5.2 11.7 2.6 0.5Aug -0.9 2.6 -0.2 -1.4 7.2 12.9 0.4 0.4Apr-Aug

-3.6 2.5 -0.1 1.8 4.5 11.7 0.0 2.8

Source: Ministry of Statistics and Programme Implementation, Government of India


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InflationInflation is following a declining trend in recent months. Earlier, the country was under inflationary stressdue to soaring prices, especially food prices as food constitutes around 48 per cent of the CPI and has

been a main contributor of upside pressures on retail inflation. The headline CPI inflation rose duringJune-November 2013, mainly due to food prices. RBIs efforts of a tight monetary policy andimprovement in supply chain management with the new government are beginning to show results: CPI(combined) has declined to 6.5 per cent in September 2014, as against 9.8 per cent in September 2013(Table 3) . Also, retail food inflation at 7.7 per cent in September 2014 is considerably lower than that of9.4 per cent in the previous month. The drop is mainly due to fall in prices of vegetables and fruits.

Table 3: CPI Inflation Rates

IndicesSept 2014 (Provisional) Aug-14 Sep-13

Rural Urban Combd.* Rural UrbanCombd.

Rural

Urban

Combd.

CPI(General) 6.7 6.3 6.5 8.3 7.0 7.7 9.7 9.9 9.8

CFPI 7.8 7.5 7.7 9.8 8.4 9.4 11.8 11.5 11.8* Combd.: Combined; Source: Ministry of Statistics and Programme Implementation, Government ofIndia

As per the RBI, average CPI headline inflation in Q4 of 2014-15 will be around 8 per cent, with a 70 percent confidence interval of 6.8 per cent to 9.2 per cent (Figure 1) .Figure 1: CPI Inflation Projections

Source: RBI

The annual rate of inflation, based on monthly Wholesale Price Index (WPI), slowed down for the fourthsuccessive month in September 2014. WPI declined to 2.4 per cent in September 2014 as against 7.1 percent in the corresponding month of 2013-14. The primary articles inflation dropped to 2.2 per cent inSeptember 2014, as against 14 per cent in the corresponding month last year. Food articles and fuel and

power group were mainly responsible for this declining trend (Table 4).


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Table 4: WPI Inflation Rates, September 2014Major Group/ Sub-Group

WPI (Year on year)2013-14 2014-15

All Commodities 7.1 2.4Primary Articles 14.0 2.2

Food Articles 18.7 3.5Fuel & Power 11.7 1.3Manufactured Products 2.4 2.8

Source: Ministry of Commerce & Industry, Government of India

Banking

A matter of significant concern for the banking industry in India is the high level of Non-PerformingAssets (NPAs) in the banks. The gross NPAs shot from 2.4 per cent of gross advances in March 2011 to4.4 per cent in December 2013, though later this figure slightly moderated to 4.1 per cent in March 2014,according to the RBI. NPAs ratio in agriculture loans have been increasing. In recent years, deteriorationof the loan asset quality has been more due to the non-priority sector. And from the priority sector, themedium and small industry enterprises category is where the NPAs ratio has increased. As at end-March2014, over 58 per cent of gross NPAs of the system were because of the industrial sector). During 2013-14, the gross as well as net NPA ratios of public sector banks were more than the industry averages.Furthermore, they also accounted for almost 92 per cent of the restructured standard advances. Industrysources observe that the rising levels of NPAs are because of the slowdown of economic growth and not

because of lax RBIs regulations or supervision or poor governance of banks. Due to increase in NPAscredit growth is slow though deposits in the banking sector continue to grow at normally: thus, banks

continued to invest in government securities at a higher pace in recent months.

FiscalThe fiscal deficit in 2013-14 was 4.6 percent of GDP, and is budgeted to improve to 4.1 percent in 2014-15. The Government of India has announced strict expenditure controls on October 29 2014 as the latestdata showed that during April-September, 2014, the fiscal deficit and revenue deficit, as a proportion ofthe budget estimates were already high at 82.6 per cent and 91.2 per cent, respectively (Table 5) . Thisexcessive hike is due to higher expenditure on defense pensions where one rank one pay is beingimplemented. On the revenue front, Government has already announced lower amount of borrowingsduring the year. If the decline in oil prices during the recent times persists, that would contribute to

bringing down the deficit.

Table 5: Central Government Finances Deficit Indicators2014-15 - In Rs Crore AE as % of ABEAnnual BudgetEstimate (ABE)

Actual Expenditure (AE) duringApril September 2014

2013-14 2014-15

Revenue Deficit 378348 345053 84.8 91.2Fiscal Deficit 531177 438826 76.0 82.6Primary Deficit 104166 253156 146.7 243.0

Source: Ministry of Finance, Government of India.


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ExternalThe CAD which was high at 4.9 per cent of GDP in Q1 of 2013-14, has been brought to a sustainablelevel of 1.7 per cent in Q1 of 2014-15. Depreciation of the rupee aided in boosting Indias exports. Also,gold imports were brought down by implementation of restrictions, thereby improving the trade balanceduring 2013-14. Recently, with reference to re-imposing of restrictions on gold imports, the FinanceMinister stated the same would be looked into post the festive season of Diwali. During 2013-14, the gold

prices dropped by around 20 per cent (RBI). An interesting aspect to track would be how the gold policyis going to be handled in the coming days. According to latest monthly data on trade, exports and importsincreased by 2.7 percent and 26.0 percent, respectively, in USD, during September 2014 over September2013 but moderating oil prices are expected to moderate growth rate in imports.

On the foreign exchange reserves front, there has been a buildup in India, with forex having risen toaround USD 314 Billion, as on October 17, 2014. Accumulation of the foreign exchange reserves wouldaid in making the country resistant against external shocks and vulnerability. The reserves cover ofimports had diminished from 9.5 months (March 2011) to 7 months in March 2013. However, thisincreased to 7.8 months at the end of March 2014.

The exchange rate of Rupee against the US Dollar moved in the range of Rs. 58.4 and Rs. 61.8 during the beginning of April 2014 and October 2014. While the exchange rate of the Rupee was moderately weakin July and early August, the Rupee also appreciated in between, later, due to reasons involving FIIinflows, optimistic sentiment as a result of relatively lower CAD, decline in crude oil prices etc.

ProspectsThe projected growth trajectory of India' GDP (constant prices) to 6.7 per cent in 2019 by the IMF is not avery happy sign for a young aspiring country. IMF has also projected subdued growth in gross nationalsavings from 30.4 per cent of GDP in 2015 to 30.6 per cent in 2019 and on the investment, from 32.6 percent to 33.1 per cent over the period. The amount of government debt is estimated to decline from 59.5

per cent of GDP in 2015 to 56.2 per cent of GDP in 2019 while revenues are projected to marginallyincrease from 19.5 per cent to 19.8 per cent and expenditure to decline from 26.2 per cent to 25.9 per centover the period.


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Figure 2: Growth Projections

Source: IMF

Two aspects of the economy would need to be carefully watched in the next few months. First, in view ofglobal integration of the Indian economy, tapering and interest rate movements in the US could impactdomestic policy making. Second, during the past few months, controlling inflation has been the primefocus of the RBI. Accordingly, a glide path for disinflation was adopted in January 2014. The country isaiming at modernizing its monetary policy framework and it is to be seen whether it implies adoptinginflation targeting or continuing with its self-minted and successfully tried multiple indicator approach. Inany case, with the new government and its massive mandate, India is witnessing an emergence of newgrowth strategies in policy making which seems to augur well for the economy as green shoots are

beginning to show across different sectors with revival of business confidence.

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AIEFS Program at ASSA 2015 Boston* 2015 Annual Meeting of the Allied Social Science Association (ASSA)

January 03, 2015 AIEFS Reception: 6.00 - 8.00PM, Boston Marriott Copley, Massachusettes Reception Speaker: Pankaj Tandon, Boston University;Topic: Food Security and Public Distribution System in India Invitation: Members, colleagues, friends and others

January 03, 2015AIEFS Sessions

Jan 03, 2015 12:30 pm, Boston Marriott Copley, Tufts Association of Indian Economics & Financial Studies Trade, Finance and Economic Growth (F4, F1)Presiding : CHANDANA CHAKRABORTY (Montclair State University)

Paper 1: Technology, Learning, and Long Run Economic Growth in Leading and Lagging Regions AUTHOR 1: AMITRAJEET A. BATABYAL (Rochester Institute of Technology)

AUTHOR 2: PETER NIJKAMP (VU University Amsterdam)

Paper 2: Home Country Effect of FDI Outflows from the BRIC Countries: Study of Domestic Investment AUTHOR: NANDITA DASGUPTA (University of Maryland Baltimore County)

Paper 3: Global Food Prices and Business Cycle Dynamics in an Open-Economy Macroeconomic Model for India AUTHOR 1: OLIVER HOLTEMOELLER (Martin Luther University Halle-Wittenberg and Halle Institute for Economic Research

(IWH))

AUTHOR 2: SUSHANTA MALLICK (Queen Mary University of London)

Paper 4: New Trade versus Trade Recovery in Indian Exports AUTHOR: USHA NAIR-REICHERT (Georgia Institute of Technology)

Paper 5: A Separate Debt Management Office AUTHOR: CHARAN SINGH (Indian Institute of Management Bangalore-India)

Paper 6: What Determines the Share of Labor in National Income? A Cross-Country Analysis AUTHOR 1: MARTA GUERRIERO (University of Manchester)

AUTHOR 2: KUNAL SEN (University of Manchester and IZA)

Discussants: BANANI NANDI (AT&T Laboratories) SWETA SAXENA (International Monetary Fund) ANIRUDDHA MITRA (Bard College) VALERIE CERRA (International Monetary Fund) RAJA KALI (University of Arkansas) KESHAB BHATTARAI (University of Hull)


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January 04, 2014

AIEFS Executive Committee Meeting: 4:30-5:45pm, Boston Marriott Copley-Columbus II Invitation: Executive Committee Members Only

January 04, 2014AIEFS Sessions

Jan 04, 2015 10:15 am, Boston Marriott Copley, Tufts Association of Indian Economics & Financial Studies Gender, Socioeconomics and Development (O2, O1)

Presiding : AMITRAJEET A. BATABYAL (Rochester Institute of Technology)

Paper 1: Women and Corruption: What Positions Must They Hold to Make a Difference? AUTHOR 1: CHANDAN K. JHA (Louisiana State University)

AUTHOR 2: SUDIPTA SARANGI (Louisiana State University)

Paper 2: Corruption and Human Capital: A Cross-National Analysis AUTHOR 1: SHRABANI SAHA (Lincoln Business School-United Kingdom)

AUTHOR 2: ARUSHA COORAY (University of Nottingham-Malasia)

Paper 3: Stagnation or Transition? Poverty Traps and the Dynamics of Household Income AUTHOR 1: RAJ ARUNACHALAM (University of Michigan)

AUTHOR 2: AJAY SHENOY (University of Michigan)

Paper 4: Evaluating the Impact of the Indian National Rural Employment Guarantee Scheme on the Girl Child AUTHOR 1: NAYANA BOSE (Vanderbilt University)

AUTHOR 2: SHREYASEE DAS (University of Wisconsin-Whitewater)

Paper 5: Will Indias Human Capital Deliver Its Demographic Dividend? AUTHOR 1: EMERALD ANDERSON (University of California-Santa Barbara)

AUTHOR 2: RAJEEV SOOREEA (Dominican University of California)

AUTHOR 3: GIGI GOKCEK (Dominican University of California)

AUTHOR 4: DANIEL TAPIA-JIMENEZ (University of California-Davis)

Paper 6: Divergence of Fortune: The Unequal Effects of Economic Liberalization in India AUTHOR 1: RAJA KALI (University of Arkansas)

AUTHOR 2: JAYATI SARKAR (Indira Gandhi Institute for Development Research)

Discussants: NAYANA BOSE (Vanderbilt University) SUBARNA SAMANTA (College of New Jersey) RAJ ARUNACHALAM (University of Michigan)

NANDITA DASGUPTA (University of Maryland Baltimore County) SHAILENDRA GAJANAN (University of Pittsburgh-Bradford) ANUSUA DUTTA (Philadelphia University)


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Membership Application Form ASSOCIATION OF INDIAN ECONOMIC AND FINANCIAL STUDIES

(AIEFS) Department of Economics, Rochester Institute of Technology 90 Lomb Memorial Drive, Rochester, NY 14623-5604

[email protected]

(Please type or write everything in capital letters)Name: _______________________________________________________________________Affiliation: ___________________________________________________________________Mailing Address: ______________________________________________________________________________________________________________________________

Phone: ( ) --------- ---------- (H); Phone: ( ) ----- ---------- (W); Fax: ( ) -------- -----------.e-mail: ______________________________________________________________________

Areas of interest/specialization:(1)___________________ (2)___________________(3)___________________

If you plan to participate in any AIEFS programs, as paper presenter/discussant, pleaseindicate your preference:

O AIEFS biennial conference, held generally in summer months every other year (nextone due in 2015)

O 2. AIEFS-sponsored occasional seminars

O 3. AIEFS sessions at Eastern Economics Association, generally in February/Marchevery year

O 4. AIEFS sessions at ASSA, held generally in the first week of January every year

O 5. Contribute short, 1-2 page articles to the AIEFS Newsletter, occasionally or on aregular basis

Please check the membership category you have chosen.____ Life ($ 350), ____ Full ($ 40), ____Family ($ 50),____ Student ($20)(Except Life, all other categories of membership are for a calendar year)Kindly make the check payable to the Association of Indian Economic and Financial Studies(AIEFS) and mail it, along with this completed form to the Executive Director at the addressbelow:Chandana Chakraborty Department of Econ. & FinanceMontclair State UniversityUpper Montclair, NJ 07043


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About AIEFS

AIEFS sponsors sessions at the annual ASSA, Western Economic Association and EasternEconomic Association meetings. It also holds biennial meetings either in the US or in India.First biennial meeting in India was held in collaboration with the Research and InformationSystem for Developing countries (RIS) in June 2009 in Delhi. The 2013 biennial meeting washeld in collaboration with the Indira Gandhi Institute of Developments Research in Mumbai.AIEFS brings out Newsletter twice a year fall and in spring. From time to time, AIEFS also

publishes edited books or proceeding of papers presented at ASSA and biennial meetings. Inrecent years, papers have been published in special issues of peer reviewed journals like South AsiaEconomic Journal, International Journal of Economic Policy in emerging Economies andInternational Journal of Business and Emerging Markets.

For further information of AIEFS or to become a member, please visit the website:www.aiefs.org . Or contact executive director:

Chandana Chakraborty, Ph.D.

[email protected]
http://www.aiefs.org/http://www.aiefs.org/mailto:[email protected]:[email protected]:[email protected]://www.aiefs.org/

aiefs newsletter nov 2014

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