economy matters june 2013

36
ECONOMY MATTERS Volume 01 No. 06 June 2013 Inside This Issue Rising Risks for Current Account Deficit Cover Story Foreword 1 Executive Summary 2 Comparison of Various Macro- economic Forecasts: 2013-14 3 Global Trends 4 Domestic Trends 8 Corporate Performance 11 Sector in Focus: Agriculture 15 Special Article: Rising Risks for Current Account Deficit 20 Economy Monitor 26

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Global economies are witnessing two-speed recovery with the US economy showing firm signs of recovery, while growth in Euro Area still languishing in sub-optimal territory. Among the Asian economies, growth in Japan and China too continues to remain tepid. We discuss this in detail in the section on Global Trends in this month’s issue of Economy Matters. In the section on Domestic Trends, we analyze that the economic condition in the present scenario is in greater disarray than it was during the breakout of the global financial crisis of 2008-09, when both government as well as the RBI were quick to respond to the challenges and brought the economy back to recovery path within no time. In Corporate Performance, we examine the sectoral performance in the last fiscal in order to find the sectors which were badly hit in the wake of the current bout of economic crisis. The Sectoral spotlight for this issue is on Agriculture, a traditionally important sector of the Indian economy because of its enormous contribution in being the provider of basic source of livelihood to the most of the population in India. However in the recent past various challenges such as low agricultural yield, declining share of public investment, and lack of technological advancements have plagued the sector. We discuss the sector’s challenges and suggest measures to bolster its output. In the Special Article, we discuss India's deteriorating external position in the last few years, manifesting itself in a steady deterioration in the current account which slipped from a surplus at the start of the last decade to a huge deficit of 4.8 per cent in 2012-13. Bulk of the deterioration in current account is attributable to the sharp rise in merchandise trade deficit over the last decade. Ultimately, for India to contain its current account deficit at a more sustainable level of 2.0-2.5 per cent of GDP, it is essential that we ensure competitiveness of our goods and services, so that our imports are contained and exports boosted.

TRANSCRIPT

Page 1: Economy matters june 2013

ECONOMY MATTERSVolume 01 No. 06June 2013

Inside This Issue

Rising Risks for Current Account Deficit

Cover Story

Foreword 1

Executive Summary 2

Comparison of Various Macro-

economic Forecasts: 2013-14 3

Global Trends 4

Domestic Trends 8

Corporate Performance 11

Sector in Focus: Agriculture 15

Special Article: Rising Risks for

Current Account Deficit 20

Economy Monitor 26

Page 2: Economy matters june 2013

Global economies are witnessing two-speed recovery with the US economy

showing firm signs of recovery, while growth in Euro Area is still languishing in

sub-optimal territory. Among the Asian economies, growth in Japan and

China too continues to remain tepid. The optimism shown by the US Federal

Reserve, in wake of encouraging economic indicators coming out of the US

economy, has led to worries about the possible tapering of its asset purchase

programme by end of the current year. The repercussions of this

development have been felt globally, highlighted by sharp strengthening of

the US dollar. The Indian Rupee too has felt the heat and weakened by more

than 10 per cent since the start of this fiscal.

On the domestic front, the economic condition in the present scenario is in

greater disarray than it was during the breakout of the global financial crisis of

2008-09, when both government as well as the RBI were quick to respond to

the challenges and brought the economy back to recovery path within no

time. The economic performance remains weak on all fronts, except for the

solace of moderating trend in WPI inflation. But this positive too runs the risk

of reversing soon in the wake of the sharp weakening of Rupee in recent

months. Clearly, the policy makers have their job cut out, given the intensity of

the slowdown currently. Some 'out of the box' measures are the need of the

hour.

India's external position has been worsening for some time, manifesting itself

in a steady deterioration in the current account which slipped from a surplus

at the start of the last decade to a huge deficit of 4.8 per cent in 2012-13. Bulk of

the deterioration in current account is attributable to the sharp rise in

merchandise trade deficit over the last decade. Widening of current account

deficit has led to sharp weakening of Rupee against the US$ amongst other

things. The financing of CAD also remains a problem with the capital flows

running the risk of reversing abruptly. Ultimately, for India to contain its

current account deficit at a more sustainable level of 2.0-2.5 per cent of GDP, it

is essential that we ensure competitiveness of our goods and services, so that

our imports are contained and exports boosted.

FOREWORD

1 JUNE 2013

Chandrajit Banerjee

Director-General, CII

Page 3: Economy matters june 2013

Global economies are witnessing two-speed recovery with the US economy

showing firm signs of recovery, while growth in Euro Area is still languishing in

sub-optimal territory. Among the Asian economies, growth in Japan and

China too continues to remain tepid. The optimism shown by the US Federal

Reserve, in wake of encouraging economic indicators coming out of the US

economy, has led to worries about the possible tapering of its asset purchase

programme by end of the current year. The repercussions of this

development have been felt globally, highlighted by sharp strengthening of

the US dollar. The Indian Rupee too has felt the heat and weakened by more

than 10 per cent since the start of this fiscal.

On the domestic front, the economic condition in the present scenario is in

greater disarray than it was during the breakout of the global financial crisis of

2008-09, when both government as well as the RBI were quick to respond to

the challenges and brought the economy back to recovery path within no

time. The economic performance remains weak on all fronts, except for the

solace of moderating trend in WPI inflation. But this positive too runs the risk

of reversing soon in the wake of the sharp weakening of Rupee in recent

months. Clearly, the policy makers have their job cut out, given the intensity of

the slowdown currently. Some 'out of the box' measures are the need of the

hour.

India's external position has been worsening for some time, manifesting itself

in a steady deterioration in the current account which slipped from a surplus

at the start of the last decade to a huge deficit of 4.8 per cent in 2012-13. Bulk of

the deterioration in current account is attributable to the sharp rise in

merchandise trade deficit over the last decade. Widening of current account

deficit has led to sharp weakening of Rupee against the US$ amongst other

things. The financing of CAD also remains a problem with the capital flows

running the risk of reversing abruptly. Ultimately, for India to contain its

current account deficit at a more sustainable level of 2.0-2.5 per cent of GDP, it

is essential that we ensure competitiveness of our goods and services, so that

our imports are contained and exports boosted.

FOREWORD

1 JUNE 2013

Chandrajit Banerjee

Director-General, CII

Page 4: Economy matters june 2013

2

EXECUTIVE SUMMARY

Global Trends

Domestic Trends

Corporate Performance

Growth movements across the major global economies

remain far from positive. Even as the US Federal

Reserve showed optimism about the recovering US

economy, growth in Euro Area has been constantly

plummeting to negative levels. Among the Asian

economies, waning growth prevails in Japan and China

as well. Aggressive monetary policy reforms were seen

in US, aimed at stimulating economy and lowering

unemployment, and Japan, aimed at combating deep-

rooted deflation; policy decisions in Europe though, are

yet to jolt the continent out of recession. A mix of

ingenuous and effective fiscal and monetary policies is

both indispensable and desirable in the current times.

The performance of almost all the economic indicators

in the current scenario remains weak with the only

exception of WPI inflation. But the recent sharp

depreciation in the Rupee has wiped out any such gains

as well. Admittedly, the economy is not passing through

the best of times. It will be not an exaggeration to say

that the domestic scenario looks to be in greater

disarray than it was during the global financial crisis of

2008-09, when both the government as well RBI were

quick to respond to the challenges and brought the

economy back to recovery path within no time.

The performance of Indian corporates across various

sectors remained mostly lackluster over the financial

year 2012-13. Though, rise in profitability, driven

considerably by declining input costs, especially cost of

interest, provided some cheer. Uninspiring demand in

the domestic economy and slackening of infrastructure

projects remained issues of concern. Our analysis

shows that in terms of profitability growth, sectors such

as Capital Goods, Auto & Auto Parts, Metals & Minerals,

Media & Entertainment and Consumer Durables

displayed worrying trends. Among the relatively

healthy sectors were Textile, Paper & Wood, Leather &

Rubber, FMCG and Health Care & Pharmaceuticals.

Moderate performance was displayed by Fertilizers &

Chemicals, Banks & Financial Institutions, Oil & Gas, IT &

Telecom, Construction & Construction Material and

Power sectors.

Agriculture has traditionally been an important sector

of the Indian economy because of its enormous

contribution in being the provider of basic source of

livelihood to the most of the population in India.

Globally India is amongst the leading producers of

various agricultural products and crops like milk, pulses

and jute etc. However in the recent past various

challenges such as low agricultural yield, declining share

of public investment, and lack of technological

a d v a n c e m e n t s h a v e p l a g u e d t h e s e c t o r .

Overdependence on monsoon has been another major

concern. As a result of these inefficiencies, food

inflation has been one of the adverse by-products. With

53 per cent arable land available, there is huge room for

i m p r o v e m e n t . I m m e n s e o p p o r t u n i t i e s i n

mechanization, food processing and food management

as well as branding supplemented by policy support

from the government can help India cement its position

as a global agricultural powerhouse.

India's external position has been worsening for some

time, manifesting itself in a steady deterioration in the

current account which slipped from a surplus at the

start of the last decade to a huge deficit of 4.8 per cent

of GDP in 2012-13. Our analysis shows that the bulk of the

deterioration in the current account deficit is

attributable to the sharp rise in merchandise trade

deficit in the last decade or so, when it jumped by over

14 times. Amongst the various sub-sectors of exports,

textile sector did the worst both in terms of decline in its

share in total exports and its growth rate over the last

decade. Amongst the imports, gold & silver and coal

products saw a sharp jump in their imports growth.

Ultimately, for India to contain its current account

deficit at a more sustainable level of 2.0-2.5 per cent of

GDP, it is essential that we ensure competitiveness of

our goods and services, so that our imports are

contained and exports boosted.

Sector in Focus: Agriculture

Special Article

ECONOMY MATTERS 3

Comparison of Various Macroeconomic Forecasts: 2013-14

3 JUNE 2013

CII 6.0-6.4 5.3 5.5-6.0 6.50 na

Citigroup 5.7 4.4 5.5 6.75 -4.1

Credit Suisse 6.5 5.8 5.9 6.75 -3.5

CRISIL 6.0 4.4 6.3 6.88 -4.5

DBS Bank 5.7 na 6.7 7.00 -4.0

Deustche Bank 6.0 2.7 5.7 6.50 -4.1

EIU 6.3 4.0 7.0 na -3.9

Goldman Sachs 6.4 na 6.0 7.00 -3.5

HSBC 6.0 5.0 6.1 7.25 -4.2

JP Morgan 5.8 na 6.3 7.00 -4.6

Morgan Stanley 5.9 na 6.2 7.00 -3.9

Nomura 5.2 na 5.5 6.75 -4.7

UBS 6.5 5.5 na 7.00 -4.4

Standard Chartered 6.0 na 6.3 7.00 -4.1

Real GDP Industrial Production WPI Inflation Interest Rate

(y-o-y%) (y-o-y%) (y-o-y%) (Repo Rate) % (as a % of GDP)

Current Acount

na: not available

Page 5: Economy matters june 2013

2

EXECUTIVE SUMMARY

Global Trends

Domestic Trends

Corporate Performance

Growth movements across the major global economies

remain far from positive. Even as the US Federal

Reserve showed optimism about the recovering US

economy, growth in Euro Area has been constantly

plummeting to negative levels. Among the Asian

economies, waning growth prevails in Japan and China

as well. Aggressive monetary policy reforms were seen

in US, aimed at stimulating economy and lowering

unemployment, and Japan, aimed at combating deep-

rooted deflation; policy decisions in Europe though, are

yet to jolt the continent out of recession. A mix of

ingenuous and effective fiscal and monetary policies is

both indispensable and desirable in the current times.

The performance of almost all the economic indicators

in the current scenario remains weak with the only

exception of WPI inflation. But the recent sharp

depreciation in the Rupee has wiped out any such gains

as well. Admittedly, the economy is not passing through

the best of times. It will be not an exaggeration to say

that the domestic scenario looks to be in greater

disarray than it was during the global financial crisis of

2008-09, when both the government as well RBI were

quick to respond to the challenges and brought the

economy back to recovery path within no time.

The performance of Indian corporates across various

sectors remained mostly lackluster over the financial

year 2012-13. Though, rise in profitability, driven

considerably by declining input costs, especially cost of

interest, provided some cheer. Uninspiring demand in

the domestic economy and slackening of infrastructure

projects remained issues of concern. Our analysis

shows that in terms of profitability growth, sectors such

as Capital Goods, Auto & Auto Parts, Metals & Minerals,

Media & Entertainment and Consumer Durables

displayed worrying trends. Among the relatively

healthy sectors were Textile, Paper & Wood, Leather &

Rubber, FMCG and Health Care & Pharmaceuticals.

Moderate performance was displayed by Fertilizers &

Chemicals, Banks & Financial Institutions, Oil & Gas, IT &

Telecom, Construction & Construction Material and

Power sectors.

Agriculture has traditionally been an important sector

of the Indian economy because of its enormous

contribution in being the provider of basic source of

livelihood to the most of the population in India.

Globally India is amongst the leading producers of

various agricultural products and crops like milk, pulses

and jute etc. However in the recent past various

challenges such as low agricultural yield, declining share

of public investment, and lack of technological

a d v a n c e m e n t s h a v e p l a g u e d t h e s e c t o r .

Overdependence on monsoon has been another major

concern. As a result of these inefficiencies, food

inflation has been one of the adverse by-products. With

53 per cent arable land available, there is huge room for

i m p r o v e m e n t . I m m e n s e o p p o r t u n i t i e s i n

mechanization, food processing and food management

as well as branding supplemented by policy support

from the government can help India cement its position

as a global agricultural powerhouse.

India's external position has been worsening for some

time, manifesting itself in a steady deterioration in the

current account which slipped from a surplus at the

start of the last decade to a huge deficit of 4.8 per cent

of GDP in 2012-13. Our analysis shows that the bulk of the

deterioration in the current account deficit is

attributable to the sharp rise in merchandise trade

deficit in the last decade or so, when it jumped by over

14 times. Amongst the various sub-sectors of exports,

textile sector did the worst both in terms of decline in its

share in total exports and its growth rate over the last

decade. Amongst the imports, gold & silver and coal

products saw a sharp jump in their imports growth.

Ultimately, for India to contain its current account

deficit at a more sustainable level of 2.0-2.5 per cent of

GDP, it is essential that we ensure competitiveness of

our goods and services, so that our imports are

contained and exports boosted.

Sector in Focus: Agriculture

Special Article

ECONOMY MATTERS 3

Comparison of Various Macroeconomic Forecasts: 2013-14

3 JUNE 2013

CII 6.0-6.4 5.3 5.5-6.0 6.50 na

Citigroup 5.7 4.4 5.5 6.75 -4.1

Credit Suisse 6.5 5.8 5.9 6.75 -3.5

CRISIL 6.0 4.4 6.3 6.88 -4.5

DBS Bank 5.7 na 6.7 7.00 -4.0

Deustche Bank 6.0 2.7 5.7 6.50 -4.1

EIU 6.3 4.0 7.0 na -3.9

Goldman Sachs 6.4 na 6.0 7.00 -3.5

HSBC 6.0 5.0 6.1 7.25 -4.2

JP Morgan 5.8 na 6.3 7.00 -4.6

Morgan Stanley 5.9 na 6.2 7.00 -3.9

Nomura 5.2 na 5.5 6.75 -4.7

UBS 6.5 5.5 na 7.00 -4.4

Standard Chartered 6.0 na 6.3 7.00 -4.1

Real GDP Industrial Production WPI Inflation Interest Rate

(y-o-y%) (y-o-y%) (y-o-y%) (Repo Rate) % (as a % of GDP)

Current Acount

na: not available

Page 6: Economy matters june 2013

4ECONOMY MATTERS

GLOBAL TRENDS

Gauging the Economic Performance of Major Economies

The Real Gross Domestic Product in US softened to 1.8

per cent on a y-o-y basis in the first quarter of 2013 as

compared to 2.4 per cent in the corresponding quarter

of previous fiscal. Positive contributions to growth were

made by personal consumption expenditure, whose

growth improved to 2.1 per cent against a 1.8 per cent in

the first quarter of 2012. An upturn was seen in the

growth of residential fixed investment to 12.8 per cent in

the first quarter of 2013 against 9.3 per cent in the

comparing period last year. However, sharp drop in non-

residential fixed investment to 4.1 per cent, against 12.5

per cent last year, resulted in large decline in the growth

of private domestic investment to 4.3 per cent in the first

quarter of 2013 against 14.1 per cent last year.

Growth

Growth movements across the major economies of the

world remain far from positive, as a downturn is visible

across continents. Even as the US Federal Reserve

showed optimism about the recovering US economy,

growth in Euro Area has been constantly plummeting to

negative levels. Among the Asian economies, waning

growth prevails in Japan and China as well. Aggressive

monetary policy reforms were seen in US, aimed at

stimulating economy and lowering unemployment, and

Japan, aimed at combating deep-rooted deflation;

policy decisions in Europe though, are yet to jolt the

continent out of recession.

and government final consumption expenditure fell

sharply to -1.2 per cent and -0.6 per cent respectively in

the reporting quarter, as compared to growth rates of

1.3 per cent and 1.0 per cent respectively last year. The

decline in gross fixed capital formation worsened to 5.5

In Euro Area, the GDP growth rate contracted further by

1.1 per cent on a y-o-y basis in the first quarter of the

current year as compared to -0.1 per cent seen in the first

quarter of 2012. Amongst the various sectors of GDP, the

growth of household final consumption expenditure

US GDP Growth (y-o-y%)

2.42.1

2.6

1.7 1.8

1Q12 2Q12 3Q12 4Q12 1Q13

Source: Bureau of Economic Analysis

5

Germany and Austria did moderately well during the

beginning of last year but crashed to flat growths

recently. Belgium, Netherlands and Spain faced

marginal negative growth rates during the past five

quarters; Slovenia, Italy and Portugal witnessed sharp

de-growth over the period.

per cent in the reporting quarter, as against decline of

1.2 per cent in the same period last year. The growth

trends among individual countries in the Euro Area were

varied (see below table). The figures in Estonia and

Slovak Republic remained in the positive territory

during 2012 and in the first quarter of 2013; Ireland,

trusts. Dragging on growth, private non-residential

investment witnessed de-growth to the tune of 5.2 per

cent in the first quarter of the current year, against 6.9

per cent in the corresponding period last year. Growth

in private consumption and government consumption

too saw decline to 1.1 per cent and 1.6 per cent

respectively, as compared to 3.9 per cent and 2.3 per

cent last year.

In the Asian continent, Japan saw its GDP growth

slipping to 0.2 per cent on a y-o-y basis, as compared

with growth to the tune of 3.2 per cent in the same

period last year. Growth of public investment

strengthened to 13.1 per cent as compared to 4.9 per

cent previously. Growth in private residential

investment improved significantly to 9.5 per cent

against a flat growth last year, with the Central Bank

injecting liquidity and purchasing real estate investment

Euro Area GDP Growth (y-o-y%)

-0.1

-0.5

-0.7

-1-1.1

1Q12 2Q12 3Q12 4Q12 1Q13

Source: European Central Bank

Country 1Q12 2Q12 3Q12 4Q12 1Q13

Austria 1.1 0.9 0.9 0.5 0.0

Belgium 0.2 -0.4 -0.4 -0.5 -0.6

Estonia 4.0 2.8 3.1 3.0 1.3

Finland 1.6 0.1 -0.7 -1.6 -2.2

France 0.3 0.1 0.0 -0.3 -0.4

Germany 1.3 1.0 0.9 0.3 -0.3

Ireland 2.1 0.8 0.9 0.0 NA

Italy -1.7 -2.5 -2.6 -2.8 -2.4

Luxembourg -0.3 0.6 -0.5 1.6 NA

Netherlands -0.9 -0.5 -1.3 -1.2 -1.3

Portugal -2.3 -3.2 -3.6 -3.8 -4.0

Slovak Republic 2.9 2.3 1.9 1.0 0.8

Slovenia -0.8 -2.3 -2.8 -2.8 -3.3

Spain -0.7 -1.4 -1.6 -1.9 -2.0

Euro Area -0.1 -0.5 -0.7 -1.0 -1.1

GDP growth (y-o-y %) for Major Euro Area countries

Source: European Central Bank

JUNE 2013

Note: NA- Not Available

Page 7: Economy matters june 2013

4ECONOMY MATTERS

GLOBAL TRENDS

Gauging the Economic Performance of Major Economies

The Real Gross Domestic Product in US softened to 1.8

per cent on a y-o-y basis in the first quarter of 2013 as

compared to 2.4 per cent in the corresponding quarter

of previous fiscal. Positive contributions to growth were

made by personal consumption expenditure, whose

growth improved to 2.1 per cent against a 1.8 per cent in

the first quarter of 2012. An upturn was seen in the

growth of residential fixed investment to 12.8 per cent in

the first quarter of 2013 against 9.3 per cent in the

comparing period last year. However, sharp drop in non-

residential fixed investment to 4.1 per cent, against 12.5

per cent last year, resulted in large decline in the growth

of private domestic investment to 4.3 per cent in the first

quarter of 2013 against 14.1 per cent last year.

Growth

Growth movements across the major economies of the

world remain far from positive, as a downturn is visible

across continents. Even as the US Federal Reserve

showed optimism about the recovering US economy,

growth in Euro Area has been constantly plummeting to

negative levels. Among the Asian economies, waning

growth prevails in Japan and China as well. Aggressive

monetary policy reforms were seen in US, aimed at

stimulating economy and lowering unemployment, and

Japan, aimed at combating deep-rooted deflation;

policy decisions in Europe though, are yet to jolt the

continent out of recession.

and government final consumption expenditure fell

sharply to -1.2 per cent and -0.6 per cent respectively in

the reporting quarter, as compared to growth rates of

1.3 per cent and 1.0 per cent respectively last year. The

decline in gross fixed capital formation worsened to 5.5

In Euro Area, the GDP growth rate contracted further by

1.1 per cent on a y-o-y basis in the first quarter of the

current year as compared to -0.1 per cent seen in the first

quarter of 2012. Amongst the various sectors of GDP, the

growth of household final consumption expenditure

US GDP Growth (y-o-y%)

2.42.1

2.6

1.7 1.8

1Q12 2Q12 3Q12 4Q12 1Q13

Source: Bureau of Economic Analysis

5

Germany and Austria did moderately well during the

beginning of last year but crashed to flat growths

recently. Belgium, Netherlands and Spain faced

marginal negative growth rates during the past five

quarters; Slovenia, Italy and Portugal witnessed sharp

de-growth over the period.

per cent in the reporting quarter, as against decline of

1.2 per cent in the same period last year. The growth

trends among individual countries in the Euro Area were

varied (see below table). The figures in Estonia and

Slovak Republic remained in the positive territory

during 2012 and in the first quarter of 2013; Ireland,

trusts. Dragging on growth, private non-residential

investment witnessed de-growth to the tune of 5.2 per

cent in the first quarter of the current year, against 6.9

per cent in the corresponding period last year. Growth

in private consumption and government consumption

too saw decline to 1.1 per cent and 1.6 per cent

respectively, as compared to 3.9 per cent and 2.3 per

cent last year.

In the Asian continent, Japan saw its GDP growth

slipping to 0.2 per cent on a y-o-y basis, as compared

with growth to the tune of 3.2 per cent in the same

period last year. Growth of public investment

strengthened to 13.1 per cent as compared to 4.9 per

cent previously. Growth in private residential

investment improved significantly to 9.5 per cent

against a flat growth last year, with the Central Bank

injecting liquidity and purchasing real estate investment

Euro Area GDP Growth (y-o-y%)

-0.1

-0.5

-0.7

-1-1.1

1Q12 2Q12 3Q12 4Q12 1Q13

Source: European Central Bank

Country 1Q12 2Q12 3Q12 4Q12 1Q13

Austria 1.1 0.9 0.9 0.5 0.0

Belgium 0.2 -0.4 -0.4 -0.5 -0.6

Estonia 4.0 2.8 3.1 3.0 1.3

Finland 1.6 0.1 -0.7 -1.6 -2.2

France 0.3 0.1 0.0 -0.3 -0.4

Germany 1.3 1.0 0.9 0.3 -0.3

Ireland 2.1 0.8 0.9 0.0 NA

Italy -1.7 -2.5 -2.6 -2.8 -2.4

Luxembourg -0.3 0.6 -0.5 1.6 NA

Netherlands -0.9 -0.5 -1.3 -1.2 -1.3

Portugal -2.3 -3.2 -3.6 -3.8 -4.0

Slovak Republic 2.9 2.3 1.9 1.0 0.8

Slovenia -0.8 -2.3 -2.8 -2.8 -3.3

Spain -0.7 -1.4 -1.6 -1.9 -2.0

Euro Area -0.1 -0.5 -0.7 -1.0 -1.1

GDP growth (y-o-y %) for Major Euro Area countries

Source: European Central Bank

JUNE 2013

Note: NA- Not Available

Page 8: Economy matters june 2013

7

Interest rates

The US Federal Funds Rate is currently at 0 to 0.25 per

cent per annum. The interest rate on the main

refinancing operations of the Euro Area was decreased

by 25 basis points to 0.50 per cent in May 2013, after a

gap of 10 months. This accommodative stance is aimed

at supporting prospects for a recovery in the current

atmosphere of weak economic sentiments.

The Bank of Japan intends to conduct money market

operations to increase the monetary base at an annual

pace of 60-70 trillion yen, which stood at 159.2 trillion

yen at the end of May 2013. The basic loan rate and

interest rate applied to complementary deposit facility

were unchanged at 0.3 per cent per annum and 0.1 per

cent per annum respectively since December 2008. The

People's Bank of China kept the base lending rate for

working capital at 6 per cent per annum, unchanged

since July 2012. In a shift from the prudent fiscal and

tight monetary policy in 2008, it is expected to follow a

pro-active fiscal policy and a moderately easy monetary

policy to stimulate the economy.

The connections between global events and trends in

Indian economy have been strong. Substantial impact

was seen on the rupee, which recorded the worst fall in

a decade among the Asian currencies, closing at an all-

time low of 60.6 against the US dollar on June 27. The

crash was attributed to massive capital outflows on

worries of withdrawal of the US stimulus, month-end

dollar demand from importers and reported cash

crunch in China.

Despite an uncertain and gloomy atmosphere ruling

over the global economies, there might be some

sanguinity after all, following policy initiatives in US and

Japan. Structural reforms to correct regional

imbalances in the Euro Area are expected. A mix of

ingenuous and effective fiscal and monetary policies is

both indispensible and desirable in the current times.

Quantitative Easing- Part

Three (QE3)

Ripples were created across the world as US Federal

Reserve Chairman, Ben Bernanke confirmed what

markets had anticipated for past few weeks - a

calibrated winding down of billion dollar bond buys

worth US$85 billion per month, which have infused

US$12 trillion of additional liquidity into global financial

markets since the global financial crisis of 2008-09 and

helped in keeping long-term interest rates low to boost

borrowing and spending. In its monetary policy meeting

held during June 18-19, 2013, Bernanke said that

economic activity has been expanding at a moderate

pace, longer-term inflation expectations have remained

stable, labor market conditions have shown

improvement, though the unemployment rate remains

elevated.

The Federal Open Market Committee felt that fiscal

policy is restraining economic growth. Confidence on

the private sector to propel the recovery, even with

lesser push from the Fed, reduced government

spending and higher taxes, drove the Fed's optimistic

stance. The withdrawal could begin later this year and

end by the middle of 2014, if the economy continues to

perform as expected. However, the Federal Reserve

maintained that its main Federal Fund Rate won't be

increased unless unemployment falls below 6.5 per

cent. To support a stronger economic recovery, the

Committee decided to continue purchasing additional

agency mortgage-backed securities at a pace of $40

billion per month and longer-term Treasury securities at

a pace of $45 billion per month. Taken together, these

actions should maintain downward pressure on longer-

term interest rates, support mortgage markets, and

help to make broader financial conditions more

accommodative.

JUNE 20136ECONOMY MATTERS

decline in growth of capital goods formation, while

private consumption remained the main contributor to

growth.

Real GDP growth in China tapered off in the first quarter

of 2013 to 7.7 per cent from 8.1 per cent in the first

quarter of 2012. The decline in growth was triggered by

firmly anchored in line with their aim of maintaining

inflation rates below, but close to 2 per cent over the

medium- term.

Among the Asian economies, Japan has been facing

prolonged near zero and negative inflation. However, in

wake of recent policy reforms, the CPI-based inflation

rate rose to 0.6 per cent during May 2013 as compared

to 0.1 per cent in April 2013. Inflation stood at -0.3 per

cent for first quarter of this fiscal as compared to 0.3 per

cent over the same period last year. The monetary

expansion campaign by Bank of Japan targets 2 per cent

inflation in less than 2 years.

In China, the CPI-based inflation for May 2013 softened

to 2.1 per cent, helped by moderation in vegetable

prices, from a rate of 2.4 per cent in April 2013, and a

much higher rate of 3.2 per cent in February 2013. The

inflation rate in the first quarter this year stood at 2.4 per

cent. China has set its inflation target for this year at 3.5

percent.

InflationIn US, inflation rates have been brought down steadily

for the past year. CPI-based inflation increased to 1.4 per

cent in May 2013 as compared to an all-time low of 1.1 per

cent in April 2013 mainly due to a rise in housing costs.

Inflation stood at 1.7 per cent in first quarter of the

current year as compared to 2.8 per cent in the same

period last year. The Federal Open Market Committee

anticipates that inflation over the medium-term will run

at or below its 2 per cent desired range.

In Euro Area, while CPI-based inflation hovered between

2.0 per cent to 3.0 per cent during the last two years, it

has come down consistently in the recent few months.

The CPI-based inflation rate stood at 1.4 per cent in May

2013 as compared to 1.2 per cent in April 2013. Inflation

for first quarter of the current year stood at 1.9 per cent

as compared to 2.7 per cent in the same period last year.

Inflation expectations for the Euro Area continue to be

Japan GDP Growth (y-o-y%)

Source: Bank of Japan

3.23.9

0.3 0.4 0.2

1Q12 2Q12 3Q12 4Q12 1Q13

China GDP Growth (y-o-y%)

8.1

7.6

7.4

7.9

7.7

1Q12 2Q12 3Q12 4Q12 1Q13

Source: National Bureau of Statistics

Monthly Inflation for 2013 (y-o-y %)

Source: Various Central Banks Websites

4.0

3.0

2.0

1.0

0.0

-1.0

Jan Feb Mar Apr May

USA Euro Area Japan China

Jan Feb Mar Apr May Jan Feb Mar Apr May Jan Feb Mar Apr May

Page 9: Economy matters june 2013

7

Interest rates

The US Federal Funds Rate is currently at 0 to 0.25 per

cent per annum. The interest rate on the main

refinancing operations of the Euro Area was decreased

by 25 basis points to 0.50 per cent in May 2013, after a

gap of 10 months. This accommodative stance is aimed

at supporting prospects for a recovery in the current

atmosphere of weak economic sentiments.

The Bank of Japan intends to conduct money market

operations to increase the monetary base at an annual

pace of 60-70 trillion yen, which stood at 159.2 trillion

yen at the end of May 2013. The basic loan rate and

interest rate applied to complementary deposit facility

were unchanged at 0.3 per cent per annum and 0.1 per

cent per annum respectively since December 2008. The

People's Bank of China kept the base lending rate for

working capital at 6 per cent per annum, unchanged

since July 2012. In a shift from the prudent fiscal and

tight monetary policy in 2008, it is expected to follow a

pro-active fiscal policy and a moderately easy monetary

policy to stimulate the economy.

The connections between global events and trends in

Indian economy have been strong. Substantial impact

was seen on the rupee, which recorded the worst fall in

a decade among the Asian currencies, closing at an all-

time low of 60.6 against the US dollar on June 27. The

crash was attributed to massive capital outflows on

worries of withdrawal of the US stimulus, month-end

dollar demand from importers and reported cash

crunch in China.

Despite an uncertain and gloomy atmosphere ruling

over the global economies, there might be some

sanguinity after all, following policy initiatives in US and

Japan. Structural reforms to correct regional

imbalances in the Euro Area are expected. A mix of

ingenuous and effective fiscal and monetary policies is

both indispensible and desirable in the current times.

Quantitative Easing- Part

Three (QE3)

Ripples were created across the world as US Federal

Reserve Chairman, Ben Bernanke confirmed what

markets had anticipated for past few weeks - a

calibrated winding down of billion dollar bond buys

worth US$85 billion per month, which have infused

US$12 trillion of additional liquidity into global financial

markets since the global financial crisis of 2008-09 and

helped in keeping long-term interest rates low to boost

borrowing and spending. In its monetary policy meeting

held during June 18-19, 2013, Bernanke said that

economic activity has been expanding at a moderate

pace, longer-term inflation expectations have remained

stable, labor market conditions have shown

improvement, though the unemployment rate remains

elevated.

The Federal Open Market Committee felt that fiscal

policy is restraining economic growth. Confidence on

the private sector to propel the recovery, even with

lesser push from the Fed, reduced government

spending and higher taxes, drove the Fed's optimistic

stance. The withdrawal could begin later this year and

end by the middle of 2014, if the economy continues to

perform as expected. However, the Federal Reserve

maintained that its main Federal Fund Rate won't be

increased unless unemployment falls below 6.5 per

cent. To support a stronger economic recovery, the

Committee decided to continue purchasing additional

agency mortgage-backed securities at a pace of $40

billion per month and longer-term Treasury securities at

a pace of $45 billion per month. Taken together, these

actions should maintain downward pressure on longer-

term interest rates, support mortgage markets, and

help to make broader financial conditions more

accommodative.

JUNE 20136ECONOMY MATTERS

decline in growth of capital goods formation, while

private consumption remained the main contributor to

growth.

Real GDP growth in China tapered off in the first quarter

of 2013 to 7.7 per cent from 8.1 per cent in the first

quarter of 2012. The decline in growth was triggered by

firmly anchored in line with their aim of maintaining

inflation rates below, but close to 2 per cent over the

medium- term.

Among the Asian economies, Japan has been facing

prolonged near zero and negative inflation. However, in

wake of recent policy reforms, the CPI-based inflation

rate rose to 0.6 per cent during May 2013 as compared

to 0.1 per cent in April 2013. Inflation stood at -0.3 per

cent for first quarter of this fiscal as compared to 0.3 per

cent over the same period last year. The monetary

expansion campaign by Bank of Japan targets 2 per cent

inflation in less than 2 years.

In China, the CPI-based inflation for May 2013 softened

to 2.1 per cent, helped by moderation in vegetable

prices, from a rate of 2.4 per cent in April 2013, and a

much higher rate of 3.2 per cent in February 2013. The

inflation rate in the first quarter this year stood at 2.4 per

cent. China has set its inflation target for this year at 3.5

percent.

InflationIn US, inflation rates have been brought down steadily

for the past year. CPI-based inflation increased to 1.4 per

cent in May 2013 as compared to an all-time low of 1.1 per

cent in April 2013 mainly due to a rise in housing costs.

Inflation stood at 1.7 per cent in first quarter of the

current year as compared to 2.8 per cent in the same

period last year. The Federal Open Market Committee

anticipates that inflation over the medium-term will run

at or below its 2 per cent desired range.

In Euro Area, while CPI-based inflation hovered between

2.0 per cent to 3.0 per cent during the last two years, it

has come down consistently in the recent few months.

The CPI-based inflation rate stood at 1.4 per cent in May

2013 as compared to 1.2 per cent in April 2013. Inflation

for first quarter of the current year stood at 1.9 per cent

as compared to 2.7 per cent in the same period last year.

Inflation expectations for the Euro Area continue to be

Japan GDP Growth (y-o-y%)

Source: Bank of Japan

3.23.9

0.3 0.4 0.2

1Q12 2Q12 3Q12 4Q12 1Q13

China GDP Growth (y-o-y%)

8.1

7.6

7.4

7.9

7.7

1Q12 2Q12 3Q12 4Q12 1Q13

Source: National Bureau of Statistics

Monthly Inflation for 2013 (y-o-y %)

Source: Various Central Banks Websites

4.0

3.0

2.0

1.0

0.0

-1.0

Jan Feb Mar Apr May

USA Euro Area Japan China

Jan Feb Mar Apr May Jan Feb Mar Apr May Jan Feb Mar Apr May

Page 10: Economy matters june 2013

9

contracting by 5.7 per cent as compared to 14.2 per cent

growth during 2008-09. Capital goods sector is

regarded as the indicator of investment activities in the

economy; hence the dismal performance by the sector

in the last fiscal does not bode well for the investment

outlook and meaningful economic recovery.

During the last fiscal, we saw industrial production

growth remaining weak uniformly for most months. The

overall growth logged was in fact the weakest industrial

output growth in the new base series starting from

2004-05. More importantly, it was characterised by the

worst performance ever by capital goods segment-

brought down inflation sharply. In fact the extent of

demand destruction was so severe that economy faced

deflation for a period of 2 months in 2009-10.

In contrast, in 2012-13, though economic growth

remained lower than the levels seen in 2008-09, but

inflation continued to remain above RBI's comfort zone

of 5-5.5 per cent. It has slipped below 5 per cent only in

the first two months of the current fiscal, with the latest

reading at 4.7 per cent in May 2013. The main reason for

inflation remaining high last year, despite sharp dip in

growth, is the imbalances emerging in the demand-

supply scenario, especially of food articles. As we will

discuss in this month's 'Sector in Focus' too, agricultural

production has lagged demand, thus leading to

shortages in food supply.

(B). WPI Inflation

WPI-based inflation averaged 7.4 per cent in 2012-13 as

compared to 8.1 per cent in 2008-09. Though inflation

averaged lower last year, food inflation, which remains

one of its most critical components as it has the most

profound impact on the common man, remained high.

Food inflation remained high at 9.3 per cent in 2012-13 as

compared to 8.9 per cent in 2008-09.

Again, 2008-09 was a year of two halves, with double-

digit inflation levels seen in the first two quarter of 2008-

09, followed by sharp softening. WPI-based inflation

dipped to a low of 1.6 per cent by March-2009 as

compared to a high of 11.2 per cent seen in August 2008.

The sharp shrinking of demand post the second quarter,

8ECONOMY MATTERS

DOMESTIC TRENDS

2012-13: An Encore of 2008-09 or Worse?

2012-13, while, the growth had dipped to 6.7 per cent in

2008-09 and recovered swiftly, thereafter, to 8.4 per

cent in 2009-10. Interestingly the moderation in growth

in the financial crisis year of 2008-09 was largely

underpinned by a sharp softening in agricultural and

industrial growth. The bellwether of the Indian

economy- the services sector continued to grow at a

healthy double-digit rate of 10.0 per cent then. In 2012-13

on the other hand, the moderation in growth was

broad-based with growth in all the three pivotal sectors

decelerating. From the demand-side too, in 2012-13, all

the domestic demand drivers slowed down with

investment growth falling to multi-year lows as

compared to still respectable performance in 2008-09.

In another indicator of slowing of growth, non-food

credit growth slumped to a decade low of 14 per cent in

2012-13, falling short of Reserve Bank of India's

projection of 16 per cent, as demand for loans from

companies remained weak. In 2008-09, however, it

stood at around 18 per cent.

Index of industrial production growth averaged 1.1 per

cent in 2012-13 as compared to 2.9 per cent in 2008-09.

The relatively healthy growth rate in 2008-09, however,

masks the strong negative trend in the data post

September 2008, when the actual crisis broke out with

the collapse of the Lehman Brothers. In the first seven

months of the fiscal (till October 2008), industrial

production growth averaged a healthy 7.5 per cent as

compared to -3.6 per cent in the five months thereafter.

In fact, industrial output remained in the negative

territory in the seven consecutive months starting from

December 2008.

As discussed in the section on global trends, the major

economies of the world continue facing turbulent

times, with only US seeing some glimmer of hope as it

saw a fall in its unemployment rate coupled with steady

improvement in its growth rates since the last two

quarters. The global gloom is finding a reflection in the

domestic scenario as well, with all the major economic

indicators showing little signs of turn-around. Decadal

low GDP growth, historic high current account deficits,

Rupee slipping below 60 per US$ and mild improvement

in industrial production numbers are currently

characterising the Indian economy.

The only silver lining visible seems to be the steady

moderation witnessed in the WPI based inflation rates,

giving RBI the necessary leg-room to cut interest rates in

order to spur growth. But the recent sharp depreciation

in the Rupee has narrowed down the scope of this

option. Admittedly, the economy is not passing through

the best of times. It will be not an exaggeration to say

that the domestic scenario looks to be in greater

disarray than it was during the global financial crisis of

2008-09, when both government as well as the RBI

were quick to respond to the challenges and brought

the economy back to recovery path within no time. In

this article, we would aim to provide a snapshot of

comparison of the present scenario with the period of

crisis in 2008-09 in terms of the major macroeconomic

indicators.

GDP growth moderated to a decadal low of 5 per cent in

( A ) . G D P a n d I n d u s t r i a l Production Growth

INDIA

Source: CSO

6.7

5.0

1.9

0.1

4.4

2.1

10.0

7.1

y-o-y%

FY09 FY13 FY09 FY13 FY09 FY13 FY09 FY13

Total GDP Agri Industry Services

15

10

5

0

-5

-10

y-o-y%

Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

2008-09 2012-13

Industrial Production GrowthGDP Growth

JUNE 2013

Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

2008-09 2012-13

12

10

8

6

4

2

0

y-o-y%

WPI Inflation

Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

2008-09 2012-13

13

12

11

10

9

8

7

6

y-o-y%

Total Food Inflation (Primary and Manufacturing)

Source: Office of Economic Advisor

Page 11: Economy matters june 2013

9

contracting by 5.7 per cent as compared to 14.2 per cent

growth during 2008-09. Capital goods sector is

regarded as the indicator of investment activities in the

economy; hence the dismal performance by the sector

in the last fiscal does not bode well for the investment

outlook and meaningful economic recovery.

During the last fiscal, we saw industrial production

growth remaining weak uniformly for most months. The

overall growth logged was in fact the weakest industrial

output growth in the new base series starting from

2004-05. More importantly, it was characterised by the

worst performance ever by capital goods segment-

brought down inflation sharply. In fact the extent of

demand destruction was so severe that economy faced

deflation for a period of 2 months in 2009-10.

In contrast, in 2012-13, though economic growth

remained lower than the levels seen in 2008-09, but

inflation continued to remain above RBI's comfort zone

of 5-5.5 per cent. It has slipped below 5 per cent only in

the first two months of the current fiscal, with the latest

reading at 4.7 per cent in May 2013. The main reason for

inflation remaining high last year, despite sharp dip in

growth, is the imbalances emerging in the demand-

supply scenario, especially of food articles. As we will

discuss in this month's 'Sector in Focus' too, agricultural

production has lagged demand, thus leading to

shortages in food supply.

(B). WPI Inflation

WPI-based inflation averaged 7.4 per cent in 2012-13 as

compared to 8.1 per cent in 2008-09. Though inflation

averaged lower last year, food inflation, which remains

one of its most critical components as it has the most

profound impact on the common man, remained high.

Food inflation remained high at 9.3 per cent in 2012-13 as

compared to 8.9 per cent in 2008-09.

Again, 2008-09 was a year of two halves, with double-

digit inflation levels seen in the first two quarter of 2008-

09, followed by sharp softening. WPI-based inflation

dipped to a low of 1.6 per cent by March-2009 as

compared to a high of 11.2 per cent seen in August 2008.

The sharp shrinking of demand post the second quarter,

8ECONOMY MATTERS

DOMESTIC TRENDS

2012-13: An Encore of 2008-09 or Worse?

2012-13, while, the growth had dipped to 6.7 per cent in

2008-09 and recovered swiftly, thereafter, to 8.4 per

cent in 2009-10. Interestingly the moderation in growth

in the financial crisis year of 2008-09 was largely

underpinned by a sharp softening in agricultural and

industrial growth. The bellwether of the Indian

economy- the services sector continued to grow at a

healthy double-digit rate of 10.0 per cent then. In 2012-13

on the other hand, the moderation in growth was

broad-based with growth in all the three pivotal sectors

decelerating. From the demand-side too, in 2012-13, all

the domestic demand drivers slowed down with

investment growth falling to multi-year lows as

compared to still respectable performance in 2008-09.

In another indicator of slowing of growth, non-food

credit growth slumped to a decade low of 14 per cent in

2012-13, falling short of Reserve Bank of India's

projection of 16 per cent, as demand for loans from

companies remained weak. In 2008-09, however, it

stood at around 18 per cent.

Index of industrial production growth averaged 1.1 per

cent in 2012-13 as compared to 2.9 per cent in 2008-09.

The relatively healthy growth rate in 2008-09, however,

masks the strong negative trend in the data post

September 2008, when the actual crisis broke out with

the collapse of the Lehman Brothers. In the first seven

months of the fiscal (till October 2008), industrial

production growth averaged a healthy 7.5 per cent as

compared to -3.6 per cent in the five months thereafter.

In fact, industrial output remained in the negative

territory in the seven consecutive months starting from

December 2008.

As discussed in the section on global trends, the major

economies of the world continue facing turbulent

times, with only US seeing some glimmer of hope as it

saw a fall in its unemployment rate coupled with steady

improvement in its growth rates since the last two

quarters. The global gloom is finding a reflection in the

domestic scenario as well, with all the major economic

indicators showing little signs of turn-around. Decadal

low GDP growth, historic high current account deficits,

Rupee slipping below 60 per US$ and mild improvement

in industrial production numbers are currently

characterising the Indian economy.

The only silver lining visible seems to be the steady

moderation witnessed in the WPI based inflation rates,

giving RBI the necessary leg-room to cut interest rates in

order to spur growth. But the recent sharp depreciation

in the Rupee has narrowed down the scope of this

option. Admittedly, the economy is not passing through

the best of times. It will be not an exaggeration to say

that the domestic scenario looks to be in greater

disarray than it was during the global financial crisis of

2008-09, when both government as well as the RBI

were quick to respond to the challenges and brought

the economy back to recovery path within no time. In

this article, we would aim to provide a snapshot of

comparison of the present scenario with the period of

crisis in 2008-09 in terms of the major macroeconomic

indicators.

GDP growth moderated to a decadal low of 5 per cent in

( A ) . G D P a n d I n d u s t r i a l Production Growth

INDIA

Source: CSO

6.7

5.0

1.9

0.1

4.4

2.1

10.0

7.1

y-o-y%

FY09 FY13 FY09 FY13 FY09 FY13 FY09 FY13

Total GDP Agri Industry Services

15

10

5

0

-5

-10

y-o-y%

Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

2008-09 2012-13

Industrial Production GrowthGDP Growth

JUNE 2013

Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

2008-09 2012-13

12

10

8

6

4

2

0

y-o-y%

WPI Inflation

Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

2008-09 2012-13

13

12

11

10

9

8

7

6

y-o-y%

Total Food Inflation (Primary and Manufacturing)

Source: Office of Economic Advisor

Page 12: Economy matters june 2013

10ECONOMY MATTERS

sharp depreciation of the Rupee was mainly led by

reversal of net FII inflows in the wake of the financial

crisis and not so much by the worsening of the external

account parameters. Moreover, Rupee is apparently

more vulnerable in the current period as compared to

2008-09, because of the following reasons:

High and rising trade and current account deficits

Higher reliance on short-term foreign capital than

the more stable FDI flows to finance the CAD

Rising growth concerns leading to shrinking growth

differential with advanced economies like US and

waning investor confidence

Declining net invisibles balance to cover CAD

Rapidly declining import cover in terms of months of

foreign exchange reserves

v

v

v

v

v

C). External Account

Current account deficit (CAD) remained high at 4.8 per

cent of GDP in 2012-13 as compared to 2.3 per cent of GDP

in 2008-09. Plunge in exports in the wake of global

demand destruction along with inelastic imports has led

to the steep widening of the merchandise trade deficit in

the last fiscal. Consequently, in 2012-13, the Rupee

weakened close to 5.3 per cent, ending the year at 54.4

per US$ compared to 51.7 per US$ at the beginning of the

year. In fact, Rupee has continued to slide in the current

fiscal too, having lost close to 12 per cent since the start

of the fiscal till just June 26th 2013.

However, during the crisis period of 2008-09, the extent

of weakening of the Rupee was much sharper. Rupee

lost close to a massive 28 per cent in value as it touched a

low of 51.1 per US$ by end-March 2009 as compared to a

high of 40.0 per US$ at the start of the fiscal year. The

Conclusion

The present macroeconomic scenario is in a much worse condition than it was during the global financial crisis of

2008-09. The performance of almost all the economic indicators in the current scenario remains weak with the only

exception of WPI inflation. Clearly, policy makers need to act decisively in the current period to bring the economy

back on growth track at the earliest, as the present situation is much weaker than the one prevailing in 2008-09.

11

Analysing Sectoral Performance in 2012-13

Textile, Paper & Wood, Leather & Rubber, FMCG and

Health Care & Pharmaceuticals. Moderate performance

was displayed by sectors such as Fertilizers & Chemicals,

Banks & Financial Institutions, Oil & Gas, IT & Telecom,

Construction & Construction Material and Power.

The analysis factors in the financial performance during

the past two fiscal years of a balanced panel of 3,040 1Indian firms, spread across 16 major sectors . The

information was extracted from the Ace Equity

database.

The performance of Indian corporates across various

sectors remained mostly lackluster over the financial

year 2012-13, though rise in profitability provided some

cheer. A respite in the form of declining cost of services

and raw materials, as well as cost of interest rate could

not do much to salvage the India Inc from a large fall in

net sales during the year. Our analysis shows that

profitability growth in sectors such as Capital Goods,

Auto & Auto Parts, Metals & Minerals, Media &

Entertainment and Consumer Durables displayed

worrying trends. Among the healthy sectors were

CORPORATE PERFORMANCE

Source: CII calculations using Ace Equity database

Growth in Overall Economy (y-o-y%)

22.5

10.9 11.76.2

-5.2

4.0

Net Sales Operating Profit PAT

FY12 FY13

to the year before, exception being the Textile sector.

Net sales growth in Textile sector improved to 13.2 per

cent in the last fiscal as compared to 11.1 per cent in 2011-

12, attributable largely to increased exports during the

period.

Aggregate net sales growth during 2012-13 stood at a

measly 10.9 per cent as compared to a healthy 22.5 per

cent in 2011-12, an outcome of uninspiring demand in the

domestic economy. During the previous year, growth in

net sales witnessed a decline in all sectors as compared

1 Auto & Auto Parts, Banks & Financial Institutions, Capital Goods, Construction & Construction Material, Consumer Durables, Fertilizers & Chemicals, FMCG, Health Care & Pharmaceuticals, IT & Telecom, Media & Entertainment, Metals & Minerals, Oil & Gas, Power, Textile, Paper & Wood, Leather and Rubber

Source: RBI

Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

2008-09 2012-13

60

55

50

45

40

35

30

Rs per US$

Exchange Rate Movement Rising External Account Vulnerability

Trade deficit as a % of GDP 10.6 9.8

Current Account deficit as a % of GDP 4.8 2.3

Invisibles balance as a % of GDP 5.8 7.5

Domestic GDP growth % 5.0 6.7

Import Cover (no. of months) 7.0

Ratio of Short-term debt to total debt 24.8 19.3

Trade deficit 195.7 119.5

Invisibles balance 107.4 91.6

Current Account deficit 88.1 27.9

2012-13 2008-09

US$ billion

JUNE 2013

Page 13: Economy matters june 2013

10ECONOMY MATTERS

sharp depreciation of the Rupee was mainly led by

reversal of net FII inflows in the wake of the financial

crisis and not so much by the worsening of the external

account parameters. Moreover, Rupee is apparently

more vulnerable in the current period as compared to

2008-09, because of the following reasons:

High and rising trade and current account deficits

Higher reliance on short-term foreign capital than

the more stable FDI flows to finance the CAD

Rising growth concerns leading to shrinking growth

differential with advanced economies like US and

waning investor confidence

Declining net invisibles balance to cover CAD

Rapidly declining import cover in terms of months of

foreign exchange reserves

v

v

v

v

v

C). External Account

Current account deficit (CAD) remained high at 4.8 per

cent of GDP in 2012-13 as compared to 2.3 per cent of GDP

in 2008-09. Plunge in exports in the wake of global

demand destruction along with inelastic imports has led

to the steep widening of the merchandise trade deficit in

the last fiscal. Consequently, in 2012-13, the Rupee

weakened close to 5.3 per cent, ending the year at 54.4

per US$ compared to 51.7 per US$ at the beginning of the

year. In fact, Rupee has continued to slide in the current

fiscal too, having lost close to 12 per cent since the start

of the fiscal till just June 26th 2013.

However, during the crisis period of 2008-09, the extent

of weakening of the Rupee was much sharper. Rupee

lost close to a massive 28 per cent in value as it touched a

low of 51.1 per US$ by end-March 2009 as compared to a

high of 40.0 per US$ at the start of the fiscal year. The

Conclusion

The present macroeconomic scenario is in a much worse condition than it was during the global financial crisis of

2008-09. The performance of almost all the economic indicators in the current scenario remains weak with the only

exception of WPI inflation. Clearly, policy makers need to act decisively in the current period to bring the economy

back on growth track at the earliest, as the present situation is much weaker than the one prevailing in 2008-09.

11

Analysing Sectoral Performance in 2012-13

Textile, Paper & Wood, Leather & Rubber, FMCG and

Health Care & Pharmaceuticals. Moderate performance

was displayed by sectors such as Fertilizers & Chemicals,

Banks & Financial Institutions, Oil & Gas, IT & Telecom,

Construction & Construction Material and Power.

The analysis factors in the financial performance during

the past two fiscal years of a balanced panel of 3,040 1Indian firms, spread across 16 major sectors . The

information was extracted from the Ace Equity

database.

The performance of Indian corporates across various

sectors remained mostly lackluster over the financial

year 2012-13, though rise in profitability provided some

cheer. A respite in the form of declining cost of services

and raw materials, as well as cost of interest rate could

not do much to salvage the India Inc from a large fall in

net sales during the year. Our analysis shows that

profitability growth in sectors such as Capital Goods,

Auto & Auto Parts, Metals & Minerals, Media &

Entertainment and Consumer Durables displayed

worrying trends. Among the healthy sectors were

CORPORATE PERFORMANCE

Source: CII calculations using Ace Equity database

Growth in Overall Economy (y-o-y%)

22.5

10.9 11.76.2

-5.2

4.0

Net Sales Operating Profit PAT

FY12 FY13

to the year before, exception being the Textile sector.

Net sales growth in Textile sector improved to 13.2 per

cent in the last fiscal as compared to 11.1 per cent in 2011-

12, attributable largely to increased exports during the

period.

Aggregate net sales growth during 2012-13 stood at a

measly 10.9 per cent as compared to a healthy 22.5 per

cent in 2011-12, an outcome of uninspiring demand in the

domestic economy. During the previous year, growth in

net sales witnessed a decline in all sectors as compared

1 Auto & Auto Parts, Banks & Financial Institutions, Capital Goods, Construction & Construction Material, Consumer Durables, Fertilizers & Chemicals, FMCG, Health Care & Pharmaceuticals, IT & Telecom, Media & Entertainment, Metals & Minerals, Oil & Gas, Power, Textile, Paper & Wood, Leather and Rubber

Source: RBI

Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

2008-09 2012-13

60

55

50

45

40

35

30

Rs per US$

Exchange Rate Movement Rising External Account Vulnerability

Trade deficit as a % of GDP 10.6 9.8

Current Account deficit as a % of GDP 4.8 2.3

Invisibles balance as a % of GDP 5.8 7.5

Domestic GDP growth % 5.0 6.7

Import Cover (no. of months) 7.0

Ratio of Short-term debt to total debt 24.8 19.3

Trade deficit 195.7 119.5

Invisibles balance 107.4 91.6

Current Account deficit 88.1 27.9

2012-13 2008-09

US$ billion

JUNE 2013

Page 14: Economy matters june 2013

13

materials, saw its profitability margins improving on the

back of increased domestic and global investment in the

sector. Leather & Rubber, FMCG, Fertilizers & Chemicals,

Banks & Financial Institutions and Oil & Gas sectors too

saw marginal upturn in PAT growth, mainly due to

declining input costs. Even though PAT growth

improved in Capital Goods, Metals & Minerals and

Consumer Durables sectors in the previous year, it still

remained in the negative territory. The sectors were

hurt by the high interest rates, policy uncertainty and

global slowdown, amongst other factors.

especially cost of interest. PAT growth rose sharply in

Text i le, Paper & Wood and Health Care &

Pharmaceuticals sector, rising to 1088.5 per cent, 120.7

per cent and 15.9 per cent respectively in 2012-13 as

compared to growth rate of -95.8 per cent, -93.7 per cent

and -66.5 per cent in the year before. Improvement in

net sales, increasing FDI and government boost led to

high profitability in Textiles sector.

The Health Care & Pharmaceuticals sector, despite

suffering a marginal rise in cost of services and raw

Similar respite was obtained from a softening in the

growth of interest cost to 19.4 per cent in 2012-13 as

compared to 45.2 per cent in 2011-12. This moderation

was seen across all the sectors, without any exception.

The sectors that benefited the most were Paper &

Wood, Leather & Rubber, IT & Telecom, and Capital

Goods, where growth in interest cost fell to as much as

0.7 per cent, 17.9 per cent, 16.3 per cent and 2.5 per cent

in 2012-13 from growth rates of 47.4 per cent, 66.5 per

cent, 108.5 per cent and 57.2 per cent in 2011-12. This

mirrors the reduction in interest rates by the RBI in the

recent months; in the fourth quarter of 2012-13 itself, RBI

cut the repo rate by 50 bps.

On an aggregate basis, growth in cost of services and

raw materials moderated to 9.1 per cent in 2012-13 as

compared to 26.7 per cent in the previous year, much to

the relief of the companies. The shrinkage is attributable

to both cost efficient practices employed by the Indian

firms as well as slowdown in new projects. Significant

cost efficiencies were visible in sectors such as Leather &

Rubber, Oil & Gas and Power whereas moderate

margins were experienced in Paper & Wood, Banks &

Financial Institutions, Auto & Auto Parts and Metals &

Minerals sectors. The exceptions were sectors including

Health Care & Pharmaceuticals, Media & Entertainment

and Consumer Goods where the growth in cost of

services and raw materials accelerated last year.

12ECONOMY MATTERS

contracted by 2.3 per cent in 2012-13 as compared to a

growth of 10.6 per cent in the year before, reflecting the

poor investment scenario in the economy. This is in

tandem with the poor performance of the capital goods

sector in IIP. Sinking demand for goods & services and

slackening infrastructure projects remained issues of

concern for capital goods sector.

Banks & Financial Institutions sector saw a growth in net

sales to the tune of 17.7 per cent, maximum among all

sectors, but lower than its 33.3 per cent growth

witnessed during 2011-12. Consumer Durables and Power

sector witnessed moderation in net sales growth to the

tune of 1.9 per cent and 0.3 per cent respectively in 2012-

13 as compared to growth rates of 5.5 per cent and 15.0

per cent in 2011-12. The Capital Goods sector's growth

and Media & Entertainment sectors saw a rise, all the

other sectors witnessed a reduction in growth of

operating profits in 2012-13 as compared to 2011-12.

Sectors like Fertilizers & Chemicals, Power, Capital

Goods, Consumer Durables and Metals & Minerals saw

contraction in their operating profits during the last

fiscal.

On an aggregate basis, operating profits (profits earned

from the core business operations excluding

investments and the effects of depreciation, interest

and taxes) growth fell to 6.2 per cent in 2012-13 as

compared to 11.7 per cent in 2011-12. Amongst the

sectors, while Textile, Paper & Wood, Leather & Rubber

Source: CII calculations using Ace Equity database

33.3

17.7

30.2

14.6 17.0

13.9 11.1 13.2 13.5 11.4

Banks and Financial

Institutions

Oil and Gas FMCG Textile Paper andwood

FY12 FY13

Net Sales Growth (y-o-y%)For Top 5 Performing Sectors

15.5

3.5

15.2

3.35.5

1.9

15.0

0.3

10.6

-2.3

Auto and AutoParts

Metals andMinerals

ConsumerDurables

Power Capital Goods

FY12 FY13

Net Sales Growth (y-o-y%)For Bottom 5 Performing Sectors

Source: CII calculations using Ace Equity database

15.9

40.8

-13.6

30.318.216.7 21.2

15.323.5

9.8

Leather andRubber

Textile FMCG Banks and Financial

Institutions

IT andTelecom

FY12 FY13

Operating Profit Growth (y-o-y%)For Top 5 Performing Sectors

17.3

-1.7 13.6 -1.9 -1.3

-5.2 -6.7 -5.5

3.5

-5.9Fertilizers and

ChemicalsPower Capital Goods Consumer

DurablesMetals and

Minerals

FY12 FY13

Operating Profit Growth (y-o-y%)For Bottom 5 Performing Sectors

and stood at 4.0 per cent in the last fiscal as against

contraction to the tune of 5.2 per cent during the year

before, driven considerably by declining input costs,

A positive sign, however, came in form of improved PAT

growth of the firms in 2012-13 as compared to 2011-12.

Overall PAT growth moved into the positive territory

Source: CII calculations using Ace Equity database

-95.8 -93.7

120.7

24.2 25.5 13.2 22.9

-66.5

15.9

Textile Paper andWood

Leather andRubber

FMCG Health Careand Pharma

PAT Growth (y-o-y%)For Top 5 Performing Sectors

-21.6

-6.8

1.2

-8.5 14.2

12.8 -20.1 32.9

-39.4-37.5

Fertilizers and Chemicals

Power Capital Goods ConsumerDurables

Metals andMinerals

PAT Growth (y-o-y%)For Bottom 5 Performing Sectors

1088.5

FY12 FY13 FY12 FY13

JUNE 2013

Page 15: Economy matters june 2013

13

materials, saw its profitability margins improving on the

back of increased domestic and global investment in the

sector. Leather & Rubber, FMCG, Fertilizers & Chemicals,

Banks & Financial Institutions and Oil & Gas sectors too

saw marginal upturn in PAT growth, mainly due to

declining input costs. Even though PAT growth

improved in Capital Goods, Metals & Minerals and

Consumer Durables sectors in the previous year, it still

remained in the negative territory. The sectors were

hurt by the high interest rates, policy uncertainty and

global slowdown, amongst other factors.

especially cost of interest. PAT growth rose sharply in

Text i le, Paper & Wood and Health Care &

Pharmaceuticals sector, rising to 1088.5 per cent, 120.7

per cent and 15.9 per cent respectively in 2012-13 as

compared to growth rate of -95.8 per cent, -93.7 per cent

and -66.5 per cent in the year before. Improvement in

net sales, increasing FDI and government boost led to

high profitability in Textiles sector.

The Health Care & Pharmaceuticals sector, despite

suffering a marginal rise in cost of services and raw

Similar respite was obtained from a softening in the

growth of interest cost to 19.4 per cent in 2012-13 as

compared to 45.2 per cent in 2011-12. This moderation

was seen across all the sectors, without any exception.

The sectors that benefited the most were Paper &

Wood, Leather & Rubber, IT & Telecom, and Capital

Goods, where growth in interest cost fell to as much as

0.7 per cent, 17.9 per cent, 16.3 per cent and 2.5 per cent

in 2012-13 from growth rates of 47.4 per cent, 66.5 per

cent, 108.5 per cent and 57.2 per cent in 2011-12. This

mirrors the reduction in interest rates by the RBI in the

recent months; in the fourth quarter of 2012-13 itself, RBI

cut the repo rate by 50 bps.

On an aggregate basis, growth in cost of services and

raw materials moderated to 9.1 per cent in 2012-13 as

compared to 26.7 per cent in the previous year, much to

the relief of the companies. The shrinkage is attributable

to both cost efficient practices employed by the Indian

firms as well as slowdown in new projects. Significant

cost efficiencies were visible in sectors such as Leather &

Rubber, Oil & Gas and Power whereas moderate

margins were experienced in Paper & Wood, Banks &

Financial Institutions, Auto & Auto Parts and Metals &

Minerals sectors. The exceptions were sectors including

Health Care & Pharmaceuticals, Media & Entertainment

and Consumer Goods where the growth in cost of

services and raw materials accelerated last year.

12ECONOMY MATTERS

contracted by 2.3 per cent in 2012-13 as compared to a

growth of 10.6 per cent in the year before, reflecting the

poor investment scenario in the economy. This is in

tandem with the poor performance of the capital goods

sector in IIP. Sinking demand for goods & services and

slackening infrastructure projects remained issues of

concern for capital goods sector.

Banks & Financial Institutions sector saw a growth in net

sales to the tune of 17.7 per cent, maximum among all

sectors, but lower than its 33.3 per cent growth

witnessed during 2011-12. Consumer Durables and Power

sector witnessed moderation in net sales growth to the

tune of 1.9 per cent and 0.3 per cent respectively in 2012-

13 as compared to growth rates of 5.5 per cent and 15.0

per cent in 2011-12. The Capital Goods sector's growth

and Media & Entertainment sectors saw a rise, all the

other sectors witnessed a reduction in growth of

operating profits in 2012-13 as compared to 2011-12.

Sectors like Fertilizers & Chemicals, Power, Capital

Goods, Consumer Durables and Metals & Minerals saw

contraction in their operating profits during the last

fiscal.

On an aggregate basis, operating profits (profits earned

from the core business operations excluding

investments and the effects of depreciation, interest

and taxes) growth fell to 6.2 per cent in 2012-13 as

compared to 11.7 per cent in 2011-12. Amongst the

sectors, while Textile, Paper & Wood, Leather & Rubber

Source: CII calculations using Ace Equity database

33.3

17.7

30.2

14.6 17.0

13.9 11.1 13.2 13.5 11.4

Banks and Financial

Institutions

Oil and Gas FMCG Textile Paper andwood

FY12 FY13

Net Sales Growth (y-o-y%)For Top 5 Performing Sectors

15.5

3.5

15.2

3.35.5

1.9

15.0

0.3

10.6

-2.3

Auto and AutoParts

Metals andMinerals

ConsumerDurables

Power Capital Goods

FY12 FY13

Net Sales Growth (y-o-y%)For Bottom 5 Performing Sectors

Source: CII calculations using Ace Equity database

15.9

40.8

-13.6

30.318.216.7 21.2

15.323.5

9.8

Leather andRubber

Textile FMCG Banks and Financial

Institutions

IT andTelecom

FY12 FY13

Operating Profit Growth (y-o-y%)For Top 5 Performing Sectors

17.3

-1.7 13.6 -1.9 -1.3

-5.2 -6.7 -5.5

3.5

-5.9Fertilizers and

ChemicalsPower Capital Goods Consumer

DurablesMetals and

Minerals

FY12 FY13

Operating Profit Growth (y-o-y%)For Bottom 5 Performing Sectors

and stood at 4.0 per cent in the last fiscal as against

contraction to the tune of 5.2 per cent during the year

before, driven considerably by declining input costs,

A positive sign, however, came in form of improved PAT

growth of the firms in 2012-13 as compared to 2011-12.

Overall PAT growth moved into the positive territory

Source: CII calculations using Ace Equity database

-95.8 -93.7

120.7

24.2 25.5 13.2 22.9

-66.5

15.9

Textile Paper andWood

Leather andRubber

FMCG Health Careand Pharma

PAT Growth (y-o-y%)For Top 5 Performing Sectors

-21.6

-6.8

1.2

-8.5 14.2

12.8 -20.1 32.9

-39.4-37.5

Fertilizers and Chemicals

Power Capital Goods ConsumerDurables

Metals andMinerals

PAT Growth (y-o-y%)For Bottom 5 Performing Sectors

1088.5

FY12 FY13 FY12 FY13

JUNE 2013

Page 16: Economy matters june 2013

14ECONOMY MATTERS

projects, expansion in exports and accommodating

economic reforms would help to lift the economy,

increase sales and raise the profitability for the Indian

corporate sector in the years to come.

While the current government policies should boost

sectors such as Texti le and Health Care &

Pharmaceuticals, strong stimulus is vital for Capital

Goods, Auto & Auto Parts, and Metals & Minerals

sectors. Further, an array of fresh infrastructure

Source: CII calculations using Ace Equity database

Growth in Input Cost (y-o-y%)

26.7

9.1

45.2

19.4

30.7

11.5

Cost of Services and RawMaterials

Cost of Interest Aggregate Cost

FY12 FY13

Overview

Agriculture has traditionally been an important sector of

the Indian economy, providing basic source of livelihood

to a bulk of the population in India. The latest round of

NSSO reflects close to 49 per cent of the total workforce

being engaged in the agricultural sector. Agricultural

sector is expected to meet the demands of escalating

population, as well as contribute to the foreign

exchange earnings through exports.

India has witnessed significant development in the

sector s ince independence, attr ibutable to

technological revolutions and favorable policies. Food

grains production scaled over 5 times from 1951-52,

standing at 259.3 million tons in 2011-12. Globally, India

ranks one in production of milk, pulses, jute and jute-like

fibers; is placed second in production of rice, wheat,

SECTOR IN FOCUS

Agriculturesugarcane, groundnut, vegetables, fruits and cotton;

and is amongst the leading producers of spices and

plantation crops as well as livestock, fisheries and

poultry.

Growth in the sector has been largely volatile. Though

the average annual growth rate improved to 3.3 per cent

during the 11th five year plan from 2.4 per cent during the

10th five year plan, it still remains below the targeted

growth of 4 per cent per annum. Further, the year-on-

year growth pattern reflects its over-dependence on

monsoons as well as external markets scenario. The

share of agriculture in GDP remains another worrying

issue. In recent times, challenges like low yield, waning

public investment and lack of technological

advancements have plagued the sector. Sluggish

agricultural growth is a concern, given its critical role in

meeting growing demand for food.

2008-09

2009-10

2010-11

2011-12

2012-13

14.5

15.8

14.6

14.1

13.7

Share of Agriculture in GDP

Source: Central Statistics Organization

15 JUNE 2013

Page 17: Economy matters june 2013

14ECONOMY MATTERS

projects, expansion in exports and accommodating

economic reforms would help to lift the economy,

increase sales and raise the profitability for the Indian

corporate sector in the years to come.

While the current government policies should boost

sectors such as Texti le and Health Care &

Pharmaceuticals, strong stimulus is vital for Capital

Goods, Auto & Auto Parts, and Metals & Minerals

sectors. Further, an array of fresh infrastructure

Source: CII calculations using Ace Equity database

Growth in Input Cost (y-o-y%)

26.7

9.1

45.2

19.4

30.7

11.5

Cost of Services and RawMaterials

Cost of Interest Aggregate Cost

FY12 FY13

Overview

Agriculture has traditionally been an important sector of

the Indian economy, providing basic source of livelihood

to a bulk of the population in India. The latest round of

NSSO reflects close to 49 per cent of the total workforce

being engaged in the agricultural sector. Agricultural

sector is expected to meet the demands of escalating

population, as well as contribute to the foreign

exchange earnings through exports.

India has witnessed significant development in the

sector s ince independence, attr ibutable to

technological revolutions and favorable policies. Food

grains production scaled over 5 times from 1951-52,

standing at 259.3 million tons in 2011-12. Globally, India

ranks one in production of milk, pulses, jute and jute-like

fibers; is placed second in production of rice, wheat,

SECTOR IN FOCUS

Agriculturesugarcane, groundnut, vegetables, fruits and cotton;

and is amongst the leading producers of spices and

plantation crops as well as livestock, fisheries and

poultry.

Growth in the sector has been largely volatile. Though

the average annual growth rate improved to 3.3 per cent

during the 11th five year plan from 2.4 per cent during the

10th five year plan, it still remains below the targeted

growth of 4 per cent per annum. Further, the year-on-

year growth pattern reflects its over-dependence on

monsoons as well as external markets scenario. The

share of agriculture in GDP remains another worrying

issue. In recent times, challenges like low yield, waning

public investment and lack of technological

advancements have plagued the sector. Sluggish

agricultural growth is a concern, given its critical role in

meeting growing demand for food.

2008-09

2009-10

2010-11

2011-12

2012-13

14.5

15.8

14.6

14.1

13.7

Share of Agriculture in GDP

Source: Central Statistics Organization

15 JUNE 2013

Page 18: Economy matters june 2013

17

growth in exports over 2008-09 to 2011-12. Further,

exports increased from US$29.8 billion in 2011-12 to

US$33.54 billion in 2012-13. Wheat exports from India are

expected to grow by 23 per cent in 2013-14, on back of

strong global prices and surplus domestic supply.

Exports of rice are also expected to rise due to robust

demand from West Asia, Africa and South-East Asia.

Despite the volumes, India's share in global exports is

below par when compared to countries like US, Brazil

and China. Despite being a leading producer, India is

placed tenth in global agricultural and food exports.

The FAIDA-3 report, released by CII-Mckinsey, highlights

that in order for Indian exports to be globally cost

competitive, there is a need for improvement in quality

and safety standards, emphasis on branding domestic

goods and a stable long-term trade policy.

(II) Investment Trends

(III) Exports

Low investment has been worrying, leading to declining

growth in agriculture sector. Gross capital formation in

the sector as percentage of agricultural GDP improved

only marginally from 14.9 per cent in 2006-07 to 19.8 per

cent in 2011-12, quite low when compared with overall

capital formation in the economy standing at 35 per cent

of GDP. Another major concern is the continuous decline

in public sector capital formation in agriculture which

moderated sharply from 25 per cent in 2006-07 to about

15 per cent in 2011-12. This was prompted by an increase

in share of subsidies, which form a bulk of the total

public sector expenditure allocated to agriculture, even

as only around 20 per cent goes as investments.

Trends in exports have been positive, with a 120 per cent

techniques are adopted and advanced technology is

made available at lower costs.

The impact of poor monsoons on agricultural

production is enormous as despite a significant increase

in area under irrigation over the years, almost 55 per

cent of total cultivable land is still un-irrigated. There is a

noted correlation between agricultural output and

deviation from Long Period Average rainfall.

(IV) Agricultural Yield

Low agriculture yield has been major drawback, having

impact on growth and investment in the sector. Though

most crops witnessed improved growth rates during the

11th Plan as compared to the 10th Plan, yields were much

lower when likened with developed countries. For

healthier yields, it is pivotal that modern farming

JUNE 201316ECONOMY MATTERS

relation between agricultural growth and overall GDP.

Corresponding to a rise in agricultural growth from 0.1

per cent in 2008-09 to 7.7 per cent in 2010-11, overall GDP

growth rose from 6.7 per cent to 9.3 per cent in the same

period. The same trend has also been witnessed when

overall GDP fell from 6.2 per cent in 2011-12 to 5.0 per cent

in 2012-13; agriculture growth fell in conjunction from 3.6

per cent to 1.9 per cent for comparable period.

In the following section we discuss the various growth

trends in agriculture and highlight the critical areas

which need urgent redressal.

(I) Growth

Data from the last five years supports the two-way

TRENDS

2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

% Growth in Agriculture %Growth in GDP

9.3

5.8

6.7

8.6

7.7

9.3

3.6

6.2

1.9

5.0

y-o-y%

0.1

1

Source:CSO

Overall GDP Growth VS Agriculture Growth

As far as the comparison with targeted growth is

concerned, actual growth rates have remained

considerably lower. In the 11th Five Year plan, agriculture

recorded a growth of 3.3 per cent against the target of 4

per cent. The 12th Five Year Plan too targets 4 per cent

growth in agriculture, even though the current situation

remains grim.

Amongst states, agricultural growth recorded wide

variations. During 2007-08 to 2011-12, Madhya Pradesh,

Chattisgarh, Rajasthan, Jharkhand and Karnataka were

the top five performing states in terms of agricultural

growth, with MP and Chattisgarh recording the

maximum growth of 7.6 per cent. Jammu & Kashmir,

Maharashtra, Punjab, Himachal Pradesh and Kerala

were the bottom five performing states, with Kerala

recording a contraction in growth by 0.7 per cent.

Target Growth vs Actual Growth over 5 Year Plans (y-o-y%)

4.0

3.6

4.5

2.5

4.0

2.5

4.0

3.3

8th Five Year Plan 9th Five Year Plan 10th Five Year Plan 11th Five Year Plan

ActualPlanned

Source: Planning Commission

India Occupies 10th position in global exports with a share of 2.1%

India 2.1

Malaysia, 2.3

Argentina, 2.7

Thailand, 2.9Indonesia, 2.9

Canada, 3.6

China, 3.9

Brazil, 5.2

United States, 10.1

extra-EU (27), 9.5

European Union, 37.7

India's Position in Global Exports (%)

Source: WTO, International Trade Statistics 2012

Page 19: Economy matters june 2013

17

growth in exports over 2008-09 to 2011-12. Further,

exports increased from US$29.8 billion in 2011-12 to

US$33.54 billion in 2012-13. Wheat exports from India are

expected to grow by 23 per cent in 2013-14, on back of

strong global prices and surplus domestic supply.

Exports of rice are also expected to rise due to robust

demand from West Asia, Africa and South-East Asia.

Despite the volumes, India's share in global exports is

below par when compared to countries like US, Brazil

and China. Despite being a leading producer, India is

placed tenth in global agricultural and food exports.

The FAIDA-3 report, released by CII-Mckinsey, highlights

that in order for Indian exports to be globally cost

competitive, there is a need for improvement in quality

and safety standards, emphasis on branding domestic

goods and a stable long-term trade policy.

(II) Investment Trends

(III) Exports

Low investment has been worrying, leading to declining

growth in agriculture sector. Gross capital formation in

the sector as percentage of agricultural GDP improved

only marginally from 14.9 per cent in 2006-07 to 19.8 per

cent in 2011-12, quite low when compared with overall

capital formation in the economy standing at 35 per cent

of GDP. Another major concern is the continuous decline

in public sector capital formation in agriculture which

moderated sharply from 25 per cent in 2006-07 to about

15 per cent in 2011-12. This was prompted by an increase

in share of subsidies, which form a bulk of the total

public sector expenditure allocated to agriculture, even

as only around 20 per cent goes as investments.

Trends in exports have been positive, with a 120 per cent

techniques are adopted and advanced technology is

made available at lower costs.

The impact of poor monsoons on agricultural

production is enormous as despite a significant increase

in area under irrigation over the years, almost 55 per

cent of total cultivable land is still un-irrigated. There is a

noted correlation between agricultural output and

deviation from Long Period Average rainfall.

(IV) Agricultural Yield

Low agriculture yield has been major drawback, having

impact on growth and investment in the sector. Though

most crops witnessed improved growth rates during the

11th Plan as compared to the 10th Plan, yields were much

lower when likened with developed countries. For

healthier yields, it is pivotal that modern farming

JUNE 201316ECONOMY MATTERS

relation between agricultural growth and overall GDP.

Corresponding to a rise in agricultural growth from 0.1

per cent in 2008-09 to 7.7 per cent in 2010-11, overall GDP

growth rose from 6.7 per cent to 9.3 per cent in the same

period. The same trend has also been witnessed when

overall GDP fell from 6.2 per cent in 2011-12 to 5.0 per cent

in 2012-13; agriculture growth fell in conjunction from 3.6

per cent to 1.9 per cent for comparable period.

In the following section we discuss the various growth

trends in agriculture and highlight the critical areas

which need urgent redressal.

(I) Growth

Data from the last five years supports the two-way

TRENDS

2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

% Growth in Agriculture %Growth in GDP

9.3

5.8

6.7

8.6

7.7

9.3

3.6

6.2

1.9

5.0

y-o-y%

0.1

1

Source:CSO

Overall GDP Growth VS Agriculture Growth

As far as the comparison with targeted growth is

concerned, actual growth rates have remained

considerably lower. In the 11th Five Year plan, agriculture

recorded a growth of 3.3 per cent against the target of 4

per cent. The 12th Five Year Plan too targets 4 per cent

growth in agriculture, even though the current situation

remains grim.

Amongst states, agricultural growth recorded wide

variations. During 2007-08 to 2011-12, Madhya Pradesh,

Chattisgarh, Rajasthan, Jharkhand and Karnataka were

the top five performing states in terms of agricultural

growth, with MP and Chattisgarh recording the

maximum growth of 7.6 per cent. Jammu & Kashmir,

Maharashtra, Punjab, Himachal Pradesh and Kerala

were the bottom five performing states, with Kerala

recording a contraction in growth by 0.7 per cent.

Target Growth vs Actual Growth over 5 Year Plans (y-o-y%)

4.0

3.6

4.5

2.5

4.0

2.5

4.0

3.3

8th Five Year Plan 9th Five Year Plan 10th Five Year Plan 11th Five Year Plan

ActualPlanned

Source: Planning Commission

India Occupies 10th position in global exports with a share of 2.1%

India 2.1

Malaysia, 2.3

Argentina, 2.7

Thailand, 2.9Indonesia, 2.9

Canada, 3.6

China, 3.9

Brazil, 5.2

United States, 10.1

extra-EU (27), 9.5

European Union, 37.7

India's Position in Global Exports (%)

Source: WTO, International Trade Statistics 2012

Page 20: Economy matters june 2013

19

(VI) Distribution

Loopholes in the distribution chain of agricultural

commodities remain an issue. Higher marketing

transaction costs and low price realization by the

farmers in regulated markets has resulted into

fragmented supply chains with large intermediations.

As per CII-MCKINSEY report, up to six intermediaries in

fruits and vegetable chain commonly occur in India as

compared to just the wholesaler and retailer in the US

food supply chain.

18ECONOMY MATTERS

Source: Indian Meteorological Department & CSO

(V) Food Prices

A major impact of low yield has been the growing rate of

food inflation. Food inflation has recently increased by 2

per cent and reached a level of 9.3 per cent in 2012-13

from last year indicating the continuous surge in prices.

Steep rise in MSP (Minimum Support Price) has also hurt

food prices. Despite their incentivizing motive, one of

the negative impacts has been rise in food prices.

JUNE 2013

Rice Wheat Coarse Grain Barley Cotton Major OilseedsCorn

World Yield (metric tons per hectare)2012-13Domestic Yield (metric tons per hectare) 2012-13

3.6

4.4

3.23.0

1.6

3.6

2.4

4.9

2.1

2.6

0.50

0.801.0

2.0

Comparison of Yield (2012-13)

Source: US Department of Agriculture

15

10

5

0

-5

-10

-15

-20

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

Percentage growth in Agroculture % Monsoon deviation from LPA

Vulnerability to Deficient Monsoons

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

25

20

15

10

5

0

-5

-10

-15

-20

-25

% Deviation of monsoons from LPA WPI- Food Inflation (%) % Growth in food-grain production

Impact of Deficient Monsoon on Food Inflation and Production (y-o-y %)

Source: IMD, Ministry of Industry & Ministry of Agriculture

Recommendations

The proposals for the sector are not entirely contingent upon technology or investment. The problem is also

institutional. CII recommends the following measures in order to improve the sector's output and productivity.

1. Linking agriculture to markets can be achieved by implementation of the Model Act (amended APMC Act),

taking out fruits & vegetables and fisheries from the ambit of the law, providing freedom to farmers to sell

directly to food processing companies, aggregators etc. and ensuring that market fee is applicable on availing

market facilities and not on transactions outside the market yard.

2. Creation of a common market for agricultural produce can be brought about by transition to single license and

single point levy of market fee.

3. Creation of a land market for commercial agriculture is possible through consolidation of sizeable farmlands by

leasing, to benefit from economies of scale, protection to farmer against any possible loss of his land to the

tenant and formulation of permissible leasing period and other provisions to incentivize the lessee to invest in

improvement of productivity.

4. There is a need to encouraging private sector investments in the sector.

CONCLUSION

The agriculture sector in India continues to be plagued by multiple challenges like low productivity and yield,

inadequate access to irrigation water, poor delivery mechanism and weak marketing chain, and inadequate

investment capital. A strong capital base, thus, becomes crucial for tackling issues like adoption of advanced

technology and development of infrastructure for facilitating all agricultural activities. Also important is significant

increases in public and private expenditure in research and development, extension services, irrigation and rural

infrastructure. At the same time, resource use-efficiency and prevention of over-exploitation of natural resources

also need to be taken up to promote sustainable practices.

Page 21: Economy matters june 2013

19

(VI) Distribution

Loopholes in the distribution chain of agricultural

commodities remain an issue. Higher marketing

transaction costs and low price realization by the

farmers in regulated markets has resulted into

fragmented supply chains with large intermediations.

As per CII-MCKINSEY report, up to six intermediaries in

fruits and vegetable chain commonly occur in India as

compared to just the wholesaler and retailer in the US

food supply chain.

18ECONOMY MATTERS

Source: Indian Meteorological Department & CSO

(V) Food Prices

A major impact of low yield has been the growing rate of

food inflation. Food inflation has recently increased by 2

per cent and reached a level of 9.3 per cent in 2012-13

from last year indicating the continuous surge in prices.

Steep rise in MSP (Minimum Support Price) has also hurt

food prices. Despite their incentivizing motive, one of

the negative impacts has been rise in food prices.

JUNE 2013

Rice Wheat Coarse Grain Barley Cotton Major OilseedsCorn

World Yield (metric tons per hectare)2012-13Domestic Yield (metric tons per hectare) 2012-13

3.6

4.4

3.23.0

1.6

3.6

2.4

4.9

2.1

2.6

0.50

0.801.0

2.0

Comparison of Yield (2012-13)

Source: US Department of Agriculture

15

10

5

0

-5

-10

-15

-20

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

Percentage growth in Agroculture % Monsoon deviation from LPA

Vulnerability to Deficient Monsoons

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

25

20

15

10

5

0

-5

-10

-15

-20

-25

% Deviation of monsoons from LPA WPI- Food Inflation (%) % Growth in food-grain production

Impact of Deficient Monsoon on Food Inflation and Production (y-o-y %)

Source: IMD, Ministry of Industry & Ministry of Agriculture

Recommendations

The proposals for the sector are not entirely contingent upon technology or investment. The problem is also

institutional. CII recommends the following measures in order to improve the sector's output and productivity.

1. Linking agriculture to markets can be achieved by implementation of the Model Act (amended APMC Act),

taking out fruits & vegetables and fisheries from the ambit of the law, providing freedom to farmers to sell

directly to food processing companies, aggregators etc. and ensuring that market fee is applicable on availing

market facilities and not on transactions outside the market yard.

2. Creation of a common market for agricultural produce can be brought about by transition to single license and

single point levy of market fee.

3. Creation of a land market for commercial agriculture is possible through consolidation of sizeable farmlands by

leasing, to benefit from economies of scale, protection to farmer against any possible loss of his land to the

tenant and formulation of permissible leasing period and other provisions to incentivize the lessee to invest in

improvement of productivity.

4. There is a need to encouraging private sector investments in the sector.

CONCLUSION

The agriculture sector in India continues to be plagued by multiple challenges like low productivity and yield,

inadequate access to irrigation water, poor delivery mechanism and weak marketing chain, and inadequate

investment capital. A strong capital base, thus, becomes crucial for tackling issues like adoption of advanced

technology and development of infrastructure for facilitating all agricultural activities. Also important is significant

increases in public and private expenditure in research and development, extension services, irrigation and rural

infrastructure. At the same time, resource use-efficiency and prevention of over-exploitation of natural resources

also need to be taken up to promote sustainable practices.

Page 22: Economy matters june 2013

2120ECONOMY MATTERS

surplus to the tune of US$14.1 billion (2.3 per cent of

GDP) at the start of the decade (2003-04) to a huge

deficit of US$88.2 billion (-4.8 per cent of GDP) by 2012-

13. The deterioration in CAD has worsened in the last two

years, with the deficit rising above 4 per cent for the first

time ever. Bulk of the deterioration in CAD is due to the

astronomical rise in merchandise trade deficit from

US$13.7 billion in 2003-04 to US$195.7 billion in 2012-13, a

jump of over 14 times in the period of last 10 years.

Burgeoning Current Account

Deficit

The recent sharp rise in the current account deficit

(CAD), both in absolute terms and as a percentage of

GDP, due to the sharp widening of the merchandise

trade deficit has exacerbated the risks on the external

account. Current account balance has slipped from a

Rising Risks for Current Account Deficit

SPECIAL ARTICLE

JUNE 2013

Current Account Has Widened Sharply in the Last One Decade

Source: RBI

20

10

0

-10

-20

-30

-40

-50

-60

Current account balance (US$ bn) Current account balance (as a % of GDP) RHS

3

2

1

0

-1

-2

-3

-4

-5

-6

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

Dissecting Current Account Deficit

The current account balance comprises of the balance of

trade of merchandise goods and net invisibles

transactions i.e. net exports of business, financial and

Widening of CAD has led to sharp weakening of Rupee

against the US$ amongst other things. The financing of

CAD also remains a problem with the capital flows

running the risk of reversing abruptly.

software services, net transfer payments (includes

workers' remittances) and net income received from

abroad. Merchandise deficit (MD) and transfers have

been the dominant component influencing the overall

balance. Over the decade, however, while the

contribution of net inflow of transfers has remained

stable, that of MD has increased sharply. MD stood at

10.6 per cent of GDP in 2012-13 as compared to 4.7 per

cent in 2003-04, growing at CAGR of 8.5 per cent. A rise in

invisibles, more specifically from software services, has

been partially offsetting MD. Net software exports have

grown at a CAGR of 17.8 per cent over the last decade. In

2012-13, invisibles surplus surged to US$107.5 billion even

as the MD inflated to US$195.7 billion, pushing the CAD

to 4.8 per cent of GDP from 4.2 per cent in the previous

fiscal year, which is way above the range of 2.5 - 3.0 per

cent that is considered to be sustainable for India.

MD has increased on account of a host of global and

domestic factors, which led to moderate growth in

merchandise exports and higher growth in imports.

Exports growth suffered due to the adverse impact of

suppressed external demand. Imports growth

meanwhile continued to remain buoyant mainly due to

inelastic imports of two commodities - petroleum, oil &

lubricants (POL) and gold. Our analysis shows that

merchandise trade deficit without net gold imports

would have been 3.0 percentage points of GDP lower

than that recorded during 2012-13.

(US$ billion) 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

Merchandise -13.7 -33.7 -51.9 -61.8 -91.5 -119.5 -118.2 -130.6 -189.8 -195.7

- Exports 66.3 85.2 105.2 128.9 166.2 189.0 182.4 250.5 309.8 306.6

- Imports 80.0 118.9 157.1 190.7 257.6 308.5 300.6 381.1 499.5 502.2

Invisibles 27.8 31.2 42.0 52.2 75.7 91.6 80.0 84.6 111.6 107.5

- Services 10.1 15.4 23.2 29.5 38.9 53.9 36.0 48.8 64.1 64.9

- Transfers 22.2 20.8 24.7 30.1 41.9 44.8 52.0 53.1 63.5 64.0

- Income -4.5 -5.0 -5.9 -7.3 -5.1 -7.1 -8.0 -17.3 -16.0 -21.5

Total Current Account 14.1 -2.5 -9.9 -9.6 -15.7 -27.9 -38.2 -45.9 -78.2 -88.2

Broad components of current account balance (as per old format)

Source: RBI

India's Trade Deficit with and without Gold Imports

Source: RBI & CII estimates

0

-2

-4

-6

-8

-10

-12

% of GDP

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

MD with gold imports MD without gold imports

Page 23: Economy matters june 2013

2120ECONOMY MATTERS

surplus to the tune of US$14.1 billion (2.3 per cent of

GDP) at the start of the decade (2003-04) to a huge

deficit of US$88.2 billion (-4.8 per cent of GDP) by 2012-

13. The deterioration in CAD has worsened in the last two

years, with the deficit rising above 4 per cent for the first

time ever. Bulk of the deterioration in CAD is due to the

astronomical rise in merchandise trade deficit from

US$13.7 billion in 2003-04 to US$195.7 billion in 2012-13, a

jump of over 14 times in the period of last 10 years.

Burgeoning Current Account

Deficit

The recent sharp rise in the current account deficit

(CAD), both in absolute terms and as a percentage of

GDP, due to the sharp widening of the merchandise

trade deficit has exacerbated the risks on the external

account. Current account balance has slipped from a

Rising Risks for Current Account Deficit

SPECIAL ARTICLE

JUNE 2013

Current Account Has Widened Sharply in the Last One Decade

Source: RBI

20

10

0

-10

-20

-30

-40

-50

-60

Current account balance (US$ bn) Current account balance (as a % of GDP) RHS

3

2

1

0

-1

-2

-3

-4

-5

-6

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

Dissecting Current Account Deficit

The current account balance comprises of the balance of

trade of merchandise goods and net invisibles

transactions i.e. net exports of business, financial and

Widening of CAD has led to sharp weakening of Rupee

against the US$ amongst other things. The financing of

CAD also remains a problem with the capital flows

running the risk of reversing abruptly.

software services, net transfer payments (includes

workers' remittances) and net income received from

abroad. Merchandise deficit (MD) and transfers have

been the dominant component influencing the overall

balance. Over the decade, however, while the

contribution of net inflow of transfers has remained

stable, that of MD has increased sharply. MD stood at

10.6 per cent of GDP in 2012-13 as compared to 4.7 per

cent in 2003-04, growing at CAGR of 8.5 per cent. A rise in

invisibles, more specifically from software services, has

been partially offsetting MD. Net software exports have

grown at a CAGR of 17.8 per cent over the last decade. In

2012-13, invisibles surplus surged to US$107.5 billion even

as the MD inflated to US$195.7 billion, pushing the CAD

to 4.8 per cent of GDP from 4.2 per cent in the previous

fiscal year, which is way above the range of 2.5 - 3.0 per

cent that is considered to be sustainable for India.

MD has increased on account of a host of global and

domestic factors, which led to moderate growth in

merchandise exports and higher growth in imports.

Exports growth suffered due to the adverse impact of

suppressed external demand. Imports growth

meanwhile continued to remain buoyant mainly due to

inelastic imports of two commodities - petroleum, oil &

lubricants (POL) and gold. Our analysis shows that

merchandise trade deficit without net gold imports

would have been 3.0 percentage points of GDP lower

than that recorded during 2012-13.

(US$ billion) 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

Merchandise -13.7 -33.7 -51.9 -61.8 -91.5 -119.5 -118.2 -130.6 -189.8 -195.7

- Exports 66.3 85.2 105.2 128.9 166.2 189.0 182.4 250.5 309.8 306.6

- Imports 80.0 118.9 157.1 190.7 257.6 308.5 300.6 381.1 499.5 502.2

Invisibles 27.8 31.2 42.0 52.2 75.7 91.6 80.0 84.6 111.6 107.5

- Services 10.1 15.4 23.2 29.5 38.9 53.9 36.0 48.8 64.1 64.9

- Transfers 22.2 20.8 24.7 30.1 41.9 44.8 52.0 53.1 63.5 64.0

- Income -4.5 -5.0 -5.9 -7.3 -5.1 -7.1 -8.0 -17.3 -16.0 -21.5

Total Current Account 14.1 -2.5 -9.9 -9.6 -15.7 -27.9 -38.2 -45.9 -78.2 -88.2

Broad components of current account balance (as per old format)

Source: RBI

India's Trade Deficit with and without Gold Imports

Source: RBI & CII estimates

0

-2

-4

-6

-8

-10

-12

% of GDP

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

MD with gold imports MD without gold imports

Page 24: Economy matters june 2013

2322ECONOMY MATTERS

Exports & Imports: Sectoral

Performance

Another step-down analysis into the components of the

MD reveals that even though exports have grown at a

CAGR of about 16.5 per cent during the last decade,

imports have grown at more than 20 per cent. This

suggests that the underlying trend in MD is dominated

by trend in imports.

India saw its foreign trade expand remarkably in the past

decade. India's total trade with the world touched

US$809 billion in 2012-13, growing at a compounded

annual growth rate of 18.7 per cent since 2003-04.

Although, the pace of exports growth was punctuated

twice by sharp slowdown in the world economy during

2008-09 and during the last two fiscal years, India's trade

prospects have continued to grow over time. India's

exports were worth US$64.0 billion in 2003-04, which

more than quadrupled to US$300.5 billion in 2012-13.

In the merchandise trade, manufacturing goods still

constitute the lion share of total merchandise exports.

They constituted over 60 per cent of total exports in

2012-13, a fraction that has remained mostly unchanged

over the decade, although dipped marginally last year.

The value of manufactured goods exports has more

than quadrupled to US$186.8 billion over the decade.

Exports of primary products, with their share remaining

fairly constant at little below 15 per cent during 2003-04

to 2012-13, have also scaled over five times in dollar value

terms, growing at a CAGR of 18.0 per cent over the last

ten years. Importantly, petroleum and its products have

brought in substantial revenues that soared from US$2.6

billion in 2003-04 to US$55.6 billion in 2012-13. Their share

too has increased four times in the decade to a little

below 20 per cent in 2012-13. Jump in export values is also

attributable to soaring agricultural, mineral and metal

commodity prices.

In a worrying sign, growth in exports of manufactured

products moderated sharply to 18.2 per cent in 2012-13 as

compared to 37.2 per cent in the year before. Among the

manufactured goods, exports of chemical & allied

products grew the fastest, with growth figures standing

at 28.8 per cent in 2012-13 and 26.0 per cent in 2011-12,

surpassing the growth in traditional sectors such as

textile and products (particularly readymade garments)

and gems & jewellery.

Exports of engineering goods have their outlook more

intensely entwined with the global economic prospects,

hence their growth slipped sharply last year.

Engineering goods exports moderated sharply to 15.4

per cent in 2012-13 as compared to a healthy 51.9 per cent

in the year before. However over the last decade, the

sector grew at a CAGR of 22 per cent, which was a good

performance going by the industry standards. Amongst

the various categories of engineering goods, transport

equipment witnessed the maximum growth, standing at

30.3 per cent in 2012-13, though much lower than 63.4

JUNE 2013

Imports of Gold on a Rise

Import of Gold (US$ billion) Growth Rate (y-o-y%)

2001-02 4.1 -0.7

2002-03 4.2 1.2

2003-04 3.8 -7.8

2004-05 6.5 69.5

2005-06 10.5 61.7

2006-07 10.8 2.8

2007-08 14.5 33.5

2008-09 16.7 15.6

2009-10 20.7 23.9

2010-11 28.6 38.2

2011-12 40.5 41.6

2012-13 56.2 38.7

Source: RBI

per cent last fiscal. Electronic Goods sector, on the other

hand, witnessed sharp decline. Growth in export of iron

& steel goods moderated sharply to 26.1 per cent as

compared to 41.2 per cent in 2011-12 in tandem with the

ban on mining of iron ore in major producing states.

Major labour-intensive products such as gems &

jewellery and textile products saw moderation in export

growth in 2012-13 as compared to 2011-12, despite the

doling of sops for the ailing sector in the Foreign Trade

Policy in recent quarters. The deceleration in growth has

been caused by shrinking demand in developed

countries. Further, an adverse trend was visible in the

share of textile & textile products which fell to nearly

half over 2003-04 to 2012-13 period.

Petroleum & petroleum products saw a weakening in

the growth of exports to 34.0 per cent in 2012-13 as

compared to a healthy 47.1 per cent in 2011-12. Primary

products, on the other hand, saw desirable

improvement in the growth of exports to 38.8 per cent

against 24.4 per cent in 2011-12, on the backing of an

expansion in export of agriculture and allied products,

even as the export of ores and minerals contracted

sharply over the last two years.

Table 1: Sectoral Exports

Source: RBI & CII estimates

Percentage Shares of Growth Rates (y-o-y%) CAGR (%)Total Exports

2003-04 2011-12 2012-13 2003-04 2011-12 2012-13 2003-04 to2012-13

Manufactured 62.9 51.6 62.2 20.6 37.2 18.2 16.6Goods

Engineering 14.1 19.0 22.3 29.8 51.9 15.4 22.2Goods

Transport Equipment 2.1 5.2 7.0 30.7 63.4 30.3 31.7

Machinery & Instruments 3.1 3.9 4.8 15.8 24.1 21.3 21.7

Manufacture of Metals 2.9 2.8 3.2 15.2 53.1 13.7 17.9

Electronic Goods 2.0 2.7 3.0 6.9 50.3 8.4 21.7

Iron and Steel 2.9 1.7 2.1 106.7 41.2 26.1 13.3

Gems & Jewelry 14.1 13.2 15.6 23.6 39.6 15.9 17.9

Chemicals & 11.7 9.4 12.4 23.2 26.0 28.8 17.4Allied Products

Basic Chemicals, 7.3 6.3 8.1 26.0 22.4 26.6 18.0Pharmaceuticals & Cosmetics

Plastic & Linoleum 1.9 1.5 2.1 23.7 39.4 36.0 17.9 Products

Rubber, Glass, Paints, 1.9 1.2 1.6 21.7 30.6 32.7 14.8Enamels

Textile & Textile 18.2 7.9 9.3 13.8 22.0 15.6 9.2Products

Readymade Garments 8.9 3.8 4.6 13.6 8.4 18.0 9.2

Cotton Yarn & Fabrics 5.2 1.9 2.3 9.1 57.0 17.6 7.3

Manmade Yarn & Fabrics 2.1 1.4 1.7 28.8 18.7 18.4 13.9

Petroleum 4.0 13.6 18.5 21.6 47.1 34.0 36.0Products

Primary 13.6 10.7 15.2 21.5 24.4 38.8 18.0Products

Agriculture & 10.5 7.9 12.5 13.7 36.5 54.6 18.8Allied Products

Ores & Minerals 3.1 2.8 2.7 58.1 -0.3 -5.6 15.1

Page 25: Economy matters june 2013

2322ECONOMY MATTERS

Exports & Imports: Sectoral

Performance

Another step-down analysis into the components of the

MD reveals that even though exports have grown at a

CAGR of about 16.5 per cent during the last decade,

imports have grown at more than 20 per cent. This

suggests that the underlying trend in MD is dominated

by trend in imports.

India saw its foreign trade expand remarkably in the past

decade. India's total trade with the world touched

US$809 billion in 2012-13, growing at a compounded

annual growth rate of 18.7 per cent since 2003-04.

Although, the pace of exports growth was punctuated

twice by sharp slowdown in the world economy during

2008-09 and during the last two fiscal years, India's trade

prospects have continued to grow over time. India's

exports were worth US$64.0 billion in 2003-04, which

more than quadrupled to US$300.5 billion in 2012-13.

In the merchandise trade, manufacturing goods still

constitute the lion share of total merchandise exports.

They constituted over 60 per cent of total exports in

2012-13, a fraction that has remained mostly unchanged

over the decade, although dipped marginally last year.

The value of manufactured goods exports has more

than quadrupled to US$186.8 billion over the decade.

Exports of primary products, with their share remaining

fairly constant at little below 15 per cent during 2003-04

to 2012-13, have also scaled over five times in dollar value

terms, growing at a CAGR of 18.0 per cent over the last

ten years. Importantly, petroleum and its products have

brought in substantial revenues that soared from US$2.6

billion in 2003-04 to US$55.6 billion in 2012-13. Their share

too has increased four times in the decade to a little

below 20 per cent in 2012-13. Jump in export values is also

attributable to soaring agricultural, mineral and metal

commodity prices.

In a worrying sign, growth in exports of manufactured

products moderated sharply to 18.2 per cent in 2012-13 as

compared to 37.2 per cent in the year before. Among the

manufactured goods, exports of chemical & allied

products grew the fastest, with growth figures standing

at 28.8 per cent in 2012-13 and 26.0 per cent in 2011-12,

surpassing the growth in traditional sectors such as

textile and products (particularly readymade garments)

and gems & jewellery.

Exports of engineering goods have their outlook more

intensely entwined with the global economic prospects,

hence their growth slipped sharply last year.

Engineering goods exports moderated sharply to 15.4

per cent in 2012-13 as compared to a healthy 51.9 per cent

in the year before. However over the last decade, the

sector grew at a CAGR of 22 per cent, which was a good

performance going by the industry standards. Amongst

the various categories of engineering goods, transport

equipment witnessed the maximum growth, standing at

30.3 per cent in 2012-13, though much lower than 63.4

JUNE 2013

Imports of Gold on a Rise

Import of Gold (US$ billion) Growth Rate (y-o-y%)

2001-02 4.1 -0.7

2002-03 4.2 1.2

2003-04 3.8 -7.8

2004-05 6.5 69.5

2005-06 10.5 61.7

2006-07 10.8 2.8

2007-08 14.5 33.5

2008-09 16.7 15.6

2009-10 20.7 23.9

2010-11 28.6 38.2

2011-12 40.5 41.6

2012-13 56.2 38.7

Source: RBI

per cent last fiscal. Electronic Goods sector, on the other

hand, witnessed sharp decline. Growth in export of iron

& steel goods moderated sharply to 26.1 per cent as

compared to 41.2 per cent in 2011-12 in tandem with the

ban on mining of iron ore in major producing states.

Major labour-intensive products such as gems &

jewellery and textile products saw moderation in export

growth in 2012-13 as compared to 2011-12, despite the

doling of sops for the ailing sector in the Foreign Trade

Policy in recent quarters. The deceleration in growth has

been caused by shrinking demand in developed

countries. Further, an adverse trend was visible in the

share of textile & textile products which fell to nearly

half over 2003-04 to 2012-13 period.

Petroleum & petroleum products saw a weakening in

the growth of exports to 34.0 per cent in 2012-13 as

compared to a healthy 47.1 per cent in 2011-12. Primary

products, on the other hand, saw desirable

improvement in the growth of exports to 38.8 per cent

against 24.4 per cent in 2011-12, on the backing of an

expansion in export of agriculture and allied products,

even as the export of ores and minerals contracted

sharply over the last two years.

Table 1: Sectoral Exports

Source: RBI & CII estimates

Percentage Shares of Growth Rates (y-o-y%) CAGR (%)Total Exports

2003-04 2011-12 2012-13 2003-04 2011-12 2012-13 2003-04 to2012-13

Manufactured 62.9 51.6 62.2 20.6 37.2 18.2 16.6Goods

Engineering 14.1 19.0 22.3 29.8 51.9 15.4 22.2Goods

Transport Equipment 2.1 5.2 7.0 30.7 63.4 30.3 31.7

Machinery & Instruments 3.1 3.9 4.8 15.8 24.1 21.3 21.7

Manufacture of Metals 2.9 2.8 3.2 15.2 53.1 13.7 17.9

Electronic Goods 2.0 2.7 3.0 6.9 50.3 8.4 21.7

Iron and Steel 2.9 1.7 2.1 106.7 41.2 26.1 13.3

Gems & Jewelry 14.1 13.2 15.6 23.6 39.6 15.9 17.9

Chemicals & 11.7 9.4 12.4 23.2 26.0 28.8 17.4Allied Products

Basic Chemicals, 7.3 6.3 8.1 26.0 22.4 26.6 18.0Pharmaceuticals & Cosmetics

Plastic & Linoleum 1.9 1.5 2.1 23.7 39.4 36.0 17.9 Products

Rubber, Glass, Paints, 1.9 1.2 1.6 21.7 30.6 32.7 14.8Enamels

Textile & Textile 18.2 7.9 9.3 13.8 22.0 15.6 9.2Products

Readymade Garments 8.9 3.8 4.6 13.6 8.4 18.0 9.2

Cotton Yarn & Fabrics 5.2 1.9 2.3 9.1 57.0 17.6 7.3

Manmade Yarn & Fabrics 2.1 1.4 1.7 28.8 18.7 18.4 13.9

Petroleum 4.0 13.6 18.5 21.6 47.1 34.0 36.0Products

Primary 13.6 10.7 15.2 21.5 24.4 38.8 18.0Products

Agriculture & 10.5 7.9 12.5 13.7 36.5 54.6 18.8Allied Products

Ores & Minerals 3.1 2.8 2.7 58.1 -0.3 -5.6 15.1

Page 26: Economy matters june 2013

2524ECONOMY MATTERS

India's total imports have grown over six times over the

last ten years, standing at US$491.0 billion in 2012-13. The

shares of both non-bulk as well as bulk imports have

increased over the years. Non-bulk imports, with a share

of nearly 55 per cent, amounted US$274.7 billion in 2012-

13, after having increased seven fold since 2003-04. Bulk

imports, with a share of little over 40 per cent, rose by

nine times to US$214.8 billion over the decade. Bulk

imports broadly include petroleum products and

consumption goods. While, non-bulk imports include

mainly capital goods and exports related items.

Non-bulk imports, on whole, witnessed a declined

growth of 25.6 per cent in 2012-13 as compared to 34.1

per cent in 2011-12, even though the number stood at

mere 19.1 per cent in 2003-04. Among non-bulk imports,

an enormous growth of around 44 per cent was seen in

the import of gold & silver over last two years. This is a

huge increase from negative growth during 2003-04.

Notably, its share too has more than doubled since 2003-

04. In particular, the share of gold alone in 2012-13 was

11.5 per cent of the total imports, an outcome of the

frenzied buying in response to steep drop in

international gold prices along with lack of attractive

financial instruments in the wake of high inflation. An

increase in gold import duty and several other measures

to incentivise financial savings were taken by the

government to curb gold imports in the last quarter of

2012-13.

Coal, coke & briquettes too registered a high growth of

77.5 per cent in their imports, a large increase from 9.5

per cent in 2011-12, in response to an increased demand

from power stations and steelmakers. Their share too,

has doubled over the decade. Capital Goods sector saw a

rise in its imports from 19.3 per cent in 2011-12 to 26.5 per

cent in 2012-13, much lower though from 36.6 per cent in

2003-04. Among capital goods, transport equipment

showed high growth in imports as compared to previous

year, though the figure was still lower than that in 2003-

04. This growth was, however, partly contributed by a

sharp rise in prices. Imports in project goods too showed

increase, both in terms of value and share.

Bulk imports increased sharply this year with a growth of

42.1 per cent as compared to 20.6 per cent in 2011-12 and

19.9 per cent in 2003-04. Among bulk imports,

petroleum, crude & products, with a share of little over

30 per cent in total imports, showed large increase in

growth of imports to 46.2 per cent as compared to 21.6

per cent in 2011-12. The rise was credited to both increase

in share and increase in prices.

Imports in fertilizers sector, not only saw its share

getting tripled since 2003-04, but also grew sharply by

60.8 per cent in 2012-13 as compared to 4.8 per cent in

2011-12, mostly because of a sharp increase in imports of

manufactured fertilisers. This was in tandem with

increased production and exports of agriculture and

allied products, and was responded by the government

with a decrease in custom duties on import of

equipment for setting up and expansion of fertilizer

projects. Consumption goods saw a growth in imports

by 31.2 per cent as compared to a contraction by 1.8 per

cent last year, even as its share has been fluctuating over

the years.

Growth in imports of iron & steel and non-ferrous metals

saw a drop. A high excise duty to discourage exports and

give more access to iron ore to Indian steel makers drove

this decline.

JUNE 2013

ConclusionIndia's external position has been deteriorating for

some time, manifesting itself in a steady deterioration in

the current account which slipped from a surplus at the

start of the last decade to a huge deficit of 4.8 per cent in

2012-13. Our analysis shows that the bulk of the

deterioration in CAD is attributable to the sharp rise in

merchandise trade deficit in the last decade or so, when

it jumped by over 14 times. Amongst the various sub-

sectors of exports, textile sector did the worst both in

terms of decline in its share in total exports and its

growth rate over the last decade. Some urgent remedial

measures for this sector are the need of the hour.

Amongst the imports, gold & silver and coal products

saw a sharp jump in their imports growth during the last

decade. Both these items have been the main culprits

from the imports side responsible for the widening of

the trade deficit in the last decade. Though recently

policy makers have taken some measures to curb

imports of these two commodities, but a lot more still

needs to be done. As regards to arresting gold imports,

apart from the administrative measures to curb the

same, we also need to address the lack of alternative

savings instruments that are perceived to be safe in the

long-term by the investors.

Ultimately, for India to contain its current account deficit

at a more sustainable level of 2.0-2.5 per cent of GDP, it is

essential that we ensure competitiveness of our goods

and services, so that our imports are contained and

exports boosted.

Source: RBI & CII estimates

Table 2: Sectoral ImportsPercentage Shares of Growth Rates (y-o-y%) CAGR (%)

Total Exports

2003-04 2011-12 2012-13 2003-04 2011-12 2012-13 2003-04 to2012-13

Non Bulk 47.4 44.7 55.9 19.1 34.1 25.6 22.2Imports

Capital Goods 17.2 16.1 20.2 36.6 19.3 26.5 22.1

Electronic Goods 7.2 5.4 6.6 48.1 26.7 22.8 19.3

Machinery excluding 4.6 4.9 6.2 20.0 21.2 26.8 23.8Electrical

Transport Equipment 2.4 2.3 2.9 65.1 -2.2 22.7 22.2

Project Goods 0.7 1.3 1.8 -4.6 31.2 43.0 32.1

Gold & Silver 5.5 8.7 12.5 -6.4 43.5 44.4 30.5

Gold 4.9 8.3 11.5 -7.8 41.6 38.7 30.8

Pearls, Precious & 7.7 7.1 6.2 31.2 114.0 -11.8 17.5Semi precious Stones

Organic & Inorganic 3.9 3.1 3.9 8.1 27.9 24.5 20.1Chemicals

Coal, Coke & 1.6 2.0 3.5 8.4 9.4 77.5 30.2Briquettes

Artificial Resins & 1.0 1.4 1.5 16.0 37.7 9.6 25.4Plastic Material

Bulk Imports 31.1 30.9 43.7 19.9 20.6 42.1 24.3

Petroleum, Crude 22.5 21.7 31.5 26.0 21.6 46.2 24.3& Products

Iron and Steel 1.2 2.1 2.4 13.2 25.9 15.5 28.9

Fertilizers 0.8 1.5 2.3 -7.8 4.8 60.8 33.8

Manufactured 0.5 1.3 1.9 -21.4 3.6 51.0 38.6Fertilizers

Metalliferous Ores, 1.3 2.0 2.7 -9.3 26.3 37.9 29.1Metal Scrap

Consumption Good 3.1 1.8 2.4 18.0 -1.8 31.2 17.0

Edible Oils 2.3 1.3 2.0 33.8 17.4 47.2 18.2

Non Ferrous Metals 0.9 0.8 1.0 3.0 35.7 19.8 22.0

Page 27: Economy matters june 2013

2524ECONOMY MATTERS

India's total imports have grown over six times over the

last ten years, standing at US$491.0 billion in 2012-13. The

shares of both non-bulk as well as bulk imports have

increased over the years. Non-bulk imports, with a share

of nearly 55 per cent, amounted US$274.7 billion in 2012-

13, after having increased seven fold since 2003-04. Bulk

imports, with a share of little over 40 per cent, rose by

nine times to US$214.8 billion over the decade. Bulk

imports broadly include petroleum products and

consumption goods. While, non-bulk imports include

mainly capital goods and exports related items.

Non-bulk imports, on whole, witnessed a declined

growth of 25.6 per cent in 2012-13 as compared to 34.1

per cent in 2011-12, even though the number stood at

mere 19.1 per cent in 2003-04. Among non-bulk imports,

an enormous growth of around 44 per cent was seen in

the import of gold & silver over last two years. This is a

huge increase from negative growth during 2003-04.

Notably, its share too has more than doubled since 2003-

04. In particular, the share of gold alone in 2012-13 was

11.5 per cent of the total imports, an outcome of the

frenzied buying in response to steep drop in

international gold prices along with lack of attractive

financial instruments in the wake of high inflation. An

increase in gold import duty and several other measures

to incentivise financial savings were taken by the

government to curb gold imports in the last quarter of

2012-13.

Coal, coke & briquettes too registered a high growth of

77.5 per cent in their imports, a large increase from 9.5

per cent in 2011-12, in response to an increased demand

from power stations and steelmakers. Their share too,

has doubled over the decade. Capital Goods sector saw a

rise in its imports from 19.3 per cent in 2011-12 to 26.5 per

cent in 2012-13, much lower though from 36.6 per cent in

2003-04. Among capital goods, transport equipment

showed high growth in imports as compared to previous

year, though the figure was still lower than that in 2003-

04. This growth was, however, partly contributed by a

sharp rise in prices. Imports in project goods too showed

increase, both in terms of value and share.

Bulk imports increased sharply this year with a growth of

42.1 per cent as compared to 20.6 per cent in 2011-12 and

19.9 per cent in 2003-04. Among bulk imports,

petroleum, crude & products, with a share of little over

30 per cent in total imports, showed large increase in

growth of imports to 46.2 per cent as compared to 21.6

per cent in 2011-12. The rise was credited to both increase

in share and increase in prices.

Imports in fertilizers sector, not only saw its share

getting tripled since 2003-04, but also grew sharply by

60.8 per cent in 2012-13 as compared to 4.8 per cent in

2011-12, mostly because of a sharp increase in imports of

manufactured fertilisers. This was in tandem with

increased production and exports of agriculture and

allied products, and was responded by the government

with a decrease in custom duties on import of

equipment for setting up and expansion of fertilizer

projects. Consumption goods saw a growth in imports

by 31.2 per cent as compared to a contraction by 1.8 per

cent last year, even as its share has been fluctuating over

the years.

Growth in imports of iron & steel and non-ferrous metals

saw a drop. A high excise duty to discourage exports and

give more access to iron ore to Indian steel makers drove

this decline.

JUNE 2013

ConclusionIndia's external position has been deteriorating for

some time, manifesting itself in a steady deterioration in

the current account which slipped from a surplus at the

start of the last decade to a huge deficit of 4.8 per cent in

2012-13. Our analysis shows that the bulk of the

deterioration in CAD is attributable to the sharp rise in

merchandise trade deficit in the last decade or so, when

it jumped by over 14 times. Amongst the various sub-

sectors of exports, textile sector did the worst both in

terms of decline in its share in total exports and its

growth rate over the last decade. Some urgent remedial

measures for this sector are the need of the hour.

Amongst the imports, gold & silver and coal products

saw a sharp jump in their imports growth during the last

decade. Both these items have been the main culprits

from the imports side responsible for the widening of

the trade deficit in the last decade. Though recently

policy makers have taken some measures to curb

imports of these two commodities, but a lot more still

needs to be done. As regards to arresting gold imports,

apart from the administrative measures to curb the

same, we also need to address the lack of alternative

savings instruments that are perceived to be safe in the

long-term by the investors.

Ultimately, for India to contain its current account deficit

at a more sustainable level of 2.0-2.5 per cent of GDP, it is

essential that we ensure competitiveness of our goods

and services, so that our imports are contained and

exports boosted.

Source: RBI & CII estimates

Table 2: Sectoral ImportsPercentage Shares of Growth Rates (y-o-y%) CAGR (%)

Total Exports

2003-04 2011-12 2012-13 2003-04 2011-12 2012-13 2003-04 to2012-13

Non Bulk 47.4 44.7 55.9 19.1 34.1 25.6 22.2Imports

Capital Goods 17.2 16.1 20.2 36.6 19.3 26.5 22.1

Electronic Goods 7.2 5.4 6.6 48.1 26.7 22.8 19.3

Machinery excluding 4.6 4.9 6.2 20.0 21.2 26.8 23.8Electrical

Transport Equipment 2.4 2.3 2.9 65.1 -2.2 22.7 22.2

Project Goods 0.7 1.3 1.8 -4.6 31.2 43.0 32.1

Gold & Silver 5.5 8.7 12.5 -6.4 43.5 44.4 30.5

Gold 4.9 8.3 11.5 -7.8 41.6 38.7 30.8

Pearls, Precious & 7.7 7.1 6.2 31.2 114.0 -11.8 17.5Semi precious Stones

Organic & Inorganic 3.9 3.1 3.9 8.1 27.9 24.5 20.1Chemicals

Coal, Coke & 1.6 2.0 3.5 8.4 9.4 77.5 30.2Briquettes

Artificial Resins & 1.0 1.4 1.5 16.0 37.7 9.6 25.4Plastic Material

Bulk Imports 31.1 30.9 43.7 19.9 20.6 42.1 24.3

Petroleum, Crude 22.5 21.7 31.5 26.0 21.6 46.2 24.3& Products

Iron and Steel 1.2 2.1 2.4 13.2 25.9 15.5 28.9

Fertilizers 0.8 1.5 2.3 -7.8 4.8 60.8 33.8

Manufactured 0.5 1.3 1.9 -21.4 3.6 51.0 38.6Fertilizers

Metalliferous Ores, 1.3 2.0 2.7 -9.3 26.3 37.9 29.1Metal Scrap

Consumption Good 3.1 1.8 2.4 18.0 -1.8 31.2 17.0

Edible Oils 2.3 1.3 2.0 33.8 17.4 47.2 18.2

Non Ferrous Metals 0.9 0.8 1.0 3.0 35.7 19.8 22.0

Page 28: Economy matters june 2013

26ECONOMY MATTERS 27 JUNE 2013

ECONOMY MONITORGLOBAL GDP (y-o-y%)

DOMESTIC GDP GROWTH (y-o-y%)

WPI INFLATION (y-o-y%)

INDEX OF INDUSTRIAL PRODUCTION (IIP) (y-o-y%)

US GDP Growth (y-o-y%) Japan GDP Growth (y-o-y%)

IndustryOverall GDP

Overall

1Q12 2Q12 3Q12 4Q12 1Q13

2.4 2.1 2.6

1.7 1.8

-0.1

-0.5

-0.7

-1.0-1.1

1Q12 2Q12 3Q12 4Q12 1Q13

Euro Area GDP Growth (y-o-y%)

3.23.9

0.2 0.4 0.4

1Q12 2Q12 3Q12 4Q12 1Q13

8.1

7.67.4

7.97.7

1Q12 2Q12 4Q12

China GDP Growth (y-o-y%)

3Q12 1Q13

5.1

5.45.2

4.7 4.8

4QFY12 1QFY13 2QFY13 3QFY13 4QFY13

2.0

2.9

1.7 1.81.4

4QFY12 1QFY13 2QFY13 3QFY13 4QFY13

Agriculture

2.1

1.8

1.3

2.52.7

4QFY12 1QFY13 2QFY13 3QFY13 4QFY13

7.3

7.7 7.6

6.7 6.6

4QFY12 1QFY13 2QFY13 3QFY13 4QFY13

Services

7.3 7.3

5.7

4.9 4.7

Jan-13 Feb-13 Mar-13 Apr-13 May-13

11.410.5

7.4

5.86.7

Primary

Jan-13 Feb-13 Mar-13 Apr-13 May-13

9.310.6

7.8

8.8

7.3

Fuel

Jan-13 Feb-13 Mar-13 Apr-13 May-13

4.9 4.84.3

3.4 3.1

Manufacturing

Jan-13 Feb-13 Mar-13 Apr-13 May-13

General Manufacturing Electricity Mining

0.6

2.53.4

1.9

-1.6

Jan-13 Feb-13 Mar-13 Apr-13 May-13

2.72.1

4.2

2.3

-2.1

Jan-13 Feb-13 Mar-13 Apr-13 May-13

6.4

-3.2

3.5 4.2

6.2

Jan-13 Feb-13 Mar-13 Apr-13 May-13

-1.8

-7.7

-2.7-3.3

-5.7

Jan-13 Feb-13 Mar-13 Apr-13 May-13

14.9

10.3

17.820.1

12.2

Exports (%) Imports (%)

Jan-13 Feb-13 Mar-13 Apr-13 May-13

Trade Deficit (US$ Bn)

21.7

17.121.1

31.8

18.2

4QFY12 1QFY13 2QFY13 3QFY13 4QFY13

Current Account Deficit (US$ Bn)

53.854.4

58.4

Feb-13 Mar-13 Apr-13 May-13 Jun-13

Avg Exchange Rate (Rs/US$)

54.455.0

EXTERNAL ACCOUNT

Source: RBI, CSO, SEBI, Office of Economic Advisor, Bureau of Economic Analysis, Euro Stat, Bank of Japan, National Bureau of Statistics

MONETARY VARIABLES (%)

CAPITAL FLOWS (US$ billion)

OTHER IMPORTANT INDICATORS (y-o-y%)

Jan-13 Feb-13 Mar-13 Apr-13 May-13

Non-Food Credit Growth (y-o-y%)

Jan-13 Feb-13 Mar-13 Apr-13 May-13

12.7 12.4 12.4 12.512.1

M3Growth (y-o-y%) Repo Rate (%)

Apr-13 Jun-13May-13

7.75

7.507.25 7.25

Cash Reserve Ratio (%)

4.00 4.00 4.00 4.00

Feb-13 Mar-13 Apr-13 May-13

Net FII Flows (US$ billion) Net FDI Flows (US$ billion) Forex Reserves (US$ billion)

290.6292.6

296.4

287.9285.5

Feb-13 Mar-13 Apr-13 May-13 Jun-13

ECB flows (US$ billion)

Feb-13 Mar-13 Apr-13 May-13 Jun-13

5.32.7 2.0

5.2

-7.5

2.3

0.5

1.0

2.8

4QFY12 2QFY13 3QFY13

4.00

Jun-13

4.2

4QFY131QFY13

Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jan-13 Feb-13 Mar-13 Apr-13 May-13

Core Sector Growth (y-o-y%)

10.2

3.1

8.3 8.2

3.0

Cement Production Growth (y-o-y%) Steel Production Growth (y-o-y%)

-20.5-23.6

-7.8

11.5

2.5

Commercial VehiclesProduction Growth (y-o-y%)

1.9

0.5

6.6

1.9

4.1

Jan-13 Feb-13 Mar-13 Apr-13 May-13

3.73.2

2.4 2.3

-2.4

15.8 16.1

14.014.7

15.5

Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13

3.12.6

1.3

2.8

1.95

Feb-13 Mar-13

4.2

6.9

1.7

-1.1

-4.6

2.6

-2.9

11.0

6.9

-0.4

Feb-13 Mar-13 Apr-13 May-13 Jun-13

Page 29: Economy matters june 2013

26ECONOMY MATTERS 27 JUNE 2013

ECONOMY MONITORGLOBAL GDP (y-o-y%)

DOMESTIC GDP GROWTH (y-o-y%)

WPI INFLATION (y-o-y%)

INDEX OF INDUSTRIAL PRODUCTION (IIP) (y-o-y%)

US GDP Growth (y-o-y%) Japan GDP Growth (y-o-y%)

IndustryOverall GDP

Overall

1Q12 2Q12 3Q12 4Q12 1Q13

2.4 2.1 2.6

1.7 1.8

-0.1

-0.5

-0.7

-1.0-1.1

1Q12 2Q12 3Q12 4Q12 1Q13

Euro Area GDP Growth (y-o-y%)

3.23.9

0.2 0.4 0.4

1Q12 2Q12 3Q12 4Q12 1Q13

8.1

7.67.4

7.97.7

1Q12 2Q12 4Q12

China GDP Growth (y-o-y%)

3Q12 1Q13

5.1

5.45.2

4.7 4.8

4QFY12 1QFY13 2QFY13 3QFY13 4QFY13

2.0

2.9

1.7 1.81.4

4QFY12 1QFY13 2QFY13 3QFY13 4QFY13

Agriculture

2.1

1.8

1.3

2.52.7

4QFY12 1QFY13 2QFY13 3QFY13 4QFY13

7.3

7.7 7.6

6.7 6.6

4QFY12 1QFY13 2QFY13 3QFY13 4QFY13

Services

7.3 7.3

5.7

4.9 4.7

Jan-13 Feb-13 Mar-13 Apr-13 May-13

11.410.5

7.4

5.86.7

Primary

Jan-13 Feb-13 Mar-13 Apr-13 May-13

9.310.6

7.8

8.8

7.3

Fuel

Jan-13 Feb-13 Mar-13 Apr-13 May-13

4.9 4.84.3

3.4 3.1

Manufacturing

Jan-13 Feb-13 Mar-13 Apr-13 May-13

General Manufacturing Electricity Mining

0.6

2.53.4

1.9

-1.6

Jan-13 Feb-13 Mar-13 Apr-13 May-13

2.72.1

4.2

2.3

-2.1

Jan-13 Feb-13 Mar-13 Apr-13 May-13

6.4

-3.2

3.5 4.2

6.2

Jan-13 Feb-13 Mar-13 Apr-13 May-13

-1.8

-7.7

-2.7-3.3

-5.7

Jan-13 Feb-13 Mar-13 Apr-13 May-13

14.9

10.3

17.820.1

12.2

Exports (%) Imports (%)

Jan-13 Feb-13 Mar-13 Apr-13 May-13

Trade Deficit (US$ Bn)

21.7

17.121.1

31.8

18.2

4QFY12 1QFY13 2QFY13 3QFY13 4QFY13

Current Account Deficit (US$ Bn)

53.854.4

58.4

Feb-13 Mar-13 Apr-13 May-13 Jun-13

Avg Exchange Rate (Rs/US$)

54.455.0

EXTERNAL ACCOUNT

Source: RBI, CSO, SEBI, Office of Economic Advisor, Bureau of Economic Analysis, Euro Stat, Bank of Japan, National Bureau of Statistics

MONETARY VARIABLES (%)

CAPITAL FLOWS (US$ billion)

OTHER IMPORTANT INDICATORS (y-o-y%)

Jan-13 Feb-13 Mar-13 Apr-13 May-13

Non-Food Credit Growth (y-o-y%)

Jan-13 Feb-13 Mar-13 Apr-13 May-13

12.7 12.4 12.4 12.512.1

M3Growth (y-o-y%) Repo Rate (%)

Apr-13 Jun-13May-13

7.75

7.507.25 7.25

Cash Reserve Ratio (%)

4.00 4.00 4.00 4.00

Feb-13 Mar-13 Apr-13 May-13

Net FII Flows (US$ billion) Net FDI Flows (US$ billion) Forex Reserves (US$ billion)

290.6292.6

296.4

287.9285.5

Feb-13 Mar-13 Apr-13 May-13 Jun-13

ECB flows (US$ billion)

Feb-13 Mar-13 Apr-13 May-13 Jun-13

5.32.7 2.0

5.2

-7.5

2.3

0.5

1.0

2.8

4QFY12 2QFY13 3QFY13

4.00

Jun-13

4.2

4QFY131QFY13

Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jan-13 Feb-13 Mar-13 Apr-13 May-13

Core Sector Growth (y-o-y%)

10.2

3.1

8.3 8.2

3.0

Cement Production Growth (y-o-y%) Steel Production Growth (y-o-y%)

-20.5-23.6

-7.8

11.5

2.5

Commercial VehiclesProduction Growth (y-o-y%)

1.9

0.5

6.6

1.9

4.1

Jan-13 Feb-13 Mar-13 Apr-13 May-13

3.73.2

2.4 2.3

-2.4

15.8 16.1

14.014.7

15.5

Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13

3.12.6

1.3

2.8

1.95

Feb-13 Mar-13

4.2

6.9

1.7

-1.1

-4.6

2.6

-2.9

11.0

6.9

-0.4

Feb-13 Mar-13 Apr-13 May-13 Jun-13

Page 30: Economy matters june 2013

DISCLAIMER

Copyright © 2013 by Confederation of Indian Industry (CII), All rights reserved.

No part of this publication may be reproduced, stored in, or introduced into a retrieval system, or transmitted in any form or by

any means (electronic, mechanical, photocopying, recording or otherwise), without the prior written permission of the

copyright owner. CII has made every effort to ensure the accuracy of information presented in this document. However,

neither CII nor any of its office bearers or analysts or employees can be held responsible for any financial consequences arising

out of the use of information provided herein. However, in case of any discrepancy, error, etc., same may please be brought to

the notice of CII for appropriate corrections.

Published by Confederation of Indian Industry (CII), The Mantosh Sondhi Centre; 23, Institutional Area, Lodi Road, New Delhi-

110003 (INDIA),

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ECONOMY MATTERS

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companies

Read by CII Members, Thought Leaders,

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Dr. Danish A. Hashim, Director- Economic Research

Page 31: Economy matters june 2013

DISCLAIMER

Copyright © 2013 by Confederation of Indian Industry (CII), All rights reserved.

No part of this publication may be reproduced, stored in, or introduced into a retrieval system, or transmitted in any form or by

any means (electronic, mechanical, photocopying, recording or otherwise), without the prior written permission of the

copyright owner. CII has made every effort to ensure the accuracy of information presented in this document. However,

neither CII nor any of its office bearers or analysts or employees can be held responsible for any financial consequences arising

out of the use of information provided herein. However, in case of any discrepancy, error, etc., same may please be brought to

the notice of CII for appropriate corrections.

Published by Confederation of Indian Industry (CII), The Mantosh Sondhi Centre; 23, Institutional Area, Lodi Road, New Delhi-

110003 (INDIA),

Tel: +91-11-24629994-7, Fax: +91-11-24626149; Email: [email protected]; Web: www.cii.in

ECONOMY MATTERS

n

n

n

Keeps readers abreast of global & domestic

economic developments

Monthly Journal of top management of 8000

companies

Read by CII Members, Thought Leaders,

Diplomats, Policy Makers, MPs and other

decision makers

The Facts

n

n

n

n

n

n

Domestic Trends

Corporate Performance

Sector in Focus

Special Article

Economy Monitor

Global Trends

The Coverage

CII invites full-page* Advertisements for

this flagship document at an attractive rate

of Rs 50,000 per issue and Rs 5 lakh for 12

issues

* Full page size :

11.75 inch (Height) by 8.25 inch (Width)

For more details, Please Contact: Confederation of Indian Industry

The Mantosh Sondhi Centre, 23, Institutional Area, Lodi Road, New Delhi- 110003 (INDIA)Tel : +91-011-24629994-7, Fax: +91-011-24626149; Email: [email protected]

Dr. Danish A. Hashim, Director- Economic Research

Page 32: Economy matters june 2013

Economic Research ServicesCII's Economic Research Wing provides customised, comprehensive and in-depth research and analysis through its team of reputed and experienced economists.

Capable of efficiently catering to wide ranging research needs of various stakeholders including; industries, business

houses, government and international organizations.

Services Portfolio

Research Fields

EconomyCII conducts research by

industry /region/ state to offer -

Macroeconomic perspective

on the economy

Inputs for policy formulation

Forecasting of trends

v

v

v

InternationalCII works with international

organisations to offer -

Analysis of global economic

trends

Analysis of business trends

Management strategies

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v

v

CII works in over 50 sectors

and offers -

Sector reports

Comprehensive business &

market research

Surveys

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Industry Society & LivingCII analyses socio-economic

indicators to offer -

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public policy

Social security and public

management systems

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CII Economic Research Advantages

Wide presence within India

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v

63 offices in India

10 centers of excellence

Large global footprint

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v

7 overseas offices

Institutional partnership with

224 counterpart

organizations in 90 countries

v

v

Access to over 7100 direct

and 90,000 indirect members

(including SMEs and MNCs)

Liason with government &

international organizations

A reference point for Indian Industry

Highly experienced team

vWell established team of

economists with expertise in

handling diverse topics and

sectors

For CII Economic Research Services, please contactDr. Danish A. Hashim, Director- Economic Research

23, Institutional Area, Lodi Road, New Delhi- 110 003, India, T: +91-11-2462 9994-7, Extn: 409, F: +91 -11-2462 6149, M: 9650446625, E: [email protected]

Research Projects

Business Research & Consulting

Customised Reports

Industry Surveys

Regular Publications

Notes

Page 33: Economy matters june 2013

Economic Research ServicesCII's Economic Research Wing provides customised, comprehensive and in-depth research and analysis through its team of reputed and experienced economists.

Capable of efficiently catering to wide ranging research needs of various stakeholders including; industries, business

houses, government and international organizations.

Services Portfolio

Research Fields

EconomyCII conducts research by

industry /region/ state to offer -

Macroeconomic perspective

on the economy

Inputs for policy formulation

Forecasting of trends

v

v

v

InternationalCII works with international

organisations to offer -

Analysis of global economic

trends

Analysis of business trends

Management strategies

v

v

v

CII works in over 50 sectors

and offers -

Sector reports

Comprehensive business &

market research

Surveys

v

v

v

Industry Society & LivingCII analyses socio-economic

indicators to offer -

Research and analysis on

public policy

Social security and public

management systems

v

v

CII Economic Research Advantages

Wide presence within India

v

v

63 offices in India

10 centers of excellence

Large global footprint

v

v

7 overseas offices

Institutional partnership with

224 counterpart

organizations in 90 countries

v

v

Access to over 7100 direct

and 90,000 indirect members

(including SMEs and MNCs)

Liason with government &

international organizations

A reference point for Indian Industry

Highly experienced team

vWell established team of

economists with expertise in

handling diverse topics and

sectors

For CII Economic Research Services, please contactDr. Danish A. Hashim, Director- Economic Research

23, Institutional Area, Lodi Road, New Delhi- 110 003, India, T: +91-11-2462 9994-7, Extn: 409, F: +91 -11-2462 6149, M: 9650446625, E: [email protected]

Research Projects

Business Research & Consulting

Customised Reports

Industry Surveys

Regular Publications

Notes

Page 34: Economy matters june 2013

Notes

Page 35: Economy matters june 2013

Notes

Page 36: Economy matters june 2013

The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the

development of India, partnering industry, Government, and civil society, through advisory and consultative

processes.

CII is a non-government, not-for-profit, industry led and industry managed organization, playing a proactive role in

India's development process. Founded over 118 years ago, India's premier business association has over 7100

member organizations, from the private as well as public sectors, including SMEs and MNCs, and an indirect

membership of over 90,000 companies from around 257 national and regional sectoral associations.

CII charts change by working closely with Government on policy issues, interfacing with thought leaders, and

enhancing efficiency, competitiveness and business opportunities for industry through a range of specialised

services and global linkages. It also provides a platform for consensus-building and networking on diverse issues.

Extending its agenda beyond business, CII assists industry to identify and execute corporate citizenship

programmes. Partnerships with over 120 NGOs across the country carry forward our initiatives for integrated and

inclusive development, in affirmative action, healthcare, education, livelihood, diversity management, skill

development, empowerment of women, and water, to name a few.

The CII Theme for 2013-14 is Accelerating Economic Growth through Innovation, Transformation, Inclusion and

Governance. Towards this, CII advocacy will accord top priority to stepping up the growth trajectory of the nation,

while retaining a strong focus on accountability, transparency and measurement in both the corporate and social

eco-system, building a knowledge economy, and broad-basing development to help deliver the fruits of progress

to many.

With 63 offices including 10 Centres of Excellence in India, and 7 overseas offices in Australia, China, France,

Singapore, South Africa, UK, and USA, as well as institutional partnerships with 224 counterpart organizations in

90 countries, CII serves as a reference point for Indian industry and the international business community.

ABOUT CII Research

The CII Research team regularly tracks economic, political and business developments within India and abroad to

comment on the emerging economic scenario for the Indian corporate sector. It tracks policy developments,

offers comprehensive analysis of industries and comments on and analyzes the economic climate through its

regular publications– Economy Matters, Business Outlook Survey and, Fortnightly Economic Updates.

We have in-house expertise in providing the most comprehensive, in-depth, unbiased and incisive analysis and

forecasts on the Indian economy and various sectors. CII Research is also well versed and well equipped to offer

customized research based consultancy services on any theme. It has been catering to the needs of various

stakeholders including industries, business houses and government providing meaningful insights about the

prevailing trends, outlook on likely future trends, factors behind these trends, existing government policies and

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objective of CII Research is to assist stakeholders in taking more informed and strategic decisions with due focus

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to us at [email protected]