ECONOMY MATTERSVolume 01 No. 10October-November 2013

Micro, Small & Medium Enterprises (MSMEs) :

Challenges & Prospects

US economy is recovering faster-than-expected, mirrored by the strong set of GDP

numbers printed in the third quarter coupled with improvement in non-farm payrolls

(NFP) numbers for October 2013. But the markets have not taken kindly to the steady

improvement in US economy as it has raised the prospects of the US Fed embarking upon

QE-tapering sooner than previously expected. Capital inflows to emerging economies

have weakened as a result, giving rise to sharp depreciation of their currencies against the

greenback. However, it must be noted that the GDP number would undergo revisions in

the coming months and NFP headline number too, being a volatile series, is prone to

substantial revisions. Consequently, more water has to pass through the bridge to reach

any decisive conclusion on the durability and speed of economic recovery in the US. But as

of now, the signals coming out of the world's largest economy look propitious.

On the domestic front, data coming out has not been too encouraging with the exception

of robust set of export numbers which have come out in the past few months. Lackluster

industrial production for September 2013 proved to be a dampener as they were preceded

by healthy core sector growth. Going forward, the data for October and November could

see some buoyancy owing to demand pick up during the festive season. Inflation, on the

other hand, continues to rise unabated, with October 2013 data print reaching its highest

level in the last 8 months, mainly due to higher food prices. This has led to the RBI

tightening interest rates by a cumulative 50 basis points in the last couple of months.

Robust exports growth provides the only reason for cheer in the otherwise grim scenario.

Exports since last 4 months from July to October 2013 have come to positive growth

trajectory due to stability in the global market, particularly in our large trading partners

like US and Europe. Going forward, robust exports along with moderating imports will

help in reining the current account deficit at around 3 per cent of GDP in the current fiscal.

Micro, Small & Medium Enterprises (MSMEs) play a pivotal role in the overall industrial

economy of the country. MSMEs in India account for over 40 per cent of India's industrial

output, exports and employment. However, its contribution to India's GDP is a meager 8.7

per cent. Higher cost of credit, limited access to equity capital, inability to build brands

have meant Indian MSMEs are lagging far behind their peers in other emerging and

developed economies. Today, as India looks to accelerate its manufacturing growth in

order to achieve sustained 8-9 per cent GDP growth and self-sufficiency in a gamut of

strategic, industrial and household goods, MSME manufacturing mandates the greater

attention of policy makers and industry leaders alike. CII through its various

recommendations and initiatives has been at the forefront of driving behind a

momentous shift in the growth momentum of the MSMEs.

Chandrajit Banerjee

Director-General, CII

1

FOREWORD

OCTOBER-NOVEMBER 2013

US economy is recovering faster-than-expected, mirrored by the strong set of GDP

numbers printed in the third quarter coupled with improvement in non-farm payrolls

(NFP) numbers for October 2013. But the markets have not taken kindly to the steady

improvement in US economy as it has raised the prospects of the US Fed embarking upon

QE-tapering sooner than previously expected. Capital inflows to emerging economies

have weakened as a result, giving rise to sharp depreciation of their currencies against the

greenback. However, it must be noted that the GDP number would undergo revisions in

the coming months and NFP headline number too, being a volatile series, is prone to

substantial revisions. Consequently, more water has to pass through the bridge to reach

any decisive conclusion on the durability and speed of economic recovery in the US. But as

of now, the signals coming out of the world's largest economy look propitious.

On the domestic front, data coming out has not been too encouraging with the exception

of robust set of export numbers which have come out in the past few months. Lackluster

industrial production for September 2013 proved to be a dampener as they were preceded

by healthy core sector growth. Going forward, the data for October and November could

see some buoyancy owing to demand pick up during the festive season. Inflation, on the

other hand, continues to rise unabated, with October 2013 data print reaching its highest

level in the last 8 months, mainly due to higher food prices. This has led to the RBI

tightening interest rates by a cumulative 50 basis points in the last couple of months.

Robust exports growth provides the only reason for cheer in the otherwise grim scenario.

Exports since last 4 months from July to October 2013 have come to positive growth

trajectory due to stability in the global market, particularly in our large trading partners

like US and Europe. Going forward, robust exports along with moderating imports will

help in reining the current account deficit at around 3 per cent of GDP in the current fiscal.

Micro, Small & Medium Enterprises (MSMEs) play a pivotal role in the overall industrial

economy of the country. MSMEs in India account for over 40 per cent of India's industrial

output, exports and employment. However, its contribution to India's GDP is a meager 8.7

per cent. Higher cost of credit, limited access to equity capital, inability to build brands

have meant Indian MSMEs are lagging far behind their peers in other emerging and

developed economies. Today, as India looks to accelerate its manufacturing growth in

order to achieve sustained 8-9 per cent GDP growth and self-sufficiency in a gamut of

strategic, industrial and household goods, MSME manufacturing mandates the greater

attention of policy makers and industry leaders alike. CII through its various

recommendations and initiatives has been at the forefront of driving behind a

momentous shift in the growth momentum of the MSMEs.

Chandrajit Banerjee

Director-General, CII

1

FOREWORD

OCTOBER-NOVEMBER 2013

CO

NT

EN

T

Cover Story

Given that the MSME sector

accounts for over 40 per cent of

India’s industrial output, exports

and employment, sustained

growth of this sector will have a

major bearing on the country’s

manufacturing growth. Despite

the major contributions of the

M S M E s e c t o r , t h e s e c t o r

c o n t i n u e s t o f a c e c e r t a i n

constraints like timely credit and

finance. We discuss the various

issues and challenges facing the

M S M E s e c t o r a l o n g w i t h

elucidating the steps taken by CII

to alleviate some of the sector’s

problems.

3

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: info@cii.in; Web: www.cii.in

2ECONOMY MATTERS

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 members, from the

private as well as public sectors, including SMEs and MNCs, and an indirect membership of over 90,000 enterprises from

around 257 national and regional sectoral industry bodies.

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 specialized services and strategic

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

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

Partnerships with civil society organizations carry forward corporate initiatives for integrated and inclusive development

across diverse domains including 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 the corporate and social eco-system, building a knowledge

economy, and broad-basing development to help deliver the fruits of progress to all.

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

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 ResearchThe 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 policy recommendations with an objective to help stakeholders in

better understanding of the issues at hand. The objective of CII Research is to assist stakeholders in taking more informed and

strategic decisions with due focus on the attainment of short term as well as long term goals. For more details and to advertise

in our products, write to us at ecoresearch@cii.in

Inside This Issue

OCTOBER-NOVEMBER 2013

Micro, Small and Medium Enterprises: Issues & Challenges

Executive Summary .................................................................04

Statistics at a Glance ...............................................................06

Global Trends

07Central Banks Remain Cautious Even as Green Shoots of Recovery Become Evident

Domestic TrendsIIP, Inflation, Trade, Rupee & Monetary Policy 12

TaxationSocial Security Agreements and Provident Fund for International Workers20

Sector in FocusPharmaceuticals

22

Special ArticleMicro, Small & Medium Enterprises (MSMEs) : Challenges & Prospects26

Economy Monitor ................................................................... 35

CO

NT

EN

T

Cover Story

Given that the MSME sector

accounts for over 40 per cent of

India’s industrial output, exports

and employment, sustained

growth of this sector will have a

major bearing on the country’s

manufacturing growth. Despite

the major contributions of the

M S M E s e c t o r , t h e s e c t o r

c o n t i n u e s t o f a c e c e r t a i n

constraints like timely credit and

finance. We discuss the various

issues and challenges facing the

M S M E s e c t o r a l o n g w i t h

elucidating the steps taken by CII

to alleviate some of the sector’s

problems.

3

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: info@cii.in; Web: www.cii.in

2ECONOMY MATTERS

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 members, from the

private as well as public sectors, including SMEs and MNCs, and an indirect membership of over 90,000 enterprises from

around 257 national and regional sectoral industry bodies.

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 specialized services and strategic

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

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

Partnerships with civil society organizations carry forward corporate initiatives for integrated and inclusive development

across diverse domains including 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 the corporate and social eco-system, building a knowledge

economy, and broad-basing development to help deliver the fruits of progress to all.

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

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 ResearchThe 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 policy recommendations with an objective to help stakeholders in

better understanding of the issues at hand. The objective of CII Research is to assist stakeholders in taking more informed and

strategic decisions with due focus on the attainment of short term as well as long term goals. For more details and to advertise

in our products, write to us at ecoresearch@cii.in

Inside This Issue

OCTOBER-NOVEMBER 2013

Micro, Small and Medium Enterprises: Issues & Challenges

Executive Summary .................................................................04

Statistics at a Glance ...............................................................06

Global Trends

07Central Banks Remain Cautious Even as Green Shoots of Recovery Become Evident

Domestic TrendsIIP, Inflation, Trade, Rupee & Monetary Policy 12

TaxationSocial Security Agreements and Provident Fund for International Workers20

Sector in FocusPharmaceuticals

22

Special ArticleMicro, Small & Medium Enterprises (MSMEs) : Challenges & Prospects26

Economy Monitor ................................................................... 35

Global Trends

Domestic Trends

Sector in Focus: Pharmaceuticals

The Central Banks of the major advanced economies

met in October 2013 and gave varied decisions on their

policy direction keeping in mind the differential

macroeconomic conditions prevailing in each economy.

The policy meeting of US held on October 30, 2013 was

much anticipated as it was expected to lay down the

course of the asset purchase programme of the Federal

Reserve. In the meeting, it was decided to maintain the

policy rate (US Fed Funds Rate) unchanged at 0.0-0.25

per cent. European Central Bank (ECB) pared the key

interest rate in its meeting held on November 07, 2013

further by 25 bps to 0.25 per cent. Meanwhile, The Bank

of England (BoE) kept its policy rate unchanged at 0.5

per cent and the quantum of Asset Purchase Facility

(APF) was also retained at GBP 375 billion in its policy

review meeting held in November 2013.

Sub-optimal performance by manufacturing,

particularly the capital goods sector, resulted in lower-

than-expected industrial production growth to 2.0 per

cent in September 2013. Going forward, the data for

October and November could see some buoyancy

owing to demand pick up during the festive season. WPI

Inflation on the other hand quickened to 7.0 per cent in

October 2013 as compared to 6.5 per cent in the previous

month on the back of acceleration witnessed in all its

major sub-categories. Combined CPI inflation

accelerated to 10.1 per cent in October 2013 as compared

to 9.8 per cent in the previous month. Rising food prices

have continued to remain the key driver behind the jump

in both WPI and CPI inflation in the last few months.

Consequently, RBI has been raising interest rates in

since September 2013 in response to high inflation.

Providing some cheer, exports kept up the pace for the

fourth straight month by expanding at 13.5 per cent- a 24

month high in October 2013 as compared to 12.1 per cent

in the previous month. This is the fourth straight month

of expansion of exports above 10 per cent, lifted by

improving global demand and weak Rupee.

The Indian pharmaceutical industry is a highly

knowledge based industry which is growing steadily and

plays a major role in the Indian economy. As a highly

organised sector, a number of pharmaceutical

companies are increasing their operations in India. The

Indian pharmaceutical industry (IPM) is currently ranked

tenth globally in terms of value and ranked third in

volume. It is valued at Rs 720.6 billion in 2013 as against Rs

656.5 billion in 2012. It however experienced a slowdown

with its growth going down to 9.8 per cent in 2013 from

16.6 per cent in 2012. The slowdown can be attributed to

factors such as announcement of Nat ional

Pharmaceutical Pricing Policy (NPPP) towards the end of

2012 and the subsequent price corrections leading to a

low uptake among the stockists amongst other things. In

order to overcome the ill-effects of slowdown, the

Department of Pharmaceuticals has prepared a 'Pharma

Vision 2020' document for making India one of the

leading destinations for end-to-end drug discovery and

innovation.

The MSME sector has consistently outperformed the

industrial sector over the last 5-6 years. The sector grew

at an average 11 per cent in the period 2006-11, and

recorded an impressive 19.6 per cent growth in 2011-12.

Going by this growth trend, industry expects the MSME

sector to increase its share of national GDP from the

current 17 per cent to 22 per cent by 2020. Given that the

MSME sector accounts for over 40 per cent of India's

industrial output, exports and employment, sustained

growth of this sector will have a major bearing on the

country's manufacturing growth. Rapid MSME growth

will also spur regional industrialisation as the sector is

fairly evenly spread across urban and rural areas. As India

looks to accelerate its manufacturing growth in order to

achieve sustained 8-9 per cent GDP growth and self-

sufficiency in a gamut of strategic, industrial and

household goods, MSME manufacturing mandates the

greater attention of policy makers and industry leaders

alike. While bank credit flow to MSME sector has steadily

increased, the sector's credit and finance need gap is still

considerably huge. The challenge hereon lies in

promoting innovative financing of MSME businesses

including manufacturing activities. There have been

significant efforts to strengthen the enabling

environment for MSME service sector, which have had a

positive impact on the sector as a whole. However,

challenges in formulating and implementing effective

policy continue to impede the growth of MSME service.

Special Article

EXECUTIVE SUMMARY

4ECONOMY MATTERS

Global Trends

Domestic Trends

Sector in Focus: Pharmaceuticals

The Central Banks of the major advanced economies

met in October 2013 and gave varied decisions on their

policy direction keeping in mind the differential

macroeconomic conditions prevailing in each economy.

The policy meeting of US held on October 30, 2013 was

much anticipated as it was expected to lay down the

course of the asset purchase programme of the Federal

Reserve. In the meeting, it was decided to maintain the

policy rate (US Fed Funds Rate) unchanged at 0.0-0.25

per cent. European Central Bank (ECB) pared the key

interest rate in its meeting held on November 07, 2013

further by 25 bps to 0.25 per cent. Meanwhile, The Bank

of England (BoE) kept its policy rate unchanged at 0.5

per cent and the quantum of Asset Purchase Facility

(APF) was also retained at GBP 375 billion in its policy

review meeting held in November 2013.

Sub-optimal performance by manufacturing,

particularly the capital goods sector, resulted in lower-

than-expected industrial production growth to 2.0 per

cent in September 2013. Going forward, the data for

October and November could see some buoyancy

owing to demand pick up during the festive season. WPI

Inflation on the other hand quickened to 7.0 per cent in

October 2013 as compared to 6.5 per cent in the previous

month on the back of acceleration witnessed in all its

major sub-categories. Combined CPI inflation

accelerated to 10.1 per cent in October 2013 as compared

to 9.8 per cent in the previous month. Rising food prices

have continued to remain the key driver behind the jump

in both WPI and CPI inflation in the last few months.

Consequently, RBI has been raising interest rates in

since September 2013 in response to high inflation.

Providing some cheer, exports kept up the pace for the

fourth straight month by expanding at 13.5 per cent- a 24

month high in October 2013 as compared to 12.1 per cent

in the previous month. This is the fourth straight month

of expansion of exports above 10 per cent, lifted by

improving global demand and weak Rupee.

The Indian pharmaceutical industry is a highly

knowledge based industry which is growing steadily and

plays a major role in the Indian economy. As a highly

organised sector, a number of pharmaceutical

companies are increasing their operations in India. The

Indian pharmaceutical industry (IPM) is currently ranked

tenth globally in terms of value and ranked third in

volume. It is valued at Rs 720.6 billion in 2013 as against Rs

656.5 billion in 2012. It however experienced a slowdown

with its growth going down to 9.8 per cent in 2013 from

16.6 per cent in 2012. The slowdown can be attributed to

factors such as announcement of Nat ional

Pharmaceutical Pricing Policy (NPPP) towards the end of

2012 and the subsequent price corrections leading to a

low uptake among the stockists amongst other things. In

order to overcome the ill-effects of slowdown, the

Department of Pharmaceuticals has prepared a 'Pharma

Vision 2020' document for making India one of the

leading destinations for end-to-end drug discovery and

innovation.

The MSME sector has consistently outperformed the

industrial sector over the last 5-6 years. The sector grew

at an average 11 per cent in the period 2006-11, and

recorded an impressive 19.6 per cent growth in 2011-12.

Going by this growth trend, industry expects the MSME

sector to increase its share of national GDP from the

current 17 per cent to 22 per cent by 2020. Given that the

MSME sector accounts for over 40 per cent of India's

industrial output, exports and employment, sustained

growth of this sector will have a major bearing on the

country's manufacturing growth. Rapid MSME growth

will also spur regional industrialisation as the sector is

fairly evenly spread across urban and rural areas. As India

looks to accelerate its manufacturing growth in order to

achieve sustained 8-9 per cent GDP growth and self-

sufficiency in a gamut of strategic, industrial and

household goods, MSME manufacturing mandates the

greater attention of policy makers and industry leaders

alike. While bank credit flow to MSME sector has steadily

increased, the sector's credit and finance need gap is still

considerably huge. The challenge hereon lies in

promoting innovative financing of MSME businesses

including manufacturing activities. There have been

significant efforts to strengthen the enabling

environment for MSME service sector, which have had a

positive impact on the sector as a whole. However,

challenges in formulating and implementing effective

policy continue to impede the growth of MSME service.

Special Article

EXECUTIVE SUMMARY

4ECONOMY MATTERS

Central Banks Remain Cautious Even as Green Shoots of Recovery Become Evident

longer-run goal, and longer-term inflation expectations

continue to be well anchored.

In determining how long to maintain a highly

accommodative stance of monetary policy, the

Committee will also consider other information,

including additional measures of labour market

conditions, indicators of inflation pressures and inflation

expectations, and readings on financial developments.

When the Committee decides to begin to remove policy

accommodation, it will take a balanced approach

consistent with its longer-run goals of maximum

employment and inflation of 2 per cent. The Fed also

maintained the asset purchase program. The Chairman

reconfirmed that the Fed would continue to buy longer-

term US treasury securities at the rate of US$45

billion/month and the Agency MBS at US$40

billion/month. Besides, the Fed would also maintain its

existing policy of reinvesting principal payments from its

holdings of agency debt and agency mortgage-backed

securities and rolling over maturing treasury securities.

On economic data prints, Fed noted that information

since September 2013 policy meeting suggest that

economic activity is expanding at a modest pace. More

specifically, labor market conditions have shown signs

of improvement in recent months but the

unemployment rate continues to remain elevated.

Recent meetings of the Central Banks of the major

advanced economies resulted in varied decisions

on their policy direction keeping in mind the differential

macroeconomic conditions prevailing in each economy.

The global economy is passing through a double-speed

recovery currently, with countries like US, UK and China

recording some positive data prints, while Euro Area

economies continue to remain in the abyss. The policy

meeting of the US Federal Reserve held on October 30,

2013 was much anticipated as it was expected to lay

down the course of the asset purchase programme of

the central bank. In the meeting, it was decided to

maintain the policy rate (US Fed Funds Rate) unchanged

at 0.0-0.25 per cent. In particular, the Committee

decided to maintain the target range for the federal

funds rate and said that it anticipates that this

exceptionally low range for the federal funds rate will be

appropriate at least as long as the unemployment rate

remains above 6.5 per cent, inflation between one and

two years ahead is projected to be no more than a half

percentage point above the Committee's 2 per cent

GLOBAL TRENDS

General Government Gross Debt (% of GDP)2011 2012 2013 E 2014 E

Advanced Economies 103.6 107.9 107.7 108.3

United States 99.4 102.7 106.0 107.3

Euro Area 88.2 93.0 95.7 96.1

- Germany 80.4 81.9 80.4 78.1

- France 85.8 90.2 93.5 94.8

- Italy 120.8 127.0 132.3 133.1

- Spain 70.4 85.9 93.7 99.1

Japan 230.3 238.0 243.5 242.3

United Kingdom 84.3 88.8 92.1 95.3

Canada 83.5 85.3 87.1 85.6

Emerging & Developing Economies 36.7 35.5 34.7 33.7

Russia 11.7 12.5 14.1 14.6

China 28.7 26.1 22.9 20.9

India 66.4 66.7 67.2 68.1

ASEAN-5 36.3 37.6 39.2 39.7

Brazil 64.7 68.0 68.3 69.0

South Africa 39.6 42.3 43.0 44.7

General Government Gross Debt (% of GDP)2011 2012 2013 E 2014 E

Advanced Economies -0.1 -0.1 0.1 0.2

United States -2.9 -2.7 -2.7 -2.8

Euro Area 0.7 1.9 2.3 2.5

- Germany 6.2 7.0 6.0 5.7

- France -1.8 -2.2 -1.6 -1.6

- Italy -3.1 -0.7 0.0 0.2

- Spain -3.8 -1.1 1.4 2.6

Japan 2.0 1.0 1.2 1.7

United Kingdom -1.5 -3.8 -2.8 -2.3

Canada -2.8 -3.4 -3.1 -3.1

Emerging & Developing Economies 1.6 1.4 0.8 0.8

Russia 5.1 3.7 2.9 2.3

China 1.9 2.3 2.5 2.7

India -4.2 -4.8 -4.4 -3.8

ASEAN-5 2.6 0.6 -0.1 -0.1

Brazil -2.1 -2.4 -3.4 -3.2

South Africa -3.4 -6.3 -6.1 -6.1

Source: IMF WEO, October 2013 Note: E- Estimate

STATISTICS AT A GLANCE

6ECONOMY MATTERS 7 OCTOBER-NOVEMBER 2013

Central Banks Remain Cautious Even as Green Shoots of Recovery Become Evident

longer-run goal, and longer-term inflation expectations

continue to be well anchored.

In determining how long to maintain a highly

accommodative stance of monetary policy, the

Committee will also consider other information,

including additional measures of labour market

conditions, indicators of inflation pressures and inflation

expectations, and readings on financial developments.

When the Committee decides to begin to remove policy

accommodation, it will take a balanced approach

consistent with its longer-run goals of maximum

employment and inflation of 2 per cent. The Fed also

maintained the asset purchase program. The Chairman

reconfirmed that the Fed would continue to buy longer-

term US treasury securities at the rate of US$45

billion/month and the Agency MBS at US$40

billion/month. Besides, the Fed would also maintain its

existing policy of reinvesting principal payments from its

holdings of agency debt and agency mortgage-backed

securities and rolling over maturing treasury securities.

On economic data prints, Fed noted that information

since September 2013 policy meeting suggest that

economic activity is expanding at a modest pace. More

specifically, labor market conditions have shown signs

of improvement in recent months but the

unemployment rate continues to remain elevated.

Recent meetings of the Central Banks of the major

advanced economies resulted in varied decisions

on their policy direction keeping in mind the differential

macroeconomic conditions prevailing in each economy.

The global economy is passing through a double-speed

recovery currently, with countries like US, UK and China

recording some positive data prints, while Euro Area

economies continue to remain in the abyss. The policy

meeting of the US Federal Reserve held on October 30,

2013 was much anticipated as it was expected to lay

down the course of the asset purchase programme of

the central bank. In the meeting, it was decided to

maintain the policy rate (US Fed Funds Rate) unchanged

at 0.0-0.25 per cent. In particular, the Committee

decided to maintain the target range for the federal

funds rate and said that it anticipates that this

exceptionally low range for the federal funds rate will be

appropriate at least as long as the unemployment rate

remains above 6.5 per cent, inflation between one and

two years ahead is projected to be no more than a half

percentage point above the Committee's 2 per cent

GLOBAL TRENDS

General Government Gross Debt (% of GDP)2011 2012 2013 E 2014 E

Advanced Economies 103.6 107.9 107.7 108.3

United States 99.4 102.7 106.0 107.3

Euro Area 88.2 93.0 95.7 96.1

- Germany 80.4 81.9 80.4 78.1

- France 85.8 90.2 93.5 94.8

- Italy 120.8 127.0 132.3 133.1

- Spain 70.4 85.9 93.7 99.1

Japan 230.3 238.0 243.5 242.3

United Kingdom 84.3 88.8 92.1 95.3

Canada 83.5 85.3 87.1 85.6

Emerging & Developing Economies 36.7 35.5 34.7 33.7

Russia 11.7 12.5 14.1 14.6

China 28.7 26.1 22.9 20.9

India 66.4 66.7 67.2 68.1

ASEAN-5 36.3 37.6 39.2 39.7

Brazil 64.7 68.0 68.3 69.0

South Africa 39.6 42.3 43.0 44.7

General Government Gross Debt (% of GDP)2011 2012 2013 E 2014 E

Advanced Economies -0.1 -0.1 0.1 0.2

United States -2.9 -2.7 -2.7 -2.8

Euro Area 0.7 1.9 2.3 2.5

- Germany 6.2 7.0 6.0 5.7

- France -1.8 -2.2 -1.6 -1.6

- Italy -3.1 -0.7 0.0 0.2

- Spain -3.8 -1.1 1.4 2.6

Japan 2.0 1.0 1.2 1.7

United Kingdom -1.5 -3.8 -2.8 -2.3

Canada -2.8 -3.4 -3.1 -3.1

Emerging & Developing Economies 1.6 1.4 0.8 0.8

Russia 5.1 3.7 2.9 2.3

China 1.9 2.3 2.5 2.7

India -4.2 -4.8 -4.4 -3.8

ASEAN-5 2.6 0.6 -0.1 -0.1

Brazil -2.1 -2.4 -3.4 -3.2

South Africa -3.4 -6.3 -6.1 -6.1

Source: IMF WEO, October 2013 Note: E- Estimate

STATISTICS AT A GLANCE

6ECONOMY MATTERS 7 OCTOBER-NOVEMBER 2013

UK GDP Expands at a Faster Pace in 3Q13

Source: Office for National Statistics

0.6

-0.3

0.4

0.70.8

3Q12 4Q12 1Q13 2Q13 3Q13

q-o-q %

their stance is still cautious and is likely to remain so in

the near future as well.

In sum, it is amply clear from the monetary policy stances

of the Central Banks of three major economies that the

recovery has not yet become ingrained; consequently

US Economy Springing Up Some Positive Data-Prints

The increase in real GDP in the third quarter primarily

reflected positive contributions from personal

consumption expenditures (PCE), private inventory

investment, exports, residential fixed investment, non-

residential fixed investment, and state and local

government spending that were partly offset by a

negative contribution from federal government

spending. Imports, which are a subtraction in the

calculation of GDP, increased.

There have been a slew of positive data prints coming

out of US in the last few quarters. As per the advance

estimate, US third quarter 2013 GDP grew faster than

expected at an annual rate of 2.8 per cent, higher than

the second quarter GDP growth rate of 2.5 per cent. On a

year-on-year basis, however, GDP growth remained

stable at 1.6 per cent in the third quarter as compared to

similar reading in the quarter before. The latest reading

of economic growth shows the economy had

strengthened in the months leading up to the

government shutdown and debt ceiling standoff.

meeting held on November 07, 2013 further by 25 bps to

0.25 per cent, effective from November 13, 2013.

Moreover, the ECB left the interest rate on its deposit

facility unchanged at 0.0 per cent, while cutting

marginal lending facility rate by 25 bps to 0.75 per cent.

Notably, the ECB President re-assured the market that

monetary policy will remain accommodative for as long

as necessary and re-iterated that "…it (the Governing

Council) continues to expect the key ECB interest rates

to remain at present or lower levels for an extended

period of time…".

Further, Fed noted that available data suggest that

household spending and business fixed investment

advanced, while the recovery in the housing sector has

slowed somewhat in the recent months. In a nutshell,

Fed was of the view that "the downside risks to the

outlook for the economy and the labour market have

diminished substantially, though not enough to start

tapering its asset purchase program".

Moving on to Euro Area, which saw the European

Central Bank (ECB) paring the key interest rate in its

November 07, 2013. The recent economic data coming

out of UK indicates that the economy continues to

remain on a strong footing. According to preliminary

estimates, UK real GDP grew 0.8 per cent on q-o-q basis

in the third quarter of 2013, as against 0.7 per cent in the

previous quarter - with services, construction and

manufacturing all expanding. This marks the highest

quarterly growth in three years and second best growth

in six years. Corroborating the rise in GDP, services PMI

also jumped by 2.2 points to 62.5, marking the highest

level since May 1997, while construction PMI also rose to

a 6-year high in October 2013. UK economy is recovering

a faster-than-expected pace, however in order to

ensure that the recovery remain durable, BoE needs to

keep the interest rates low for some more time.

On the growth front, the Central Bank President stated

that survey-based confidence indicators up to October

were consistent with continued, albeit modest, growth

in the second half of the year. Accordingly, output was

expected to recover at a slow pace. He also mentioned

that the risks surrounding the economic outlook for the

Euro Area continued to be on the downside. However,

the reassurance from the President that monetary

policy would remain accommodative for a long period

of time augurs well for the economic prospects of the

region and is likely to support growth going forward.

Meanwhile, The Bank of England (BoE) kept its policy

rate unchanged at 0.5 per cent and the quantum of

Asset Purchase Facility (APF) was also retained at GBP

375 billion in its policy review meeting also held on

ECB Cuts Interest Rate in November (%)

Source: European Central Bank (ECB)

1.20

1.00

0.80

0.60

0.40

0.20

0.00

1.00

0.25

Jan-

12

Mar

-12

May

-12

Jul-1

2

Sep

-12

Nov

-12

Jan-

13

Mar

-13

May

-13

Jul-1

3

Sep

-13

Nov

-13

8ECONOMY MATTERS 9 OCTOBER-NOVEMBER 2013

UK GDP Expands at a Faster Pace in 3Q13

Source: Office for National Statistics

0.6

-0.3

0.4

0.70.8

3Q12 4Q12 1Q13 2Q13 3Q13

q-o-q %

their stance is still cautious and is likely to remain so in

the near future as well.

In sum, it is amply clear from the monetary policy stances

of the Central Banks of three major economies that the

recovery has not yet become ingrained; consequently

US Economy Springing Up Some Positive Data-Prints

The increase in real GDP in the third quarter primarily

reflected positive contributions from personal

consumption expenditures (PCE), private inventory

investment, exports, residential fixed investment, non-

residential fixed investment, and state and local

government spending that were partly offset by a

negative contribution from federal government

spending. Imports, which are a subtraction in the

calculation of GDP, increased.

There have been a slew of positive data prints coming

out of US in the last few quarters. As per the advance

estimate, US third quarter 2013 GDP grew faster than

expected at an annual rate of 2.8 per cent, higher than

the second quarter GDP growth rate of 2.5 per cent. On a

year-on-year basis, however, GDP growth remained

stable at 1.6 per cent in the third quarter as compared to

similar reading in the quarter before. The latest reading

of economic growth shows the economy had

strengthened in the months leading up to the

government shutdown and debt ceiling standoff.

meeting held on November 07, 2013 further by 25 bps to

0.25 per cent, effective from November 13, 2013.

Moreover, the ECB left the interest rate on its deposit

facility unchanged at 0.0 per cent, while cutting

marginal lending facility rate by 25 bps to 0.75 per cent.

Notably, the ECB President re-assured the market that

monetary policy will remain accommodative for as long

as necessary and re-iterated that "…it (the Governing

Council) continues to expect the key ECB interest rates

to remain at present or lower levels for an extended

period of time…".

Further, Fed noted that available data suggest that

household spending and business fixed investment

advanced, while the recovery in the housing sector has

slowed somewhat in the recent months. In a nutshell,

Fed was of the view that "the downside risks to the

outlook for the economy and the labour market have

diminished substantially, though not enough to start

tapering its asset purchase program".

Moving on to Euro Area, which saw the European

Central Bank (ECB) paring the key interest rate in its

November 07, 2013. The recent economic data coming

out of UK indicates that the economy continues to

remain on a strong footing. According to preliminary

estimates, UK real GDP grew 0.8 per cent on q-o-q basis

in the third quarter of 2013, as against 0.7 per cent in the

previous quarter - with services, construction and

manufacturing all expanding. This marks the highest

quarterly growth in three years and second best growth

in six years. Corroborating the rise in GDP, services PMI

also jumped by 2.2 points to 62.5, marking the highest

level since May 1997, while construction PMI also rose to

a 6-year high in October 2013. UK economy is recovering

a faster-than-expected pace, however in order to

ensure that the recovery remain durable, BoE needs to

keep the interest rates low for some more time.

On the growth front, the Central Bank President stated

that survey-based confidence indicators up to October

were consistent with continued, albeit modest, growth

in the second half of the year. Accordingly, output was

expected to recover at a slow pace. He also mentioned

that the risks surrounding the economic outlook for the

Euro Area continued to be on the downside. However,

the reassurance from the President that monetary

policy would remain accommodative for a long period

of time augurs well for the economic prospects of the

region and is likely to support growth going forward.

Meanwhile, The Bank of England (BoE) kept its policy

rate unchanged at 0.5 per cent and the quantum of

Asset Purchase Facility (APF) was also retained at GBP

375 billion in its policy review meeting also held on

ECB Cuts Interest Rate in November (%)

Source: European Central Bank (ECB)

1.20

1.00

0.80

0.60

0.40

0.20

0.00

1.00

0.25

Jan-

12

Mar

-12

May

-12

Jul-1

2

Sep

-12

Nov

-12

Jan-

13

Mar

-13

May

-13

Jul-1

3

Sep

-13

Nov

-13

8ECONOMY MATTERS 9 OCTOBER-NOVEMBER 2013

Other Global Developments During The Monthv

v

v

v

v

v

v

v

v

v

China's trade surplus widened to US$31.1 billion in October 2013, the highest in 2013, as compared to previous

month's print of US$15.2 billion, amidst a sequential drop in imports. Exports growth recovered to 5.6 per cent

on y-o-y basis, led by exports to US and Europe.

China's annual inflation climbed to an eight-month high of 3.2 per cent in October 2013 from 3.1 per cent in

September 2013 as food costs soared, fanning market worries about policy tightening as factory output and

investment data pointed to signs of stabilisation in the economy.

One of the fiercest typhoons ever recorded has devastated central Philippines, leaving entire cities and towns in

ruins and as many as 10,000 people dead. After gashing six provinces, Typhoon Haiyan veered to the northwest

into the South China Sea, and weakened to a tropical storm near the border of Vietnam and southern China.

Indonesia's economy grew at its weakest pace in nearly four years at 5.6 per cent in the third quarter of 2013 as

compared to 5.8 per cent in the previous quarter, throttled by weak exports and slowing consumption as higher

fuel prices bite.

Vietnam economic growth picked up to 5.5 per cent on y-o-y basis in the third quarter of 2013 as compared to 5.0

per cent in the previous quarter, as rising exports offset weak domestic demand.

Ratings agency Standard and Poor's cut France's sovereign credit rating to AA from AA plus, citing lack of

progress in government reforms of the country's economy. The agency revised the country's sovereign credit

outlook up to stable from negative, however.

UK headline inflation decelerated from 2.7 per cent in September 2013 to 2.2 per cent in October. Core inflation

also dropped to 1.7 per cent in October, as against 2.2 per cent in the previous month. This is the lowest inflation

in the past four years.

GDP rose by 0.1 per cent in the Euro Area (EA17) and by 0.2 per cent in the EU28 during the third quarter of 2013

on q-o-q seasonally-adjusted basis, compared with the previous quarter, according to flash estimates published

by Eurostat, the statistical office of the European Union. However, on y-o-y basis, Euro Area growth continued

to decline, albeit magnitude of decline reduced in the third quarter.

Euro Area annual inflation was 0.7 per cent in October 2013, down from 1.1 per cent in September. A year earlier

the rate was 2.5 per cent. Monthly inflation was -0.1 per cent in October 2013.

Euro zone Industrial Production Index (IPI) excluding construction declined by 0.5 per cent on month-on-month

basis in September 2013, as against a growth of 1.0 per cent in August 2013. In y-o-y terms, IPI grew 1.1 per cent

(based on data adjusted for working days) in September 2013, as against a decline of 1.1 per cent in August 2013.

193K to 238K. With the latest print and the revisions, the

monthly average for 2013 stood at 186K compared to

172K per month average in the corresponding period

last year. Jobs growth in the Government sector turned

negative in October for the first time in three months, as

the economy grappled with a 16-day partial shutdown of

the US Government in the first half of the month.

Meanwhile, private sector continues to remain the lead

contributor to the total job addition.

In more positive news for the economy, non-farm

payrolls (NFP) increased by 204K in October 2013, much

higher than market expectations of an increase of 120K.

However, as per the household survey, the

unemployment rate edged higher to 7.3 per cent in

October 2013, rising from a four-and-a-half year low of

7.2 per cent seen in September 2013. Meanwhile, total

job addition for September was revised up from 148K to

163K, while that for August was also revised up from

US GDP Growth Accelerates

Source: US Bureau of Economic Analysis (BEA)

2.8

0.1

1.1

2.5

2.8

3.1

2.0

1.3

1.6 1.6

Quarter seasonally adjusted at annual rate (%) y-o-y%

3Q12 4Q12 1Q13 2Q13 3Q13

Jobs Growth in US

Source: US Bureau of Labour Statistics (BLS)

350

300

250

200

150

100

50

Thousand of Jobs

%

87.8

7.6

7.4

7.2

7

6.8

US NFP Unemployment Rate (RHS)

148

332

142

199176 172

89

7.9

238

163

204

7.3

Jan/

13

Feb

/13

Mar

/13

Apr

/13

May

/13

Jun/

13

Jul/1

3

Aug

/13

Sep

/13

Oct

/13

ECONOMY MATTERS 10 11 OCTOBER-NOVEMBER 2013

Other Global Developments During The Monthv

v

v

v

v

v

v

v

v

v

China's trade surplus widened to US$31.1 billion in October 2013, the highest in 2013, as compared to previous

month's print of US$15.2 billion, amidst a sequential drop in imports. Exports growth recovered to 5.6 per cent

on y-o-y basis, led by exports to US and Europe.

China's annual inflation climbed to an eight-month high of 3.2 per cent in October 2013 from 3.1 per cent in

September 2013 as food costs soared, fanning market worries about policy tightening as factory output and

investment data pointed to signs of stabilisation in the economy.

One of the fiercest typhoons ever recorded has devastated central Philippines, leaving entire cities and towns in

ruins and as many as 10,000 people dead. After gashing six provinces, Typhoon Haiyan veered to the northwest

into the South China Sea, and weakened to a tropical storm near the border of Vietnam and southern China.

Indonesia's economy grew at its weakest pace in nearly four years at 5.6 per cent in the third quarter of 2013 as

compared to 5.8 per cent in the previous quarter, throttled by weak exports and slowing consumption as higher

fuel prices bite.

Vietnam economic growth picked up to 5.5 per cent on y-o-y basis in the third quarter of 2013 as compared to 5.0

per cent in the previous quarter, as rising exports offset weak domestic demand.

Ratings agency Standard and Poor's cut France's sovereign credit rating to AA from AA plus, citing lack of

progress in government reforms of the country's economy. The agency revised the country's sovereign credit

outlook up to stable from negative, however.

UK headline inflation decelerated from 2.7 per cent in September 2013 to 2.2 per cent in October. Core inflation

also dropped to 1.7 per cent in October, as against 2.2 per cent in the previous month. This is the lowest inflation

in the past four years.

GDP rose by 0.1 per cent in the Euro Area (EA17) and by 0.2 per cent in the EU28 during the third quarter of 2013

on q-o-q seasonally-adjusted basis, compared with the previous quarter, according to flash estimates published

by Eurostat, the statistical office of the European Union. However, on y-o-y basis, Euro Area growth continued

to decline, albeit magnitude of decline reduced in the third quarter.

Euro Area annual inflation was 0.7 per cent in October 2013, down from 1.1 per cent in September. A year earlier

the rate was 2.5 per cent. Monthly inflation was -0.1 per cent in October 2013.

Euro zone Industrial Production Index (IPI) excluding construction declined by 0.5 per cent on month-on-month

basis in September 2013, as against a growth of 1.0 per cent in August 2013. In y-o-y terms, IPI grew 1.1 per cent

(based on data adjusted for working days) in September 2013, as against a decline of 1.1 per cent in August 2013.

193K to 238K. With the latest print and the revisions, the

monthly average for 2013 stood at 186K compared to

172K per month average in the corresponding period

last year. Jobs growth in the Government sector turned

negative in October for the first time in three months, as

the economy grappled with a 16-day partial shutdown of

the US Government in the first half of the month.

Meanwhile, private sector continues to remain the lead

contributor to the total job addition.

In more positive news for the economy, non-farm

payrolls (NFP) increased by 204K in October 2013, much

higher than market expectations of an increase of 120K.

However, as per the household survey, the

unemployment rate edged higher to 7.3 per cent in

October 2013, rising from a four-and-a-half year low of

7.2 per cent seen in September 2013. Meanwhile, total

job addition for September was revised up from 148K to

163K, while that for August was also revised up from

US GDP Growth Accelerates

Source: US Bureau of Economic Analysis (BEA)

2.8

0.1

1.1

2.5

2.8

3.1

2.0

1.3

1.6 1.6

Quarter seasonally adjusted at annual rate (%) y-o-y%

3Q12 4Q12 1Q13 2Q13 3Q13

Jobs Growth in US

Source: US Bureau of Labour Statistics (BLS)

350

300

250

200

150

100

50

Thousand of Jobs

%

87.8

7.6

7.4

7.2

7

6.8

US NFP Unemployment Rate (RHS)

148

332

142

199176 172

89

7.9

238

163

204

7.3

Jan/

13

Feb

/13

Mar

/13

Apr

/13

May

/13

Jun/

13

Jul/1

3

Aug

/13

Sep

/13

Oct

/13

ECONOMY MATTERS 10 11 OCTOBER-NOVEMBER 2013

On the use based front, the volatile capital goods sector

proved once again to be a dampener as its output

contracted by 6.8 per cent in the reporting month as

compared to decline of 2.0 per cent in the month before

and healthy 15.6 per cent growth in July 2013. The

sector's poor performance in the month is worrisome as

its output declined on the back of a low base of last year.

Notably, industrial production output excluding capital

goods sector stood at 3.4 per cent during the month.

Capital good output is widely regarded as the pre-cursor

for improvement in investment demand. Hence, unless

we are able to see any meaningful recovery in capital

goods output in the second-half, it will be very difficult

to see any discernible improvement in overall growth

prospects for the economy.

Consumer goods moved out from the negative territory

after a gap of 4 months in September 2013. The sector

grew by 0.6 per cent partly helped by a low base of last

year. In contrast, consumer durables sector has been

languishing in the negative territory for 10 months now,

indicating the weakness in consumption growth. Non-

durables sector growth on the other hand remained

robust as it accelerated to 11.3 per cent as compared to

4.8 per cent in the previous month. The half year

average for this component is by far the best among all

other sub indices and stands at 7.3 per cent.

On the sectoral front, manufacturing output, albeit

moved into the positive territory in September 2013, but

continued to remain weak. The weakness comes off a

low base of last year, hence raises pertinent questions

about the durability of the recovery process so far. The

first-half manufacturing output too remained weak at

0.1 per cent. As per the industry classification, of the 22

industries, 13 showed positive growth, mainly led by

wearing apparel and coke & refined petroleum

products, while negative growth was seen in sectors

such as radio, TV & communication equipment and

motor vehicles. Rebound of manufacturing sector

output is very critical for aiding the pickup in overall

industrial growth. In a pleasant surprise, mining sector

which remained in negative territory for 11 consecutive

months, plagued by regulatory and environmental

issues, moved into the positive territory in September

2013. Mining sector grew by 3.3 per cent as compared to

decline of 1.0 per cent in the previous month.

Meanwhile, electricity sector continued to remain on a

strong footing as it expanded by a robust 12.9 per cent in

September 2013 as compared to 7.2 per cent in the

previous month. A healthy 5.9 per cent growth in

electricity sector in the first-half of the fiscal augurs well

for the industrial outlook going forward. The strength in

the core index was visible in the basic goods index,

which grew 5.4 per cent in September 2013.

Sectoral Growth (y-o-y, %)

Source : CSO

General 1000.0 -0.7 2.8 0.4 2.0 0.1 0.4

Manufacturing 755.3 -1.6 3.2 -0.2 0.6 -0.3 0.1

Mining 141.6 2.2 -2.5 -1.0 3.3 -1.1 -2.5

Electricity 103.2 3.9 5.2 7.2 12.9 4.6 5.9

Use-Based

Basic 456.8 2.7 1.5 1.1 5.4 2.8 1.2

Capital 88.3 -13.3 15.6 -2.0 -6.8 -14.2 -0.7

Intermediates 156.9 1.7 3.1 3.7 4.1 1.2 2.6

Consumer Goods 298.1 0.0 -0.5 -0.9 0.6 2.7 -1.3

-Durables 84.6 -1.5 -8.9 -7.7 -10.8 4.0 -10.9

-Non durables 213.5 1.4 7.0 4.8 11.3 1.6 7.3

Apr-Sept

Weight Sept-12 July-13 Aug-13 Sept-13 FY13 FY14

DOMESTIC TRENDS

Industrial Output Recovers, But Falls Short of Expectations

sector output and cushioned by a low base of last year

too. To be sure, core sector (which contributes around

38 per cent to total IIP) grew by 8.0 per cent in

September 2013. Sequential momentum best denoted

by seasonally-adjusted month-on-month series also

painted a grim picture as it continued to remain in

negative territory for the second consecutive month,

thus quickly dissipating any signs of a quick turnaround

in the industrial production. IIP data for August 2013 was

revised down slightly to 0.4 per cent from 0.6 per cent

previously. The headline IIP now averages a meagre 0.4

per cent for the first half of this fiscal year.

Sub-optimal performance by manufacturing,

particularly the capital goods sector, resulted in

lower-than-expected industrial production growth at

2.0 per cent in September 2013. Although the data print

marked acceleration over the 0.4 per cent growth in

August 2013, the September number was disappointing

as it was preceded by spectacular performance by core

Industrial Production Stood at 2.0% in September 2013

Source: CSO & CII calculations

2.5

2.0

10

5

0

-5

May

/12

Jul1

2/

Sep/

21

Nov

/12

Jan/

13

Mar

13/

May

/13

Jul/1

3

Sp/

1e

3

y-o-y% SA m-o-m%

12ECONOMY MATTERS 13 OCTOBER-NOVEMBER 2013

On the use based front, the volatile capital goods sector

proved once again to be a dampener as its output

contracted by 6.8 per cent in the reporting month as

compared to decline of 2.0 per cent in the month before

and healthy 15.6 per cent growth in July 2013. The

sector's poor performance in the month is worrisome as

its output declined on the back of a low base of last year.

Notably, industrial production output excluding capital

goods sector stood at 3.4 per cent during the month.

Capital good output is widely regarded as the pre-cursor

for improvement in investment demand. Hence, unless

we are able to see any meaningful recovery in capital

goods output in the second-half, it will be very difficult

to see any discernible improvement in overall growth

prospects for the economy.

Consumer goods moved out from the negative territory

after a gap of 4 months in September 2013. The sector

grew by 0.6 per cent partly helped by a low base of last

year. In contrast, consumer durables sector has been

languishing in the negative territory for 10 months now,

indicating the weakness in consumption growth. Non-

durables sector growth on the other hand remained

robust as it accelerated to 11.3 per cent as compared to

4.8 per cent in the previous month. The half year

average for this component is by far the best among all

other sub indices and stands at 7.3 per cent.

On the sectoral front, manufacturing output, albeit

moved into the positive territory in September 2013, but

continued to remain weak. The weakness comes off a

low base of last year, hence raises pertinent questions

about the durability of the recovery process so far. The

first-half manufacturing output too remained weak at

0.1 per cent. As per the industry classification, of the 22

industries, 13 showed positive growth, mainly led by

wearing apparel and coke & refined petroleum

products, while negative growth was seen in sectors

such as radio, TV & communication equipment and

motor vehicles. Rebound of manufacturing sector

output is very critical for aiding the pickup in overall

industrial growth. In a pleasant surprise, mining sector

which remained in negative territory for 11 consecutive

months, plagued by regulatory and environmental

issues, moved into the positive territory in September

2013. Mining sector grew by 3.3 per cent as compared to

decline of 1.0 per cent in the previous month.

Meanwhile, electricity sector continued to remain on a

strong footing as it expanded by a robust 12.9 per cent in

September 2013 as compared to 7.2 per cent in the

previous month. A healthy 5.9 per cent growth in

electricity sector in the first-half of the fiscal augurs well

for the industrial outlook going forward. The strength in

the core index was visible in the basic goods index,

which grew 5.4 per cent in September 2013.

Sectoral Growth (y-o-y, %)

Source : CSO

General 1000.0 -0.7 2.8 0.4 2.0 0.1 0.4

Manufacturing 755.3 -1.6 3.2 -0.2 0.6 -0.3 0.1

Mining 141.6 2.2 -2.5 -1.0 3.3 -1.1 -2.5

Electricity 103.2 3.9 5.2 7.2 12.9 4.6 5.9

Use-Based

Basic 456.8 2.7 1.5 1.1 5.4 2.8 1.2

Capital 88.3 -13.3 15.6 -2.0 -6.8 -14.2 -0.7

Intermediates 156.9 1.7 3.1 3.7 4.1 1.2 2.6

Consumer Goods 298.1 0.0 -0.5 -0.9 0.6 2.7 -1.3

-Durables 84.6 -1.5 -8.9 -7.7 -10.8 4.0 -10.9

-Non durables 213.5 1.4 7.0 4.8 11.3 1.6 7.3

Apr-Sept

Weight Sept-12 July-13 Aug-13 Sept-13 FY13 FY14

DOMESTIC TRENDS

Industrial Output Recovers, But Falls Short of Expectations

sector output and cushioned by a low base of last year

too. To be sure, core sector (which contributes around

38 per cent to total IIP) grew by 8.0 per cent in

September 2013. Sequential momentum best denoted

by seasonally-adjusted month-on-month series also

painted a grim picture as it continued to remain in

negative territory for the second consecutive month,

thus quickly dissipating any signs of a quick turnaround

in the industrial production. IIP data for August 2013 was

revised down slightly to 0.4 per cent from 0.6 per cent

previously. The headline IIP now averages a meagre 0.4

per cent for the first half of this fiscal year.

Sub-optimal performance by manufacturing,

particularly the capital goods sector, resulted in

lower-than-expected industrial production growth at

2.0 per cent in September 2013. Although the data print

marked acceleration over the 0.4 per cent growth in

August 2013, the September number was disappointing

as it was preceded by spectacular performance by core

Industrial Production Stood at 2.0% in September 2013

Source: CSO & CII calculations

2.5

2.0

10

5

0

-5

May

/12

Jul1

2/

Sep/

21

Nov

/12

Jan/

13

Mar

13/

May

/13

Jul/1

3

Sp/

1e

3

y-o-y% SA m-o-m%

12ECONOMY MATTERS 13 OCTOBER-NOVEMBER 2013

past few months probably led the producers to hike

prices in spite of their weak pricing power.

Manufacturing food inflation, which consists of

processed food products, even though low, accelerated

to 1.9 per cent in October 2013 as compared to 1.6 per

cent in the previous month.

Inflation in mManufactured products increased to 2.5

per cent in October 2013 as compared to 2.0 per cent last

month. Non-food manufacturing, which is widely

regarded as the proxy for demand-side pressures in the

economy, too increased to 2.6 per cent during the

reporting month as compared to 2.1 per cent last month.

This reflects that the sharp Rupee depreciation in the

OutlookThe continued rise in both WPI and CPI inflation has raised red flags in the economy. However, one needs to

remember that the bulk of the rise in inflation is attributable to jump in primary food inflation, which is generally

transient in nature and is expected to cool-off in the next few months, given the positive impact of a good monsoon

this year. Under this backdrop, we would urge RBI to cut rates in the policy review, as the economy is in urgent need

of fresh stimulus in the form of lower lending rates.

Sectoral Components of Inflation

General 100.0 7.3 7.0 6.5 7.0 7.6 5.8

Primary 20.1 7.8 13.6 13.5 14.7 9.8 10.2

- Food 14.3 6.7 19.2 18.4 18.2 9.5 13.3

- Non-Food 4.3 11.4 1.2 5.2 6.8 9.4 5.5

- Minerals 1.5 8.6 2.0 0.0 7.0 12.0 -0.1

Fuel 14.9 11.6 12.7 10.1 10.3 10.9 9.7

- Petrol 1.1 3.8 3.3 9.6 5.3 9.0 1.5

- High Speed Diesel 4.7 14.6 27.8 20.1 14.7 7.0 21.8

Manufacturing 65.0 5.9 2.3 2.0 2.5 5.8 2.7

- Food 10.0 9.8 2.4 1.6 1.9 7.8 4.3

- Non-food 55.0 5.2 2.3 2.1 2.6 5.4 2.4

April-Oct

Weight Oct-12 Aug-13 Sept-13 Oct-13 FY13 FY14

Source: Office of Economic Advisor

Exports Growth Keep Up the Pace, Even as Trade Deficit Widens

exports for the first seven months of the current fiscal

(Apr-Oct) were valued at US$179.4 billion as against

US$138. 7 billion a year ago, thus registering a year-on-

year growth of 6.3 per cent. Reflecting the weak

domestic demand and downward trend in non-essential

imports, the imports registered their fourth consecutive

contraction in October 2013.

Imports during October 2013 were valued at US$37.8

Exports kept up the pace for the fourth straight month

by expanding at 13.5 per cent- a 24 month high in

October 2013 as compared to 12.1 per cent in the

previous month. This is the fourth straight month of

expansion of exports above 10 per cent, lifted by

improving global demand and weak Rupee. A weaker

Rupee has boosted the competitiveness of Indian

exports in the global markets. Cumulative value of

2.0 per cent in the previous month. WPI release was

preceded by CPI inflation which also showed sharp

uptick as it moved into the double-digits after a gap of 7

months. Combined CPI inflation accelerated to 10.1 per

cent in October 2013 as compared to 9.8 per cent in the

previous month. Rising food prices have continued to

remain the key driver behind the jump in both WPI and

CPI inflation in the last few months. In CPI, food inflation

surged to an 8-month high of 12.3 per cent due to record

high vegetables inflation.

WPI inflation quickened to 7.0 per cent in October 2013

as compared to 6.5 per cent in the previous month on

the back of acceleration witnessed in all its major sub-

categories. Inflation reading for August 2013 was

sharply revised to 7.0 per cent from 6.1 per cent. With

this the cumulative WPI inflation for the first seven

month stands at 5.8 per cent as compared to 7.6 per

cent in the same period last year. Surprisingly, the

seasonally-adjusted month-on-month series indicated

some softening in the underlying trend as the October

month's reading stood at 0.4 per cent as compared to

Fuel inflation also accelerated to 10.3 per cent in

October 2013 as against 10.1 per cent in the previous

month. This has been mainly contributed by an increase

in non-administered fuel component to 9.9 per cent

from 9.0 per cent in the previous month. Going forward,

we expect fuel inflation to moderate due to stabilisation

witnessed in global crude prices due to the ongoing

negotiations between Iran and West and appreciation in

the Rupee.

Inflation in primary articles continued to increase to 14.7

per cent in October 2013 as compared to 13.5 per cent in

the previous month. This was mainly attributable to the

spike in food inflation to 18.2 per cent in the month.

Within food, there was a moderation in inflation across

sub-components except in inflation in eggs, meat & fish

that increased to 17.5 per cent as compared to 13.5 per

cent in September 2013. Further, inflation in vegetables

slid to 78.4 per cent from previous month's reading of

89.4 per cent.

OutlookThe modest increase in IIP for the month of September is not reason enough for us to conclude that industry has

turned the corner and is on a path to recovery. Going forward, the data for October and November could see some

buoyancy owing to demand pick up during the festive season. The CCI and the PMG have been pro-active in clearing

stalled projects and hopefully, with some of them translating into actual investments on the ground, there would be

a fillip to demand. However, to turn incipient signs of progress into a firm recovery, there is a need to address

structural issues, which are creating supply side hurdles in the way of growth.

Inflation Rises to 8-month High in October 2013

Both WPI & CPI Inflation Remain High

Source: Office of Economic Advisor

7.6

7.0

8.810.1

12

10

8

6

4

2

Feb-

12

Apr

-12

Jun-

12

Aug

-12

Oct

-12

Dec

-12

Feb-

13

Apr

-13

Jun-

13

Aug

-13

Oct

-13

WPI y-o-y% CPI (Combined) y o-y%-

14ECONOMY MATTERS 15 OCTOBER-NOVEMBER 2013

past few months probably led the producers to hike

prices in spite of their weak pricing power.

Manufacturing food inflation, which consists of

processed food products, even though low, accelerated

to 1.9 per cent in October 2013 as compared to 1.6 per

cent in the previous month.

Inflation in mManufactured products increased to 2.5

per cent in October 2013 as compared to 2.0 per cent last

month. Non-food manufacturing, which is widely

regarded as the proxy for demand-side pressures in the

economy, too increased to 2.6 per cent during the

reporting month as compared to 2.1 per cent last month.

This reflects that the sharp Rupee depreciation in the

OutlookThe continued rise in both WPI and CPI inflation has raised red flags in the economy. However, one needs to

remember that the bulk of the rise in inflation is attributable to jump in primary food inflation, which is generally

transient in nature and is expected to cool-off in the next few months, given the positive impact of a good monsoon

this year. Under this backdrop, we would urge RBI to cut rates in the policy review, as the economy is in urgent need

of fresh stimulus in the form of lower lending rates.

Sectoral Components of Inflation

General 100.0 7.3 7.0 6.5 7.0 7.6 5.8

Primary 20.1 7.8 13.6 13.5 14.7 9.8 10.2

- Food 14.3 6.7 19.2 18.4 18.2 9.5 13.3

- Non-Food 4.3 11.4 1.2 5.2 6.8 9.4 5.5

- Minerals 1.5 8.6 2.0 0.0 7.0 12.0 -0.1

Fuel 14.9 11.6 12.7 10.1 10.3 10.9 9.7

- Petrol 1.1 3.8 3.3 9.6 5.3 9.0 1.5

- High Speed Diesel 4.7 14.6 27.8 20.1 14.7 7.0 21.8

Manufacturing 65.0 5.9 2.3 2.0 2.5 5.8 2.7

- Food 10.0 9.8 2.4 1.6 1.9 7.8 4.3

- Non-food 55.0 5.2 2.3 2.1 2.6 5.4 2.4

April-Oct

Weight Oct-12 Aug-13 Sept-13 Oct-13 FY13 FY14

Source: Office of Economic Advisor

Exports Growth Keep Up the Pace, Even as Trade Deficit Widens

exports for the first seven months of the current fiscal

(Apr-Oct) were valued at US$179.4 billion as against

US$138. 7 billion a year ago, thus registering a year-on-

year growth of 6.3 per cent. Reflecting the weak

domestic demand and downward trend in non-essential

imports, the imports registered their fourth consecutive

contraction in October 2013.

Imports during October 2013 were valued at US$37.8

Exports kept up the pace for the fourth straight month

by expanding at 13.5 per cent- a 24 month high in

October 2013 as compared to 12.1 per cent in the

previous month. This is the fourth straight month of

expansion of exports above 10 per cent, lifted by

improving global demand and weak Rupee. A weaker

Rupee has boosted the competitiveness of Indian

exports in the global markets. Cumulative value of

2.0 per cent in the previous month. WPI release was

preceded by CPI inflation which also showed sharp

uptick as it moved into the double-digits after a gap of 7

months. Combined CPI inflation accelerated to 10.1 per

cent in October 2013 as compared to 9.8 per cent in the

previous month. Rising food prices have continued to

remain the key driver behind the jump in both WPI and

CPI inflation in the last few months. In CPI, food inflation

surged to an 8-month high of 12.3 per cent due to record

high vegetables inflation.

WPI inflation quickened to 7.0 per cent in October 2013

as compared to 6.5 per cent in the previous month on

the back of acceleration witnessed in all its major sub-

categories. Inflation reading for August 2013 was

sharply revised to 7.0 per cent from 6.1 per cent. With

this the cumulative WPI inflation for the first seven

month stands at 5.8 per cent as compared to 7.6 per

cent in the same period last year. Surprisingly, the

seasonally-adjusted month-on-month series indicated

some softening in the underlying trend as the October

month's reading stood at 0.4 per cent as compared to

Fuel inflation also accelerated to 10.3 per cent in

October 2013 as against 10.1 per cent in the previous

month. This has been mainly contributed by an increase

in non-administered fuel component to 9.9 per cent

from 9.0 per cent in the previous month. Going forward,

we expect fuel inflation to moderate due to stabilisation

witnessed in global crude prices due to the ongoing

negotiations between Iran and West and appreciation in

the Rupee.

Inflation in primary articles continued to increase to 14.7

per cent in October 2013 as compared to 13.5 per cent in

the previous month. This was mainly attributable to the

spike in food inflation to 18.2 per cent in the month.

Within food, there was a moderation in inflation across

sub-components except in inflation in eggs, meat & fish

that increased to 17.5 per cent as compared to 13.5 per

cent in September 2013. Further, inflation in vegetables

slid to 78.4 per cent from previous month's reading of

89.4 per cent.

OutlookThe modest increase in IIP for the month of September is not reason enough for us to conclude that industry has

turned the corner and is on a path to recovery. Going forward, the data for October and November could see some

buoyancy owing to demand pick up during the festive season. The CCI and the PMG have been pro-active in clearing

stalled projects and hopefully, with some of them translating into actual investments on the ground, there would be

a fillip to demand. However, to turn incipient signs of progress into a firm recovery, there is a need to address

structural issues, which are creating supply side hurdles in the way of growth.

Inflation Rises to 8-month High in October 2013

Both WPI & CPI Inflation Remain High

Source: Office of Economic Advisor

7.6

7.0

8.810.1

12

10

8

6

4

2

Feb-

12

Apr

-12

Jun-

12

Aug

-12

Oct

-12

Dec

-12

Feb-

13

Apr

-13

Jun-

13

Aug

-13

Oct

-13

WPI y-o-y% CPI (Combined) y o-y%-

14ECONOMY MATTERS 15 OCTOBER-NOVEMBER 2013

position to counter the current bout of Rupee weakness

than it was before. This is thanks to the US$17.5 billion

that were collected from the concessional dollar swaps

for banks which has resulted in a steep rise in foreign

exchange reserves to US$283 billion during the month of

October 2013.

Rupee has remained highly volatile in the last few

months. After it touched its lowest ever value in end-

August 2013, RBI intervened actively in the market apart

from announcing a slew of measures to stem the

Rupee's downfall. This helped the Rupee to recover

smartly from its lows and it appreciated by over 10 per

cent between end-August and end-October 2013.

However, after traversing the month of October 2013

fairly quietly and remaining largely range-bound, the

month of November 2013 saw some sharp volatility.

Rupee started the month of November at 61.9 per US$,

weakened sharply to 63.7 per US$ by 13th November

2013, only to recover to 62.4 per US$ by 26th November.

After weakening to its two-month low value of 63.7 per

US$ by 13th November 2013, Rupee has regained some of

its lost ground and strengthened to 62.4 per US$ by 26th

November 2013. Notably, Rupee weakened in mid-

November 2013, losing 1.4 per cent since November 8,

2013 when the strong US jobs data was released. The US

economy added 204K jobs in October 2013-which

pushed up the dollar. This renewed fears that the US

Federal Reserve will soon begin ending its US$85 billion a

month bond buying programme. However, it's pertinent

to note that the Rupee had been losing ground even

before that as about a third of the demand for dollars

from oil companies was back in the market. To be sure,

the dollar demand was being met by RBI through a

special window since August 28, 2013 when the currency

had hit its lowest ever value of 68.4 per US$. Rupee was

trading lower at 62.0-64.0 per US$ in the fourth week of

November 2013 as compared to highs of 61.2 per US$ hit

in mid-October 2013, losing close to 2.1 per cent.

The experts, however, feel that RBI is in a much better

Rupee Starts to Weaken Again After Staging a Smart Recovery

Rupee Weakens in November 2013

Source: RBI

54.4

68.4

61.2

63.6

70

68

66

64

62

60

58

56

54

52

50

02/A

pr/1

3

16/A

pr/1

3

30/A

pr/1

3

14/M

ay/1

3

28/M

ay/1

3

11/J

un/1

3

25/J

un/1

3

09/J

ul/1

3

23/J

ul/1

3

06/A

ug/1

3

20/A

ug/1

3

03/S

ep/1

3

17/S

ep/1

3

01/O

ct/1

3

15/O

ct/1

3

29/O

ct/1

3

12/N

ov/1

3

OutlookNotwithstanding the current bout of weakness witnessed in the Rupee against the Greenback, we expect the

Rupee to remain stable, going forward. The improvement in CAD, robust capital inflows and the comfortable

reserve position of the RBI would support the currency. Meanwhile, the risks to our view stem from global

uncertainties like possibility of withdrawal of stimulus by the Fed and revival of Euro Zone debt concerns. Moreover,

with the General elections due next year, political dynamics will be a key factor towards shaping the exchange rate

outlook in the future.

last year. The lower gold imports during the festive

season is encouraging and reflects the fact that

government intervention to curb gold imports are

bearing results. Meanwhile, crude imports came at 1.7

per cent higher at US$15.2 billion in October 2013 as

against US$14.9 billion in corresponding period last year.

The higher oil import bill is attributable to the high

international oil prices during the month due the

ongoing geopolitical tensions in Syria.

billion, posting a decline to the tune of 14.5 per cent over

the same month last year. Within imports, gold and silver

imports remain muted at US$1.4 billion in October 2013

as against import of US$0.8 billion in September 2013.

Though gold imports increased marginally in October as

compared to the month before, the good thing is that

October 2013 gold import is still 80 per cent lower in

value terms against the gold import of the same period

External Sector Performance (y-o-y%)

Source: Ministry of Commerce

13.5

-14.5

30

20

10

0

-10

-20

-30

Feb/

12

Apr

/12

Jun/

12

Aug

/12

Oct

/12

Dec

/12

Feb/

13

Apr

/13

Jun/

13

Aug

/13

Oct

/13

Exports Imports

basis, trade deficit came in at US$90.7 billion in April-

October FY14, lower than a deficit of US$112.0 billion

during the same period in FY13.

As the pace of decline of imports waned, without a

commensurate rise in exports growth, trade deficit in

October 2013 widened to US$10.6 billion as compared to

US$6.8 billion in the previous month. On a cumulative

External Sector Snapshot

April-October

(US$ billion) Oct-12 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 FY13 FY14

Exports 24.0 23.6 25.8 26.1 27.7 27.3 168.7 179.4

Imports 44.7 35.9 38.1 37.1 34.4 37.8 280.7 270.1

Oil Imports 15.8 12.8 12.7 15.1 13.2 15.2 95.0 98.1

Non-Oil Imports 28.9 23.1 25.4 22.0 21.2 22.6 185.8 172

Trade Balance -20.6 -12.3 -12.3 -10.9 -6.8 -10.6 -112.0 -90.7

Source: Ministry of Commerce

OutlookThe EXIM Trade Data reaffirmed the reversal of negativity. Exports since last 4 months from July to October 2013

have come to positive growth trajectory due to stability in the global market, particularly with our large trading

partners like US and Europe. Also, the timely Intervention by the Commerce Ministry in terms of expanding Focus

Product and Focus Market Scheme has helped Indian exporters to withstand the vagaries of tough competition. CII

strongly recommends restoration of Duty Drawback Rates which were reduced drastically last month. This will

further help in gaining and maintaining India's share in global market.

16ECONOMY MATTERS 17 OCTOBER-NOVEMBER 2013

position to counter the current bout of Rupee weakness

than it was before. This is thanks to the US$17.5 billion

that were collected from the concessional dollar swaps

for banks which has resulted in a steep rise in foreign

exchange reserves to US$283 billion during the month of

October 2013.

Rupee has remained highly volatile in the last few

months. After it touched its lowest ever value in end-

August 2013, RBI intervened actively in the market apart

from announcing a slew of measures to stem the

Rupee's downfall. This helped the Rupee to recover

smartly from its lows and it appreciated by over 10 per

cent between end-August and end-October 2013.

However, after traversing the month of October 2013

fairly quietly and remaining largely range-bound, the

month of November 2013 saw some sharp volatility.

Rupee started the month of November at 61.9 per US$,

weakened sharply to 63.7 per US$ by 13th November

2013, only to recover to 62.4 per US$ by 26th November.

After weakening to its two-month low value of 63.7 per

US$ by 13th November 2013, Rupee has regained some of

its lost ground and strengthened to 62.4 per US$ by 26th

November 2013. Notably, Rupee weakened in mid-

November 2013, losing 1.4 per cent since November 8,

2013 when the strong US jobs data was released. The US

economy added 204K jobs in October 2013-which

pushed up the dollar. This renewed fears that the US

Federal Reserve will soon begin ending its US$85 billion a

month bond buying programme. However, it's pertinent

to note that the Rupee had been losing ground even

before that as about a third of the demand for dollars

from oil companies was back in the market. To be sure,

the dollar demand was being met by RBI through a

special window since August 28, 2013 when the currency

had hit its lowest ever value of 68.4 per US$. Rupee was

trading lower at 62.0-64.0 per US$ in the fourth week of

November 2013 as compared to highs of 61.2 per US$ hit

in mid-October 2013, losing close to 2.1 per cent.

The experts, however, feel that RBI is in a much better

Rupee Starts to Weaken Again After Staging a Smart Recovery

Rupee Weakens in November 2013

Source: RBI

54.4

68.4

61.2

63.6

70

68

66

64

62

60

58

56

54

52

50

02/A

pr/1

3

16/A

pr/1

3

30/A

pr/1

3

14/M

ay/1

3

28/M

ay/1

3

11/J

un/1

3

25/J

un/1

3

09/J

ul/1

3

23/J

ul/1

3

06/A

ug/1

3

20/A

ug/1

3

03/S

ep/1

3

17/S

ep/1

3

01/O

ct/1

3

15/O

ct/1

3

29/O

ct/1

3

12/N

ov/1

3

OutlookNotwithstanding the current bout of weakness witnessed in the Rupee against the Greenback, we expect the

Rupee to remain stable, going forward. The improvement in CAD, robust capital inflows and the comfortable

reserve position of the RBI would support the currency. Meanwhile, the risks to our view stem from global

uncertainties like possibility of withdrawal of stimulus by the Fed and revival of Euro Zone debt concerns. Moreover,

with the General elections due next year, political dynamics will be a key factor towards shaping the exchange rate

outlook in the future.

last year. The lower gold imports during the festive

season is encouraging and reflects the fact that

government intervention to curb gold imports are

bearing results. Meanwhile, crude imports came at 1.7

per cent higher at US$15.2 billion in October 2013 as

against US$14.9 billion in corresponding period last year.

The higher oil import bill is attributable to the high

international oil prices during the month due the

ongoing geopolitical tensions in Syria.

billion, posting a decline to the tune of 14.5 per cent over

the same month last year. Within imports, gold and silver

imports remain muted at US$1.4 billion in October 2013

as against import of US$0.8 billion in September 2013.

Though gold imports increased marginally in October as

compared to the month before, the good thing is that

October 2013 gold import is still 80 per cent lower in

value terms against the gold import of the same period

External Sector Performance (y-o-y%)

Source: Ministry of Commerce

13.5

-14.5

30

20

10

0

-10

-20

-30

Feb/

12

Apr

/12

Jun/

12

Aug

/12

Oct

/12

Dec

/12

Feb/

13

Apr

/13

Jun/

13

Aug

/13

Oct

/13

Exports Imports

basis, trade deficit came in at US$90.7 billion in April-

October FY14, lower than a deficit of US$112.0 billion

during the same period in FY13.

As the pace of decline of imports waned, without a

commensurate rise in exports growth, trade deficit in

October 2013 widened to US$10.6 billion as compared to

US$6.8 billion in the previous month. On a cumulative

External Sector Snapshot

April-October

(US$ billion) Oct-12 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 FY13 FY14

Exports 24.0 23.6 25.8 26.1 27.7 27.3 168.7 179.4

Imports 44.7 35.9 38.1 37.1 34.4 37.8 280.7 270.1

Oil Imports 15.8 12.8 12.7 15.1 13.2 15.2 95.0 98.1

Non-Oil Imports 28.9 23.1 25.4 22.0 21.2 22.6 185.8 172

Trade Balance -20.6 -12.3 -12.3 -10.9 -6.8 -10.6 -112.0 -90.7

Source: Ministry of Commerce

OutlookThe EXIM Trade Data reaffirmed the reversal of negativity. Exports since last 4 months from July to October 2013

have come to positive growth trajectory due to stability in the global market, particularly with our large trading

partners like US and Europe. Also, the timely Intervention by the Commerce Ministry in terms of expanding Focus

Product and Focus Market Scheme has helped Indian exporters to withstand the vagaries of tough competition. CII

strongly recommends restoration of Duty Drawback Rates which were reduced drastically last month. This will

further help in gaining and maintaining India's share in global market.

16ECONOMY MATTERS 17 OCTOBER-NOVEMBER 2013

Know Your Facts: Disinflation*A slowing rate of inflation is termed as disinflation. Inflation means the general rise in the price level in an economy.

Disinflation is the deceleration in the pace of inflation or price rise. It is important to note that disinflation is

different from deflation. Deflation is a state of continuous fall in the level of prices. So when policymakers talk about

disinflation, it does not mean that the prices will fall. It simply means that prices will rise at slower pace. Normally, a

central bank, through the various tools available with it, intends to attain a low and stable inflation in the country. If

the country is grappling with a rapid rise in the level of prices, the central bank will increase the interest rates. Higher

cost of money due to higher level of interest rates affects demand in the economy and the lower growth helps to

contain prices. A higher level of interest rates, therefore, has a disinflationary effect. It is important for a central

bank to anchor inflation and inflationary expectations as sustained level of high inflation could destabilise the entire

economy. However, if the economy is in the state of deflation, or if there is a fear of it falling in deflation, the central

bank will aggressively cut interest rates to stimulate demand and push the price level up. Deflation is extremely

damaging for the economy. If the prices keep falling consumers may keep postponing consumption which can lead

to further fall in prices. Hence, it is important to avoid such a situation. Therefore, policymakers intend to avoid

extremes on both sides.

reduction in marginal standing facility (MSF) by 25 bps is

encouraging as this is working as the short-term interest

rate.

likely to aid the pick-up in domestic demand-drivers,

including private consumption and investment. Revival

in investment is critical for lifting the overall growth. The

*Adapted from Mint dated November 19, 2013

Inflation Control Finds Priority with RBI

its primary mandate was to control both and hence the

rate hike was directed to achieve the same. Additionally,

in the wake of liquidity remaining tight in recent weeks,

RBI deemed it necessary to improve the liquidity flow in

the economy; hence it increased the liquidity provided

through term repos of 7-day and 14-day tenor from 0.25

per cent of net demand and time liabilities (NDTL) of the

banking system to 0.5 per cent. It did not change the cap

of 0.5 per cent of NDTL on daily repo borrowings that it

had earlier imposed.

Reserve Bank of India (RBI) in its second quarter

monetary policy review held on 29th October 2013 chose

to hike the repo rate by 25 bps to 7.75 per cent and cut

the marginal standing facility (MSF) rate by an identical

margin to 8.75 per cent. Consequently, the Central Bank

has now completed the process of re-aligning the

interest rate corridor, bringing the MSF rate and the

repo rate within the 100 bps spread. Citing the rising

inflationary expectations coupled with persistently high

retail inflation, the Central Bank made it aptly clear that

RBI Hikes Repo Rate in Order to Curb Inflation (%)

Source: RBI

7.75

6.75

4.00

10.00

9.00

8.00

7.00

6.00

5.00

4.00

3.00

Jul-0

7

Dec

-07

May

-08

Oct

-08

Mar

-09

Aug

-09

Jan-

10

Jun-

10

Nov

-10

Apr

-11

Sep

-11

Feb

-12

Jul-1

2

Dec

-12

May

-13

Oct

-13

Repo rate Reverse repo rate CRR

On the inflation front, RBI expects WPI inflation to

remain higher than the current levels through most of

the remaining part of the year. WPI inflation rose to

eight-month high of 7.0 per cent, while retail inflation

(CPI) entered into double-digits in October 2013. The

impact of Rupee depreciation on inflation and elevated

food prices has offset the disinflationary impact of

growth slowdown. Notwithstanding the easing in food

price pressures with the arrival of the kharif harvest and

the usual seasonal moderation, WPI Inflation is

expected to remain elevated.

In conclusion, while CII is fully appreciative of the RBI's

concern on inflation, we feel that revival of growth

should have found priority for the Central Bank. Industry

would have liked reduction in the headline rates. Past

experiences also show that the economy has responded

favorably to cut in policy rates. Lower interest rates are

CII is disappointed with the Central Bank's decision to

hike repo rate as the current environment of fragile

domestic demand warranted an easing of interest rates.

CII believes that when the bulk of the pressure on

inflation is supply-led, monetary policy is not the right

tool to fight it. To be sure, domestic growth prospects

have remained subdued as mirrored by the slipping of

GDP growth to a 4-year low of 4.4 per cent in the first

quarter of the current fiscal. This is the lowest quarterly

growth rate since March 2009, when the global financial

crisis was at its peak. However as per RBI, strengthening

export growth and signs of revival in some services,

along with the expected pick-up in agriculture, could

support an increase in growth in the second half of 2013-

14 relative to the first half, raising real GDP growth from

4.4 per cent in the first quarter to a central estimate of

5.0 per cent for the year as a whole.

18ECONOMY MATTERS 19 OCTOBER-NOVEMBER 2013

Know Your Facts: Disinflation*A slowing rate of inflation is termed as disinflation. Inflation means the general rise in the price level in an economy.

Disinflation is the deceleration in the pace of inflation or price rise. It is important to note that disinflation is

different from deflation. Deflation is a state of continuous fall in the level of prices. So when policymakers talk about

disinflation, it does not mean that the prices will fall. It simply means that prices will rise at slower pace. Normally, a

central bank, through the various tools available with it, intends to attain a low and stable inflation in the country. If

the country is grappling with a rapid rise in the level of prices, the central bank will increase the interest rates. Higher

cost of money due to higher level of interest rates affects demand in the economy and the lower growth helps to

contain prices. A higher level of interest rates, therefore, has a disinflationary effect. It is important for a central

bank to anchor inflation and inflationary expectations as sustained level of high inflation could destabilise the entire

economy. However, if the economy is in the state of deflation, or if there is a fear of it falling in deflation, the central

bank will aggressively cut interest rates to stimulate demand and push the price level up. Deflation is extremely

damaging for the economy. If the prices keep falling consumers may keep postponing consumption which can lead

to further fall in prices. Hence, it is important to avoid such a situation. Therefore, policymakers intend to avoid

extremes on both sides.

reduction in marginal standing facility (MSF) by 25 bps is

encouraging as this is working as the short-term interest

rate.

likely to aid the pick-up in domestic demand-drivers,

including private consumption and investment. Revival

in investment is critical for lifting the overall growth. The

*Adapted from Mint dated November 19, 2013

Inflation Control Finds Priority with RBI

its primary mandate was to control both and hence the

rate hike was directed to achieve the same. Additionally,

in the wake of liquidity remaining tight in recent weeks,

RBI deemed it necessary to improve the liquidity flow in

the economy; hence it increased the liquidity provided

through term repos of 7-day and 14-day tenor from 0.25

per cent of net demand and time liabilities (NDTL) of the

banking system to 0.5 per cent. It did not change the cap

of 0.5 per cent of NDTL on daily repo borrowings that it

had earlier imposed.

Reserve Bank of India (RBI) in its second quarter

monetary policy review held on 29th October 2013 chose

to hike the repo rate by 25 bps to 7.75 per cent and cut

the marginal standing facility (MSF) rate by an identical

margin to 8.75 per cent. Consequently, the Central Bank

has now completed the process of re-aligning the

interest rate corridor, bringing the MSF rate and the

repo rate within the 100 bps spread. Citing the rising

inflationary expectations coupled with persistently high

retail inflation, the Central Bank made it aptly clear that

RBI Hikes Repo Rate in Order to Curb Inflation (%)

Source: RBI

7.75

6.75

4.00

10.00

9.00

8.00

7.00

6.00

5.00

4.00

3.00

Jul-0

7

Dec

-07

May

-08

Oct

-08

Mar

-09

Aug

-09

Jan-

10

Jun-

10

Nov

-10

Apr

-11

Sep

-11

Feb

-12

Jul-1

2

Dec

-12

May

-13

Oct

-13

Repo rate Reverse repo rate CRR

On the inflation front, RBI expects WPI inflation to

remain higher than the current levels through most of

the remaining part of the year. WPI inflation rose to

eight-month high of 7.0 per cent, while retail inflation

(CPI) entered into double-digits in October 2013. The

impact of Rupee depreciation on inflation and elevated

food prices has offset the disinflationary impact of

growth slowdown. Notwithstanding the easing in food

price pressures with the arrival of the kharif harvest and

the usual seasonal moderation, WPI Inflation is

expected to remain elevated.

In conclusion, while CII is fully appreciative of the RBI's

concern on inflation, we feel that revival of growth

should have found priority for the Central Bank. Industry

would have liked reduction in the headline rates. Past

experiences also show that the economy has responded

favorably to cut in policy rates. Lower interest rates are

CII is disappointed with the Central Bank's decision to

hike repo rate as the current environment of fragile

domestic demand warranted an easing of interest rates.

CII believes that when the bulk of the pressure on

inflation is supply-led, monetary policy is not the right

tool to fight it. To be sure, domestic growth prospects

have remained subdued as mirrored by the slipping of

GDP growth to a 4-year low of 4.4 per cent in the first

quarter of the current fiscal. This is the lowest quarterly

growth rate since March 2009, when the global financial

crisis was at its peak. However as per RBI, strengthening

export growth and signs of revival in some services,

along with the expected pick-up in agriculture, could

support an increase in growth in the second half of 2013-

14 relative to the first half, raising real GDP growth from

4.4 per cent in the first quarter to a central estimate of

5.0 per cent for the year as a whole.

18ECONOMY MATTERS 19 OCTOBER-NOVEMBER 2013

However, it has been clarified that international

workers from SSA countries can withdraw PF

amount contributed in India at the time of their

return to the home country, subject to

compliances.

The requirement of maintaining a bank account

in India by the International Workers for

receiving PF dues is no longer a pre-requisite,

since the dues can now be received into the

employer's bank account.

Indian employees going abroad to SSA countries

availing the benefit of detachment would no

longer be covered under the definition of

International worker; such employees would

not be subject to higher pension contributions.

India has entered into a Comprehensive

Economic Cooperation Agreement with

Singapore, which has a specific clause on social

security that excludes employees from

contributing towards social security of the host

country. Definition of "excluded employee"

under the PF laws (defined as a person who is

not required to contribute to the social security

provided he has a COC) has hence been widened

to include employees coming from Singapore on

fulfillment of the prescribed conditions.

In case of domestic workers, PF account in India

becomes inoperative after 3 years i.e., no

interest is earned on the accumulated balance, in

case no transaction happens in the PF account

for continuous 3 years. However, it has been

clarified that an international worker will

continue to earn interest even after 3 years

irrespective of the account becoming

inoperative in India.

The Social Security law in respect of the international

worker is still evolving. As more SSAs come into force, it

will help in reducing the overall cost of expatriating

people to and from India.

v

v

v

v

country and exemption from contribution in the host

country. Exemption is available in the form of

'detachment', under which a person covered by social

security legislation in the home country will be governed

only by such legislation, provided he obtains a Certificate

of Coverage (COC).

An SSA provides the fol lowing benefits to

internationally mobile employees, namely:

1. Detachment - extinguishes requirement of social

security contribution in the host country

2. Exportability - pension benefits can be received in

the county where an employee opts to stay after

retirement

3. Totalization -tenure of service served in one country

will be included while calculating the pensionable

period in the other country.

In the absence of such SSAs, companies deploying

employees abroad have to bear the social-security cost

in home and host country. This significantly pushes the

overall cost of deploying workers abroad.

Till date India has signed SSAs with 17 countries out of

which 9 are in force as on date viz., Belgium, Germany,

France, Luxembourg, Switzerland, Denmark,

Netherlands, Korea and Hungary. Further, India is also in

negotiations with various other countries, including the

UK and US (a major country in terms of Indian

employees working abroad). The SSA which are signed

but not yet effective are with Japan, Canada, Finland,

Portugal, Czech Republic, Norway, Sweden, Germany

(Comprehensive agreement) and Austria.

There have been host of issues and concerns

surrounding the PF law with respect to International

workers. The Government of India has issued a number

of clarifications in the recent past, clarifying some of the

key areas:

Initially, international workers were not allowed

to withdraw the amount standing to the credit of

the EPF till they attain the age of 58 years.

v

Social Security Agreements and Provident Fund for International Workers

contribute to the Indian Employee Provident Fund and

Pension Scheme, in case their salaries did not exceed the

threshold limit of Rs 6,500.

As per the Provident Fund (PF) laws, international

workers should contribute 12 per cent of their salary

each month towards the Employees' Provident Fund

(EPF). The employer makes a matching contribution, of

which 3.67 per cent goes towards PF and 8.33 per cent

goes towards the Employees' Pension Scheme (EPS),

unlike the Indian employees where there is a cap of Rs

541 for contribution towards pension fund.

Salary for the purpose of PF calculation includes basic

wages, dearness allowance, cash value of food

concession and retaining allowance. In respect of the

international worker, it has been clarified that

employees on a split payroll have to contribute PF on the

total salary, which is received in India as well as outside

India. International worker from a SSA country is not

required to contribute to the PF in India on the

fulfillment of certain prescribed conditions.

SSA is a bilateral agreement which eliminates payment

of social security in the host country, thereby reducing

the overall social security cost. It provides continuous

benefits under the social security scheme of the home

In November 2008, the Government of India made the

existing social security scheme mandatory for

expatriates by introducing the concept of 'international

workers'. The definition of 'international workers'

covers a foreign employee, holding a non-Indian

passport, working for a covered establishment in India,

and also includes an Indian employee deputed to a

foreign country with which India has entered into a

Social Security Agreement (SSA). The rationale for

introduction of SSA was primarily to bring about parity

with the overseas Social Security laws.

Generally, Indian companies sending employees to work

abroad, have to contribute to the host country's social

security scheme, thereby increasing the overall cost of

assignment. Further, these contributions end up being

'sunk costs', when employees return to India without

having completed the mandatory period of stay in the

host country. Further, prior to November 2008, the

expatriates working in India were not required to

TAXATIONGuest Article

By Divya Baweja, Senior Director, Deloitte Touche Tohmatsu India Private Limited; Shailly Jain, Manager and Priyanka Arora, Assistant Manager, Deloitte Haskins & Sells

20ECONOMY MATTERS 21 OCTOBER-NOVEMBER 2013

(Views expressed in the article are those of the authors and not necessarily of CII)

However, it has been clarified that international

workers from SSA countries can withdraw PF

amount contributed in India at the time of their

return to the home country, subject to

compliances.

The requirement of maintaining a bank account

in India by the International Workers for

receiving PF dues is no longer a pre-requisite,

since the dues can now be received into the

employer's bank account.

Indian employees going abroad to SSA countries

availing the benefit of detachment would no

longer be covered under the definition of

International worker; such employees would

not be subject to higher pension contributions.

India has entered into a Comprehensive

Economic Cooperation Agreement with

Singapore, which has a specific clause on social

security that excludes employees from

contributing towards social security of the host

country. Definition of "excluded employee"

under the PF laws (defined as a person who is

not required to contribute to the social security

provided he has a COC) has hence been widened

to include employees coming from Singapore on

fulfillment of the prescribed conditions.

In case of domestic workers, PF account in India

becomes inoperative after 3 years i.e., no

interest is earned on the accumulated balance, in

case no transaction happens in the PF account

for continuous 3 years. However, it has been

clarified that an international worker will

continue to earn interest even after 3 years

irrespective of the account becoming

inoperative in India.

The Social Security law in respect of the international

worker is still evolving. As more SSAs come into force, it

will help in reducing the overall cost of expatriating

people to and from India.

v

v

v

v

country and exemption from contribution in the host

country. Exemption is available in the form of

'detachment', under which a person covered by social

security legislation in the home country will be governed

only by such legislation, provided he obtains a Certificate

of Coverage (COC).

An SSA provides the fol lowing benefits to

internationally mobile employees, namely:

1. Detachment - extinguishes requirement of social

security contribution in the host country

2. Exportability - pension benefits can be received in

the county where an employee opts to stay after

retirement

3. Totalization -tenure of service served in one country

will be included while calculating the pensionable

period in the other country.

In the absence of such SSAs, companies deploying

employees abroad have to bear the social-security cost

in home and host country. This significantly pushes the

overall cost of deploying workers abroad.

Till date India has signed SSAs with 17 countries out of

which 9 are in force as on date viz., Belgium, Germany,

France, Luxembourg, Switzerland, Denmark,

Netherlands, Korea and Hungary. Further, India is also in

negotiations with various other countries, including the

UK and US (a major country in terms of Indian

employees working abroad). The SSA which are signed

but not yet effective are with Japan, Canada, Finland,

Portugal, Czech Republic, Norway, Sweden, Germany

(Comprehensive agreement) and Austria.

There have been host of issues and concerns

surrounding the PF law with respect to International

workers. The Government of India has issued a number

of clarifications in the recent past, clarifying some of the

key areas:

Initially, international workers were not allowed

to withdraw the amount standing to the credit of

the EPF till they attain the age of 58 years.

v

Social Security Agreements and Provident Fund for International Workers

contribute to the Indian Employee Provident Fund and

Pension Scheme, in case their salaries did not exceed the

threshold limit of Rs 6,500.

As per the Provident Fund (PF) laws, international

workers should contribute 12 per cent of their salary

each month towards the Employees' Provident Fund

(EPF). The employer makes a matching contribution, of

which 3.67 per cent goes towards PF and 8.33 per cent

goes towards the Employees' Pension Scheme (EPS),

unlike the Indian employees where there is a cap of Rs

541 for contribution towards pension fund.

Salary for the purpose of PF calculation includes basic

wages, dearness allowance, cash value of food

concession and retaining allowance. In respect of the

international worker, it has been clarified that

employees on a split payroll have to contribute PF on the

total salary, which is received in India as well as outside

India. International worker from a SSA country is not

required to contribute to the PF in India on the

fulfillment of certain prescribed conditions.

SSA is a bilateral agreement which eliminates payment

of social security in the host country, thereby reducing

the overall social security cost. It provides continuous

benefits under the social security scheme of the home

In November 2008, the Government of India made the

existing social security scheme mandatory for

expatriates by introducing the concept of 'international

workers'. The definition of 'international workers'

covers a foreign employee, holding a non-Indian

passport, working for a covered establishment in India,

and also includes an Indian employee deputed to a

foreign country with which India has entered into a

Social Security Agreement (SSA). The rationale for

introduction of SSA was primarily to bring about parity

with the overseas Social Security laws.

Generally, Indian companies sending employees to work

abroad, have to contribute to the host country's social

security scheme, thereby increasing the overall cost of

assignment. Further, these contributions end up being

'sunk costs', when employees return to India without

having completed the mandatory period of stay in the

host country. Further, prior to November 2008, the

expatriates working in India were not required to

TAXATIONGuest Article

By Divya Baweja, Senior Director, Deloitte Touche Tohmatsu India Private Limited; Shailly Jain, Manager and Priyanka Arora, Assistant Manager, Deloitte Haskins & Sells

20ECONOMY MATTERS 21 OCTOBER-NOVEMBER 2013

(Views expressed in the article are those of the authors and not necessarily of CII)

contribution of chronic therapies to the IPM has gone up

from 27 per cent in 2010 to 30 per cent in 2013.

therapies (anti-infectives, respiratory, pain and gynaec)

which grew at 9.6 per cent. This is what effectively

resulted in an overall slowdown in 2013. The

Therapy 2010 Contribution, % 2013, Contribution % 2013 Growth

Acute 73% 70% 10%

Chronic 27% 30% 14%

The Challenges Facing the

Sector

The Indian pharma industry is experiencing slow growth

currently due to the new pricing policy and other

regulatory challenges. However, making a slight change

in the way they are doing business today can negate the

impact in the long run. Henceforth, both the Indian and

foreign companies operating in India will have to device

suitable strategies in order to be in the top 10 global

markets by 2020. Some of these strategies can be:

portfolio optimisation, expansion into newer markets,

improving sales force productivity, including newer

technology and building a robust internal compliance

programme.

The pharma regulatory environment across the world is

getting more stringent. In order to compete in the global

market, the Indian pharma market needs a strong

regulatory set-up. But, the sector is currently grappling

with a number of issues like delays in clinical trial

approvals, uncertainties over the FDI policy, the new

pharmaceutical pricing policy, a uniform code for sales

and marketing practices and compulsory licensing all of

which need immediate attention. Some of these issues

are discussed in detail below:

Safety and effectiveness of the medicines has to be

established before regulatory approval is granted for

new drugs. Clinical trials are the gold standard processes

which determine the safety and effectiveness of these

drugs. Clinical trials are also needed for the Indian

pharmaceutical industry to develop cost effective

therapies for diseases like tuberculosis, diarrheal

diseases, malaria, leishmaniasis, and meningitis which

affect India and the other developing countries and to

capitalise on opportunities provided by bio-similars.

1). Clinical Trials

India also has aspirations of becoming a knowledge hub

for pharma. R&D in general and clinical trials in particular

are an important aspect of this aspiration. India has been

considered as an attractive destination for conducting

such clinical trials. This is mainly due to India's genetic

diversity; increasing and varied disease prevalence

rates; availability of medical, pharmacy and science

graduates, clinical infrastructure and comparative cost

advantage. However, the regulatory delays in the clinical

trials are adversely affecting this possibility.

There have been reports about the use of vulnerable

population groups in clinical trials. Lapses have been

reported in the informed consent process. Concern has

also been voiced about under-reporting of adverse

events and delays in reporting adverse events in clinical

trials.

The government of India has reported that there have

been 2868 deaths during clinical trials in the period 2005-

2012. It has also reported that there were 89 deaths

which were related to clinical trials out of which

compensation had been paid in 82 cases. Health activists

and civil society groups have emphasised the need for

payment of an adequate compensation to patient or kin

because of injuries or death related to clinical trial. The

need for timely payment of agreed compensation has

also been highlighted by these groups.

Responding to these concerns, the government has

introduced a slew of measures:

Registration of all clinical trials in India has been

made mandatory.

Twelve National Drug Advisory Committees

comprising eminent experts in different medical

specialities were set up in 2012, to oversee

approvals for clinical trials.

In January 2013, after observations by the Supreme

Court, Government of India introduced two

additional committees: the Technical Committee

v

v

v

Pharmaceuticals

v

v

v

The National Pharmaceutical Pricing Policy (NPPP)

being announced towards the end of 2012

Higher growth for the corresponding quarters and

months in the previous year

The NPPP implementation and the subsequent price

corrections leading to a low uptake among the

stockists in second quarter of 2013.

In order to overcome the ill-effects of slowdown, the

Department of Pharmaceuticals has prepared a

'Pharma Vision 2020' document for making India

one of the leading destinations for end-to-end drug

discovery and innovation. The department provides

requisite support by way of world class infrastructure,

internationally competitive scientific manpower for

pharma research and development (R&D), venture fund

for research in the public and private domain and such

other measures.

Key Therapy Areas

The top 10 therapy areas of the IPM contribute to

approximately 90 per cent of the IPM sales. Chronic

therapies (cardio, gastro, CNS and anti-diabetic) have

been outperforming the market for the past four years

and have grown at a rate of 14 per cent, faster than acute

The Indian pharmaceutical industry is a highly

knowledge based industry which is growing

steadily and plays a major role in the Indian economy. As

a highly organised sector, a number of pharmaceutical

companies are increasing their operations in India. The

Indian pharmaceutical industry (IPM) is currently ranked

tenth globally in terms of value and ranked third in

volume. It is valued at Rs 720.6 billion in 2013 as against

Rs 656.5 billion in 2012. It however experienced a

slowdown with its growth going down to 9.8 per cent in

2013 from 16.6 per cent in 2012. From 2010 to 2012, the

IPM grew at a CAGR of approximately 15 per cent. There

has been a slowdown in the growth of the top Indian as

well as multinational companies (MNCs). However, the

slowdown is more prominent in the MNCs than in the

Indian companies. In 2012, the top five MNCs had grown

at the rate of 16 per cent which dropped down to 7 per

cent in 2013. The IPM growth rate has declined after

November 2012 from an average of 16 per cent to 8 per

cent. This slowdown can be attributed to the following:

SECTOR IN FOCUS

22ECONOMY MATTERS 23 OCTOBER-NOVEMBER 2013

contribution of chronic therapies to the IPM has gone up

from 27 per cent in 2010 to 30 per cent in 2013.

therapies (anti-infectives, respiratory, pain and gynaec)

which grew at 9.6 per cent. This is what effectively

resulted in an overall slowdown in 2013. The

Therapy 2010 Contribution, % 2013, Contribution % 2013 Growth

Acute 73% 70% 10%

Chronic 27% 30% 14%

The Challenges Facing the

Sector

The Indian pharma industry is experiencing slow growth

currently due to the new pricing policy and other

regulatory challenges. However, making a slight change

in the way they are doing business today can negate the

impact in the long run. Henceforth, both the Indian and

foreign companies operating in India will have to device

suitable strategies in order to be in the top 10 global

markets by 2020. Some of these strategies can be:

portfolio optimisation, expansion into newer markets,

improving sales force productivity, including newer

technology and building a robust internal compliance

programme.

The pharma regulatory environment across the world is

getting more stringent. In order to compete in the global

market, the Indian pharma market needs a strong

regulatory set-up. But, the sector is currently grappling

with a number of issues like delays in clinical trial

approvals, uncertainties over the FDI policy, the new

pharmaceutical pricing policy, a uniform code for sales

and marketing practices and compulsory licensing all of

which need immediate attention. Some of these issues

are discussed in detail below:

Safety and effectiveness of the medicines has to be

established before regulatory approval is granted for

new drugs. Clinical trials are the gold standard processes

which determine the safety and effectiveness of these

drugs. Clinical trials are also needed for the Indian

pharmaceutical industry to develop cost effective

therapies for diseases like tuberculosis, diarrheal

diseases, malaria, leishmaniasis, and meningitis which

affect India and the other developing countries and to

capitalise on opportunities provided by bio-similars.

1). Clinical Trials

India also has aspirations of becoming a knowledge hub

for pharma. R&D in general and clinical trials in particular

are an important aspect of this aspiration. India has been

considered as an attractive destination for conducting

such clinical trials. This is mainly due to India's genetic

diversity; increasing and varied disease prevalence

rates; availability of medical, pharmacy and science

graduates, clinical infrastructure and comparative cost

advantage. However, the regulatory delays in the clinical

trials are adversely affecting this possibility.

There have been reports about the use of vulnerable

population groups in clinical trials. Lapses have been

reported in the informed consent process. Concern has

also been voiced about under-reporting of adverse

events and delays in reporting adverse events in clinical

trials.

The government of India has reported that there have

been 2868 deaths during clinical trials in the period 2005-

2012. It has also reported that there were 89 deaths

which were related to clinical trials out of which

compensation had been paid in 82 cases. Health activists

and civil society groups have emphasised the need for

payment of an adequate compensation to patient or kin

because of injuries or death related to clinical trial. The

need for timely payment of agreed compensation has

also been highlighted by these groups.

Responding to these concerns, the government has

introduced a slew of measures:

Registration of all clinical trials in India has been

made mandatory.

Twelve National Drug Advisory Committees

comprising eminent experts in different medical

specialities were set up in 2012, to oversee

approvals for clinical trials.

In January 2013, after observations by the Supreme

Court, Government of India introduced two

additional committees: the Technical Committee

v

v

v

Pharmaceuticals

v

v

v

The National Pharmaceutical Pricing Policy (NPPP)

being announced towards the end of 2012

Higher growth for the corresponding quarters and

months in the previous year

The NPPP implementation and the subsequent price

corrections leading to a low uptake among the

stockists in second quarter of 2013.

In order to overcome the ill-effects of slowdown, the

Department of Pharmaceuticals has prepared a

'Pharma Vision 2020' document for making India

one of the leading destinations for end-to-end drug

discovery and innovation. The department provides

requisite support by way of world class infrastructure,

internationally competitive scientific manpower for

pharma research and development (R&D), venture fund

for research in the public and private domain and such

other measures.

Key Therapy Areas

The top 10 therapy areas of the IPM contribute to

approximately 90 per cent of the IPM sales. Chronic

therapies (cardio, gastro, CNS and anti-diabetic) have

been outperforming the market for the past four years

and have grown at a rate of 14 per cent, faster than acute

The Indian pharmaceutical industry is a highly

knowledge based industry which is growing

steadily and plays a major role in the Indian economy. As

a highly organised sector, a number of pharmaceutical

companies are increasing their operations in India. The

Indian pharmaceutical industry (IPM) is currently ranked

tenth globally in terms of value and ranked third in

volume. It is valued at Rs 720.6 billion in 2013 as against

Rs 656.5 billion in 2012. It however experienced a

slowdown with its growth going down to 9.8 per cent in

2013 from 16.6 per cent in 2012. From 2010 to 2012, the

IPM grew at a CAGR of approximately 15 per cent. There

has been a slowdown in the growth of the top Indian as

well as multinational companies (MNCs). However, the

slowdown is more prominent in the MNCs than in the

Indian companies. In 2012, the top five MNCs had grown

at the rate of 16 per cent which dropped down to 7 per

cent in 2013. The IPM growth rate has declined after

November 2012 from an average of 16 per cent to 8 per

cent. This slowdown can be attributed to the following:

SECTOR IN FOCUS

22ECONOMY MATTERS 23 OCTOBER-NOVEMBER 2013

exports from India to the US rose nearly 32 per cent last

year to US$4.23 billion. With increase in exports, Indian

companies are drawing greater FDA scrutiny for quality

and manufacturing compliances. For India to continue

exporting to the foreign markets companies will have to

step up their quality and manufacturing compliance

programmes which are in line with the US FDA

regulations.

Increasing confidence in the drugs manufactured in

India is important. The regulators need to set the

standards at par with the global ones through

appropriate legislation. They also have to ensure that

these standards are effectively enforced and complied

with.

India has an efficient pharmaceutical industry which has

been making affordable drugs not just for the Indian

market but has also been exporting them to the world.

Addressing the above challenges in a holistic manner

will strengthen the sector which constitutes a major

part of the Indian economy. Pharma companies will

have to devise suitable strategies to mitigate the risk

emanating from the above discussed challenges for a

sustainable and compliant growth over the next

decade.

guidelines to decide on permissible sales and marketing

expenses. Because of differing standards between the

DoP and MCI guidelines, there is an increased need for

clarity both from the point of view of the industry as well

as the tax authorities.

In countries like India, there should be a balance

between the need for affordability of drugs and

intellectual property (IP) protection. The intention of

the government to ensure the availability of patented

medicines at a reasonable price is noble but there are

other ways of achieving the same goal. The

indiscriminate use of compulsory licensing will

undermine both the Indian as well as foreign

pharmaceutical companies. The industry is also facing

stricter regulations on manufacturing and quality

practices in the domestic as well as international

markets.

India is the biggest supplier of medicines to the US and

according to the industry sources, pharmaceutical

5). Compulsory Licensing

6). Manufacturing Quality

Conclusion

The economic environment in India is tougher now than ever before. While pharma companies focus their

attention on measures to combat the growth slowdown, they will need to work with the government and other

stakeholders to discuss and resolve regulatory challenges. Resolving the impasse with clinical trials will help

companies continue with R&D which is central to their growth strategies. With numerous companies operating in

multiple jurisdictions, the pharma and life sciences industry is one of the most heavily regulated in the world. Not

surprisingly, the burden of successfully managing complex rules and regulations is a major issue facing the C-suite

of pharma and life sciences companies worldwide. Instituting compliance programmes catering to regulatory

requirements is not enough in today's volatile market where reputation is at stake. Companies need to take a 360-

degree approach for their compliance programmes encapsulating not only compliance with regulatory

requirements but also their internal code of conduct and ethics code. A compliant pharma or life sciences company

with a strong tone at the top will gain better competitive advantage in this economic environment in the long run.

This article is based on the Report India Pharma Inc. Changing Landscape of the Indian Pharma Industry by PwC and CII published in October 2013

which addresses these concerns while ensuring the

affordability as well as the availability of drugs in India

Pharmaceutical price controls are seen all over the

world. Through NPPP 2012, the government has

enhanced the scope of the Drugs Price Control Order

(DPCO) to include all the drugs in the NLEM.

Combination drugs in which one of the drugs is a part of

the NLEM were also brought under the ambit of DPCO.

The government also changed the formula to arrive at

the ceiling price from a cost based method to a market

based method. The pharma companies are feeling the

effects of the price controls associated with NPPP which

will have a negative impact on their top line in the short

term. However, with well thought out strategies, a large

part of this impact can be negated in the medium to long

term.

While companies have accepted the reality of price

controls, one issue which has adversely affected the

industry is the timeline for the implementation of DPCO.

The industry felt that the government did not provide

sufficient time for implementing the new packaging and

labelling with the revised prices. There was also lack of

clarity about the location where such packaging and

labelling activities could be performed. Some

companies had to go to court to get an extension and

the ones who couldn't do so in time are still suffering.

This confusion could have been easily avoided through

consultation and by giving adequate time for the

implementation of the revised prices.

In an attempt to streamline the marketing efforts, the

Department of Pharma (DoP) has issued guidelines on a

uniform code on sales and marketing practices which

are applicable to the pharmaceutical companies. This is a

laudable step aimed at preventing corruption. The DoP

guidelines however, are different from the Medical

Council of India (MCI) guidelines on the sales and

marketing practices. Tax authorities use the Central

Board of Direct Taxes (CBDT) circular based on MCI

3). National Pharmaceutical Pricing

Policy (NPPP)

4). Uniform Code on Sales and

Marketing

under the leadership of the Director General of

Health Services and the Apex Committee under the

Secretary of Health and Family Welfare to supervise

approvals for clinical trials in India.

Government has made registration of independent

ethics committees mandatory.

The Drugs and Cosmetics Act has been amended to

define adverse events related to clinical trials.

Timelines have been defined for the reporting of

adverse events.

Government also introduced regulations for the

computing and payment of compensation to

patients or their kin for adverse events.

It has also instructed the supervision of clinical trial

sites by regional offices of the Central Drugs

Standards Control Organisation (CDSCO).

The delays and regulatory uncertainty have severely

derailed the innovation curve as well as the growth of

the clinical trial industry. Ineffective regulatory

oversight, need for safeguards for informed consent for

vulnerable populations and compensation guidelines

for patients for trial related deaths have emerged as

major concerns. In terms of the clinical trials, where India

could have been a leader, the country is losing out on

opportunities because of the mentioned limitations.

Hundred per cent FDI through the automatic route is

possible in the pharma sector in India. Given the high

current account deficit, India requires FDI. The FDI

policy, however, gives confusing signals. 100 per cent

FDI in greenfield investments is allowed by the

automatic route but after November 2011, the

brownfield investments require the approval of the

Foreign Investment Promotion Board (FIPB) which

often comes with conditions. The time consumed in this

process also acts a deterrent. FIPB conditions include

the need to maintain production levels for the National

List of Essential Medicines (NLEM) at the highest level

for three years preceding the FDI, the need to maintain

R&D expenses at the highest level for three years

preceding FDI, the need for information on the transfer

of technology to the administrative ministries and FIPB

etc. The intention behind such restrictions may be good

but it discourages investment. India needs a FDI policy

v

v

v

v

v

2). FDI Policy

24ECONOMY MATTERS 25 OCTOBER-NOVEMBER 2013

exports from India to the US rose nearly 32 per cent last

year to US$4.23 billion. With increase in exports, Indian

companies are drawing greater FDA scrutiny for quality

and manufacturing compliances. For India to continue

exporting to the foreign markets companies will have to

step up their quality and manufacturing compliance

programmes which are in line with the US FDA

regulations.

Increasing confidence in the drugs manufactured in

India is important. The regulators need to set the

standards at par with the global ones through

appropriate legislation. They also have to ensure that

these standards are effectively enforced and complied

with.

India has an efficient pharmaceutical industry which has

been making affordable drugs not just for the Indian

market but has also been exporting them to the world.

Addressing the above challenges in a holistic manner

will strengthen the sector which constitutes a major

part of the Indian economy. Pharma companies will

have to devise suitable strategies to mitigate the risk

emanating from the above discussed challenges for a

sustainable and compliant growth over the next

decade.

guidelines to decide on permissible sales and marketing

expenses. Because of differing standards between the

DoP and MCI guidelines, there is an increased need for

clarity both from the point of view of the industry as well

as the tax authorities.

In countries like India, there should be a balance

between the need for affordability of drugs and

intellectual property (IP) protection. The intention of

the government to ensure the availability of patented

medicines at a reasonable price is noble but there are

other ways of achieving the same goal. The

indiscriminate use of compulsory licensing will

undermine both the Indian as well as foreign

pharmaceutical companies. The industry is also facing

stricter regulations on manufacturing and quality

practices in the domestic as well as international

markets.

India is the biggest supplier of medicines to the US and

according to the industry sources, pharmaceutical

5). Compulsory Licensing

6). Manufacturing Quality

Conclusion

The economic environment in India is tougher now than ever before. While pharma companies focus their

attention on measures to combat the growth slowdown, they will need to work with the government and other

stakeholders to discuss and resolve regulatory challenges. Resolving the impasse with clinical trials will help

companies continue with R&D which is central to their growth strategies. With numerous companies operating in

multiple jurisdictions, the pharma and life sciences industry is one of the most heavily regulated in the world. Not

surprisingly, the burden of successfully managing complex rules and regulations is a major issue facing the C-suite

of pharma and life sciences companies worldwide. Instituting compliance programmes catering to regulatory

requirements is not enough in today's volatile market where reputation is at stake. Companies need to take a 360-

degree approach for their compliance programmes encapsulating not only compliance with regulatory

requirements but also their internal code of conduct and ethics code. A compliant pharma or life sciences company

with a strong tone at the top will gain better competitive advantage in this economic environment in the long run.

This article is based on the Report India Pharma Inc. Changing Landscape of the Indian Pharma Industry by PwC and CII published in October 2013

which addresses these concerns while ensuring the

affordability as well as the availability of drugs in India

Pharmaceutical price controls are seen all over the

world. Through NPPP 2012, the government has

enhanced the scope of the Drugs Price Control Order

(DPCO) to include all the drugs in the NLEM.

Combination drugs in which one of the drugs is a part of

the NLEM were also brought under the ambit of DPCO.

The government also changed the formula to arrive at

the ceiling price from a cost based method to a market

based method. The pharma companies are feeling the

effects of the price controls associated with NPPP which

will have a negative impact on their top line in the short

term. However, with well thought out strategies, a large

part of this impact can be negated in the medium to long

term.

While companies have accepted the reality of price

controls, one issue which has adversely affected the

industry is the timeline for the implementation of DPCO.

The industry felt that the government did not provide

sufficient time for implementing the new packaging and

labelling with the revised prices. There was also lack of

clarity about the location where such packaging and

labelling activities could be performed. Some

companies had to go to court to get an extension and

the ones who couldn't do so in time are still suffering.

This confusion could have been easily avoided through

consultation and by giving adequate time for the

implementation of the revised prices.

In an attempt to streamline the marketing efforts, the

Department of Pharma (DoP) has issued guidelines on a

uniform code on sales and marketing practices which

are applicable to the pharmaceutical companies. This is a

laudable step aimed at preventing corruption. The DoP

guidelines however, are different from the Medical

Council of India (MCI) guidelines on the sales and

marketing practices. Tax authorities use the Central

Board of Direct Taxes (CBDT) circular based on MCI

3). National Pharmaceutical Pricing

Policy (NPPP)

4). Uniform Code on Sales and

Marketing

under the leadership of the Director General of

Health Services and the Apex Committee under the

Secretary of Health and Family Welfare to supervise

approvals for clinical trials in India.

Government has made registration of independent

ethics committees mandatory.

The Drugs and Cosmetics Act has been amended to

define adverse events related to clinical trials.

Timelines have been defined for the reporting of

adverse events.

Government also introduced regulations for the

computing and payment of compensation to

patients or their kin for adverse events.

It has also instructed the supervision of clinical trial

sites by regional offices of the Central Drugs

Standards Control Organisation (CDSCO).

The delays and regulatory uncertainty have severely

derailed the innovation curve as well as the growth of

the clinical trial industry. Ineffective regulatory

oversight, need for safeguards for informed consent for

vulnerable populations and compensation guidelines

for patients for trial related deaths have emerged as

major concerns. In terms of the clinical trials, where India

could have been a leader, the country is losing out on

opportunities because of the mentioned limitations.

Hundred per cent FDI through the automatic route is

possible in the pharma sector in India. Given the high

current account deficit, India requires FDI. The FDI

policy, however, gives confusing signals. 100 per cent

FDI in greenfield investments is allowed by the

automatic route but after November 2011, the

brownfield investments require the approval of the

Foreign Investment Promotion Board (FIPB) which

often comes with conditions. The time consumed in this

process also acts a deterrent. FIPB conditions include

the need to maintain production levels for the National

List of Essential Medicines (NLEM) at the highest level

for three years preceding the FDI, the need to maintain

R&D expenses at the highest level for three years

preceding FDI, the need for information on the transfer

of technology to the administrative ministries and FIPB

etc. The intention behind such restrictions may be good

but it discourages investment. India needs a FDI policy

v

v

v

v

v

2). FDI Policy

24ECONOMY MATTERS 25 OCTOBER-NOVEMBER 2013

Cluster Development

National Manufacturing Policy 2011

Cluster development is proven strategy to boost MSME

manufacturing activities. By definition, an SME cluster

usually refers to SMEs operating in the same or related

industrial sectors that generally tend to cluster close to

one another. They perform well economically due to

various factors such as proximity to raw material

sources, suppliers and business partners, better

coordination within members of the value-chain,

presence of skilled labour force, etc.

Pertinent to note that CII has been at the forefront of

many cluster development initiatives in the country.

Today, several manufacturing clusters have emerged as

leading producers in their respective industries.

Prominent among these are the Panipat cluster that

produces 75 per cent of blankets in India, the Tirupur

cluster for hosiery, the Agra footwear cluster, the

Ludhiana clusters for woollen knitwear, bicycle and

bicycle parts, and sewing machines, the Jaipur cluster

for gems & jewellery, the Pune cluster for auto

ancillaries, to name a few.

Manufacturing clusters have also benefited from

various Government-led Cluster Development Initiatives

that involve technical assistance, subsidies for

technology upgrades and marketing support. Now,

these clusters are also ushering in ICT tools and other

t e c h n o l o g i e s t o s t r e n g t h e n t h e i r o v e r a l l

competitiveness. Perhaps, this is also an opportune time

for IT vendors to build awareness among MSMEs about

how IT applications can increase their competitiveness,

enabling them to move up the value chain. Where fixed

IT infrastructure costs are a constraint, the clusters

could consider accessing Cloud-based IT services on a

pay-as-you-go basis.

On a larger plane, MSME manufacturing received a big

boost with the announcement of the new National

Manufacturing Policy (NMP) 2011, which was formulated

to enhance the share of manufacturing in India's GDP

from 16-17 per cent to at least 25 per cent by 2020 and to

create 100 million skilled jobs in 10 years. The new NMP

has paved the way for major investments toward setting

up large National Manufacturing & Investment Zones

(NMIZs) in the country.

What is significant from the small business perspective is

that SMEs located both inside and outside NMIZs will be

given relief from long-term Capital Gains Tax on sale of a

residential property if the proceeds are invested in

setting up a new SME firm in the manufacturing sector

for buying new machinery and setting up the unit. SMEs

that foray into green manufacturing will also be getting

key fiscal incentives.

To push MSME manufacturing growth, Government has

in recent years introduced several schemes for (i) Lean

Manufacturing Competitiveness; (ii) Design Clinic; (iii)

Marketing Assistance and Technology Upgradation; (iv)

Technology and Quality Upgradation; (v) Promotion of

ICT Tools for Clusters; (vi) Tooling and Training Centres;

(vii) Improving Quality in Products; (viii) Barcode

certification; (ix) IPR Awareness; and (x) Nurturing

Innovative Business Ideas. The Cluster Development

Programme for Enhancing Productivity also merits a

special mention. While most MSME manufacturing

firms are conversant with these schemes, many units

would need to be better informed about how to access

the various Central and state government-led MSME

schemes and what benefits they can derive.

MSME manufacturing enterprises also need to

strengthen their management capabilities. Toward this,

National Manufacturing Competitiveness Council

(NMCC) and Japan International Cooperation Agency

(JICA) launched the "1000 VSME Programme" this year

with the objective of mentoring a thousand SMEs to

make the switch from the archetype small 'm' mentality

to the growth-oriented Big 'M' mindset. The

transformational programme, led by globally acclaimed

authority on Breakthrough Management Prof. Shoji

Shiba, with CII as a partner, is designed to help

manufacturing enterprises explore the challenging

spheres of design, R&D, sales and supply chain.

All these developments and initiatives notwithstanding,

MSME manufacturing continues to grapple with key

challenges that need to be addressed on a war-footing.

Most MSMEs, especially MSEs, operate at a very low

scale and lack the wherewithal to scale-up, modernise

and become globally competitive. In this context, the CII

GTC-100 Programme launched this year is a pioneering

initiative aimed at helping micro, small and medium

enterprises grow out of their respective categories.

Growth-Enabling Schemes

SPECIAL ARTICLE

Micro, Small & Medium Enterprises (MSMEs) : Challenges & Prospects

The Micro, Small & Medium Enterprise (MSME)

sector has consistently outperformed the industrial

sector over the last 5-6 years. The sector grew at an

average 11 per cent in the period 2006-11, and recorded

an impressive 19.6 per cent growth in 2011-12. Going by

this growth trend, industry expects the MSME sector to

increase its share of national GDP from the current 17 per

cent to 22 per cent by 2020. Given that the MSME sector

accounts for over 40 per cent of India's industrial

output, exports and employment, sustained growth of

this sector will have a major bearing on the country's

manufacturing growth. Rapid MSME growth will also

spur regional industrialisation as the sector is fairly

evenly spread across urban and rural areas. While 55 per

cent of SMEs operate in the urban areas, 45 per cent are

located in the rural hinterland.

Today, as India looks to accelerate its manufacturing

growth in order to achieve sustained 8-9 per cent GDP

MSME Manufacturing Growth

growth and self-sufficiency in a gamut of strategic,

industrial and household goods, MSME manufacturing

mandates the greater attention of policy makers and

industry leaders alike. According to the All-India Census

of MSMEs (2006-07), SMEs in the organised sector have

nearly 32 per cent share of domestic manufacturing.

Concerted efforts to enhance the productivity and

global competitiveness of MSME manufacturing units

will have a major bearing on India's manufacturing

growth.

As such, Indian MSME manufacturing units make an

estimated 8,000 quality products for domestic and

international markets. They command a notable

presence in industrial sectors like food and beverages,

apparel, fabricated metal products, repair and

maintenance household goods, textiles, furniture,

machinery and equipment, and so on. Moreover, in

sectors like drugs and pharmaceuticals, MSMEs are

expected to play a significant role in manufacturing.

Currently, nearly 9,500 SME units account for around 87

per cent of total pharma production by volume and 40

per cent by value. These units have a key role in meeting

Government's target of $25 billion worth pharma

exports by 2014.

Key Growth Driver

26ECONOMY MATTERS 27 OCTOBER-NOVEMBER 2013

Cluster Development

National Manufacturing Policy 2011

Cluster development is proven strategy to boost MSME

manufacturing activities. By definition, an SME cluster

usually refers to SMEs operating in the same or related

industrial sectors that generally tend to cluster close to

one another. They perform well economically due to

various factors such as proximity to raw material

sources, suppliers and business partners, better

coordination within members of the value-chain,

presence of skilled labour force, etc.

Pertinent to note that CII has been at the forefront of

many cluster development initiatives in the country.

Today, several manufacturing clusters have emerged as

leading producers in their respective industries.

Prominent among these are the Panipat cluster that

produces 75 per cent of blankets in India, the Tirupur

cluster for hosiery, the Agra footwear cluster, the

Ludhiana clusters for woollen knitwear, bicycle and

bicycle parts, and sewing machines, the Jaipur cluster

for gems & jewellery, the Pune cluster for auto

ancillaries, to name a few.

Manufacturing clusters have also benefited from

various Government-led Cluster Development Initiatives

that involve technical assistance, subsidies for

technology upgrades and marketing support. Now,

these clusters are also ushering in ICT tools and other

t e c h n o l o g i e s t o s t r e n g t h e n t h e i r o v e r a l l

competitiveness. Perhaps, this is also an opportune time

for IT vendors to build awareness among MSMEs about

how IT applications can increase their competitiveness,

enabling them to move up the value chain. Where fixed

IT infrastructure costs are a constraint, the clusters

could consider accessing Cloud-based IT services on a

pay-as-you-go basis.

On a larger plane, MSME manufacturing received a big

boost with the announcement of the new National

Manufacturing Policy (NMP) 2011, which was formulated

to enhance the share of manufacturing in India's GDP

from 16-17 per cent to at least 25 per cent by 2020 and to

create 100 million skilled jobs in 10 years. The new NMP

has paved the way for major investments toward setting

up large National Manufacturing & Investment Zones

(NMIZs) in the country.

What is significant from the small business perspective is

that SMEs located both inside and outside NMIZs will be

given relief from long-term Capital Gains Tax on sale of a

residential property if the proceeds are invested in

setting up a new SME firm in the manufacturing sector

for buying new machinery and setting up the unit. SMEs

that foray into green manufacturing will also be getting

key fiscal incentives.

To push MSME manufacturing growth, Government has

in recent years introduced several schemes for (i) Lean

Manufacturing Competitiveness; (ii) Design Clinic; (iii)

Marketing Assistance and Technology Upgradation; (iv)

Technology and Quality Upgradation; (v) Promotion of

ICT Tools for Clusters; (vi) Tooling and Training Centres;

(vii) Improving Quality in Products; (viii) Barcode

certification; (ix) IPR Awareness; and (x) Nurturing

Innovative Business Ideas. The Cluster Development

Programme for Enhancing Productivity also merits a

special mention. While most MSME manufacturing

firms are conversant with these schemes, many units

would need to be better informed about how to access

the various Central and state government-led MSME

schemes and what benefits they can derive.

MSME manufacturing enterprises also need to

strengthen their management capabilities. Toward this,

National Manufacturing Competitiveness Council

(NMCC) and Japan International Cooperation Agency

(JICA) launched the "1000 VSME Programme" this year

with the objective of mentoring a thousand SMEs to

make the switch from the archetype small 'm' mentality

to the growth-oriented Big 'M' mindset. The

transformational programme, led by globally acclaimed

authority on Breakthrough Management Prof. Shoji

Shiba, with CII as a partner, is designed to help

manufacturing enterprises explore the challenging

spheres of design, R&D, sales and supply chain.

All these developments and initiatives notwithstanding,

MSME manufacturing continues to grapple with key

challenges that need to be addressed on a war-footing.

Most MSMEs, especially MSEs, operate at a very low

scale and lack the wherewithal to scale-up, modernise

and become globally competitive. In this context, the CII

GTC-100 Programme launched this year is a pioneering

initiative aimed at helping micro, small and medium

enterprises grow out of their respective categories.

Growth-Enabling Schemes

SPECIAL ARTICLE

Micro, Small & Medium Enterprises (MSMEs) : Challenges & Prospects

The Micro, Small & Medium Enterprise (MSME)

sector has consistently outperformed the industrial

sector over the last 5-6 years. The sector grew at an

average 11 per cent in the period 2006-11, and recorded

an impressive 19.6 per cent growth in 2011-12. Going by

this growth trend, industry expects the MSME sector to

increase its share of national GDP from the current 17 per

cent to 22 per cent by 2020. Given that the MSME sector

accounts for over 40 per cent of India's industrial

output, exports and employment, sustained growth of

this sector will have a major bearing on the country's

manufacturing growth. Rapid MSME growth will also

spur regional industrialisation as the sector is fairly

evenly spread across urban and rural areas. While 55 per

cent of SMEs operate in the urban areas, 45 per cent are

located in the rural hinterland.

Today, as India looks to accelerate its manufacturing

growth in order to achieve sustained 8-9 per cent GDP

MSME Manufacturing Growth

growth and self-sufficiency in a gamut of strategic,

industrial and household goods, MSME manufacturing

mandates the greater attention of policy makers and

industry leaders alike. According to the All-India Census

of MSMEs (2006-07), SMEs in the organised sector have

nearly 32 per cent share of domestic manufacturing.

Concerted efforts to enhance the productivity and

global competitiveness of MSME manufacturing units

will have a major bearing on India's manufacturing

growth.

As such, Indian MSME manufacturing units make an

estimated 8,000 quality products for domestic and

international markets. They command a notable

presence in industrial sectors like food and beverages,

apparel, fabricated metal products, repair and

maintenance household goods, textiles, furniture,

machinery and equipment, and so on. Moreover, in

sectors like drugs and pharmaceuticals, MSMEs are

expected to play a significant role in manufacturing.

Currently, nearly 9,500 SME units account for around 87

per cent of total pharma production by volume and 40

per cent by value. These units have a key role in meeting

Government's target of $25 billion worth pharma

exports by 2014.

Key Growth Driver

26ECONOMY MATTERS 27 OCTOBER-NOVEMBER 2013

In addition to that Government's non-financial benefits

to small and medium enterprises, which grow out of

their category for a period of three years, are going to

encourage a considerably large number of MSMEs to

join our GTC 100 programme. We are also working with

Government to ensure that the non-financial benefits

reach a large number of enterprises, and for more such

incentives to be given out to growth-oriented

enterprises.

In the pilot phase, CII will run the GTC 100 programme

with 100 shortlisted companies based in the northern

region. A year later, we will introduce this programme in

the southern region, and cover the eastern and western

regions the following year. Existing MSME cluster

programmes run by CII has reached a level excellence

and has been constantly supporting MSMEs for well

over a decade and a half to enhance knowledge and

competency for scaling up and growth. Now GTC 100

aims to extend this support in all segment of entire

business processes while creating value addition for a

sustainable future.

CII has also stepped up the focus on MSME export

growth. The sudden decline in MSME share of national

exports from 40 per cent to an estimated 36 per cent has

prompted major Government steps to strengthen the

sector's global competitiveness. However, Indian

industry is aware that inadequate market development,

limited R&D and innovation, and physical infrastructure

bottlenecks have also contributed to the slowdown.

In spite of increasingly turbulent global economic

environment, for Indian MSMEs new horizons are

opening up in terms of domestic and international

opportunity. To bolster the sector's growth prospects,

Government has taken major steps over the last two

years, such as, introduction of the Public Procurement

Policy for MSEs and the Defence Offset Policy, opening

up of multi-brand retail to FDI, and mounting of various

science and technology missions that would bring direct

benefits to MSMEs.

The emerging circumstances mandate a paradigm shift

in Indian MSME approach to business. Keeping in view

the growth opportunities on the anvil, as also the

attendant business risks, our enterprises need to grow

into larger enterprises, obtain scale and wrest a larger

share of global markets in their respective domains.

While most MSMEs have demonstrated a keen desire to

grow, they would need handholding on the means and

methods to get to the level where they can engage

successfully in international markets as well as address

growing domestic demand for high quality goods and

services.

In the effort to actualise this goal, CII has launched an

innovative programme for 100 Golden Top Companies

(GTC 100), to enable our small enterprises to grow into

medium enterprises, and medium enterprises to

graduate to the level of large enterprises. Enterprises

that get selected for this programme will receive

comprehensive business process support in two phases

spread over 48 months, which will prepare them to

emerge as world beaters in their sphere of business.

Mr Deep KapuriaChairman, CII National MSME Council

Chairman, Hi - Tech Group of Companies

Driving the Growth of MSMEsKey Challenges

Most MSMEs continue to face limited access to timely

credit and finance. While bank credit flow to MSME

sector has steadily increased, the sector's credit and

finance need gap is still considerably huge. The

challenge hereon lies in promoting innovative financing

of MSME businesses including manufacturing activities.

The sector would also profit from improved access to

new technologies, modern management practices

including appropriate supply chain management

solutions, basic infrastructure, and R&D and innovation.

Key steps to boost credit and finance, technology and

market access to MSME manufacturing units will buoy

the long-term prospects of key MSME sectors like the

toy industry that is facing unprecedented competition

from cheap imports, especially from China. Reports

indicate that around 40 per cent of Indian toy companies

have closed down in recent times although the industry

has recorded double-digit growth over the last five

years.

The Indian toy industry is a major market for both

domestic and international players, owing to low

penetration and growth in the size of the middle class.

India's toy industry has a meagre share of 0.51 per cent

of the global market. The Indian toy market, whose size

is estimated at about Rs 8,000 crore, is expected to

grow at a CAGR of 30 per cent by 2015. Only 20 per cent

of the Indian market is served by Indian manufacturers,

with the rest being accounted for by imports mainly

from China and Italy, which offer wider variety at lower

prices and attract children of all ages.

On access to finance, CII has suggested in a memo to

Government that provision of pre- and post-shipment

foreign currency credit to the MSME sector at a lower

rate; a uniform credit rating format and process to bring

about transparency and speed to this important issue;

an interest rate subvention, to enhance the

competitiveness of MSMEs; setting up of a nodal agency

to borrow in foreign currency from abroad on a pool

basis and further lend to MSME exporters at

competitive rates, for technological innovation,

upgrades and capacity expansion.

CII has also suggested a new scheme to supplement the

promoter's equity contribution and facilitate the raising

of additional debt, in cases where MSMEs are

expanding; the launch of factoring services by all banks

for MSMEs, to tackle the problem of delayed payments

by customers; and securitisation of receivables owed to

MSMEs for sales to large firms and their auction, with

the proceeds paid out to small firms, which would

consequently reduce MSMEs' investment in working

capital and their need for finance.

On export promotion and marketing activities, the CII

memo suggested creation of awareness about various

schemes available for MSMEs so as to make companies

utilise such schemes; as well as creation of a fund to

subsidise MSMEs' marketing operations.

In addressing the infrastructure needs of MSME

manufacturing units, Government could consider

leasing out premises to these enterprises during their

initial years of operation. Once they become financially

stable, they could be given an option to buy the leased

property at a fair price. Such a facility would enable start-

up companies to utilise their funds to gain stability and

ensure growth. Also, wider adoption of ICT tools could

make the MSME manufacturing units more competitive.

The Internet can be a great equaliser for MSMEs,

providing them with access to new markets, more

customers and visibility so as to unleash their potential.

The field of supply chain management (SCM) is reaching

a new stage. After a period dominated by enthusiasm for

the newness of the idea of managing the stream of

products across the whole chain, from supply through

manufacturing to end-users, it is now realised that "one

size does not fit all". It seems that the supply chain issues

are much explored in the context of large enterprises

but less attention is paid to MSMEs. A multi-pronged

effort to boost MSME manufacturing growth will

eventually accelerate India's emerged as a global

manufacturing hub.

28ECONOMY MATTERS 29 OCTOBER-NOVEMBER 2013

In addition to that Government's non-financial benefits

to small and medium enterprises, which grow out of

their category for a period of three years, are going to

encourage a considerably large number of MSMEs to

join our GTC 100 programme. We are also working with

Government to ensure that the non-financial benefits

reach a large number of enterprises, and for more such

incentives to be given out to growth-oriented

enterprises.

In the pilot phase, CII will run the GTC 100 programme

with 100 shortlisted companies based in the northern

region. A year later, we will introduce this programme in

the southern region, and cover the eastern and western

regions the following year. Existing MSME cluster

programmes run by CII has reached a level excellence

and has been constantly supporting MSMEs for well

over a decade and a half to enhance knowledge and

competency for scaling up and growth. Now GTC 100

aims to extend this support in all segment of entire

business processes while creating value addition for a

sustainable future.

CII has also stepped up the focus on MSME export

growth. The sudden decline in MSME share of national

exports from 40 per cent to an estimated 36 per cent has

prompted major Government steps to strengthen the

sector's global competitiveness. However, Indian

industry is aware that inadequate market development,

limited R&D and innovation, and physical infrastructure

bottlenecks have also contributed to the slowdown.

In spite of increasingly turbulent global economic

environment, for Indian MSMEs new horizons are

opening up in terms of domestic and international

opportunity. To bolster the sector's growth prospects,

Government has taken major steps over the last two

years, such as, introduction of the Public Procurement

Policy for MSEs and the Defence Offset Policy, opening

up of multi-brand retail to FDI, and mounting of various

science and technology missions that would bring direct

benefits to MSMEs.

The emerging circumstances mandate a paradigm shift

in Indian MSME approach to business. Keeping in view

the growth opportunities on the anvil, as also the

attendant business risks, our enterprises need to grow

into larger enterprises, obtain scale and wrest a larger

share of global markets in their respective domains.

While most MSMEs have demonstrated a keen desire to

grow, they would need handholding on the means and

methods to get to the level where they can engage

successfully in international markets as well as address

growing domestic demand for high quality goods and

services.

In the effort to actualise this goal, CII has launched an

innovative programme for 100 Golden Top Companies

(GTC 100), to enable our small enterprises to grow into

medium enterprises, and medium enterprises to

graduate to the level of large enterprises. Enterprises

that get selected for this programme will receive

comprehensive business process support in two phases

spread over 48 months, which will prepare them to

emerge as world beaters in their sphere of business.

Mr Deep KapuriaChairman, CII National MSME Council

Chairman, Hi - Tech Group of Companies

Driving the Growth of MSMEsKey Challenges

Most MSMEs continue to face limited access to timely

credit and finance. While bank credit flow to MSME

sector has steadily increased, the sector's credit and

finance need gap is still considerably huge. The

challenge hereon lies in promoting innovative financing

of MSME businesses including manufacturing activities.

The sector would also profit from improved access to

new technologies, modern management practices

including appropriate supply chain management

solutions, basic infrastructure, and R&D and innovation.

Key steps to boost credit and finance, technology and

market access to MSME manufacturing units will buoy

the long-term prospects of key MSME sectors like the

toy industry that is facing unprecedented competition

from cheap imports, especially from China. Reports

indicate that around 40 per cent of Indian toy companies

have closed down in recent times although the industry

has recorded double-digit growth over the last five

years.

The Indian toy industry is a major market for both

domestic and international players, owing to low

penetration and growth in the size of the middle class.

India's toy industry has a meagre share of 0.51 per cent

of the global market. The Indian toy market, whose size

is estimated at about Rs 8,000 crore, is expected to

grow at a CAGR of 30 per cent by 2015. Only 20 per cent

of the Indian market is served by Indian manufacturers,

with the rest being accounted for by imports mainly

from China and Italy, which offer wider variety at lower

prices and attract children of all ages.

On access to finance, CII has suggested in a memo to

Government that provision of pre- and post-shipment

foreign currency credit to the MSME sector at a lower

rate; a uniform credit rating format and process to bring

about transparency and speed to this important issue;

an interest rate subvention, to enhance the

competitiveness of MSMEs; setting up of a nodal agency

to borrow in foreign currency from abroad on a pool

basis and further lend to MSME exporters at

competitive rates, for technological innovation,

upgrades and capacity expansion.

CII has also suggested a new scheme to supplement the

promoter's equity contribution and facilitate the raising

of additional debt, in cases where MSMEs are

expanding; the launch of factoring services by all banks

for MSMEs, to tackle the problem of delayed payments

by customers; and securitisation of receivables owed to

MSMEs for sales to large firms and their auction, with

the proceeds paid out to small firms, which would

consequently reduce MSMEs' investment in working

capital and their need for finance.

On export promotion and marketing activities, the CII

memo suggested creation of awareness about various

schemes available for MSMEs so as to make companies

utilise such schemes; as well as creation of a fund to

subsidise MSMEs' marketing operations.

In addressing the infrastructure needs of MSME

manufacturing units, Government could consider

leasing out premises to these enterprises during their

initial years of operation. Once they become financially

stable, they could be given an option to buy the leased

property at a fair price. Such a facility would enable start-

up companies to utilise their funds to gain stability and

ensure growth. Also, wider adoption of ICT tools could

make the MSME manufacturing units more competitive.

The Internet can be a great equaliser for MSMEs,

providing them with access to new markets, more

customers and visibility so as to unleash their potential.

The field of supply chain management (SCM) is reaching

a new stage. After a period dominated by enthusiasm for

the newness of the idea of managing the stream of

products across the whole chain, from supply through

manufacturing to end-users, it is now realised that "one

size does not fit all". It seems that the supply chain issues

are much explored in the context of large enterprises

but less attention is paid to MSMEs. A multi-pronged

effort to boost MSME manufacturing growth will

eventually accelerate India's emerged as a global

manufacturing hub.

28ECONOMY MATTERS 29 OCTOBER-NOVEMBER 2013

resources to create in-house testing facilities, unlike the

larger enterprises. In these circumstances, Government

would do well to create world class testing

infrastructure for the vast multitude of MSMEs in the

country.

Further, there is a dire need for pushing for Mutual

Recognition Agreements with other countries so that

tests conducted in India gain global acceptance and

recognition. To expand the base of exporting MSMEs,

Government could initiate identification of MSMEs that

are export worthy and provide them robust market

intelligence, training and capacity building in relevant

areas.

Certain industry quarters have also urged Government

to provide assistance for establishing Export

Development Companies (EDCs) floated collectively by

at least 10 MSMEs (of same or similar product groups or

based in clusters) to collectively market their produce.

Also, trading houses with competencies of market

development and international trade may be invited to

come up in private or public-private partnerships to

procure goods from MSMEs and export.

Currently, the number of companies, showrooms and

the outward FDI for capturing foreign markets is

negligible. The sector would benefit immensely if

Government were to extend financial support to

MSMEs to open show rooms overseas. Similar financial

support could also be given to MSME Associations /

cluster associations for setting up office in focused

markets/ foreign countries. MSMEs foraying into

developed and emerging markets need robust market

intelligence support. Government and industry could

undertake product- or market-specific studies to help

enterprises identify the right opportunities.

Looking ahead, MSME exports could increase

exponentially if timely policy interventions are made

toward building the right ecosystem for targeting global

markets. MSMEs on their part need to pro-actively focus

on R&D and innovation and raise the quality standards

of their offerings without blunting their cost

competitiveness.

gain a large share of global markets?

Government has already accorded high priority to

MSME export promotion, supported by key measures

like simplification of procedures, incentives for higher

production of exports, preferential treatments to

MSMEs in the market development fund, simplification

of duty drawback rules, etc.

There is a clear expectation that MSME share of total

exports will reach 50 per cent in the 12th Plan period,

from 36 per cent now. Minister of State (Independent

Charge) for MSME, Mr K H Muniyappa, said recently the

export revival will be largely driven by increasing

demand from the western and emerging markets. The

US and Europe account for 60 per cent of India's total

exports.

Some of the other steps taken by Government that

would greatly aid MSME exports are:

Hike in rate of interest subsidy from 2 per cent at

present and providing financial assistance for

product designing and skill development.

Doubling the upper eligibility limit for MSME

exporters from Rs.15 crore to Rs 30 crore under the

Market Development Assistance (MDA) scheme.

Enhancement of the financial ceiling for

participation in trade fairs and exhibitions from Rs

1.8 lakh to Rs 2.5 lakh for focus Latin American

countries, from Rs 1.5 lakh to Rs.2 lakh for focus

African countries, focus CIS countries, focus

ASEAN, Australia and New Zealand and from Rs

80,000 to Rs 1.5 lakh for other countries.

Enhanced reimbursement to the EPCs and higher

ceiling of Rs 40 lakh for international exhibitions in

excess of 75 members, which would encourage

these organisations to provide greater exposure

to Indian exporters.

Enterprises on their part also need to match the

increasing standards of global supply chains to increase

their own market share. However, they are likely to face

greater challenges in meeting the standards for want of

easy access to test facilities. MSMEs by and large lack the

v

v

v

v

Leveraging Global Opportunities

South Korea, Singapore, and Malaysia are even higher

where SMEs drive their export boom.

Over the years, Indian MSME manufacturers of items

like readymade garments, leather goods, processed

foods, engineering items, and sports goods have

captured a sizeable share of global markets. Some of the

other key MSME export products groups include pearls,

precious stones and metals; electrical and electronic

equipment; textiles, apparel and accessories;

pharmaceutical products; machinery and mechanical

appliances; items made of iron or steel; organic

chemicals; vehicles other than railways and tramways;

plastics, rubber and articles made from them; footwear,

leather and leather products; travel goods; tools,

implements and cutlery; tanning and dyeing extracts,

tannins, derivatives and pigments; essential oils,

perfumes, cosmetics and toiletries; stone, plaster,

cement, asbestos and mica; carpets and other textile

floor coverings; furniture, lighting, signs and

prefabricated buildings. While this is a fairly diversified

export portfolio, the sector will need to move up the

global manufacturing value chain and capture a chunk of

the high-end global markets.

In terms of destination, the main markets for 20 most-

exported Indian MSME product groups, which

accounted for more than 90 per cent of MSME exports

from 2009 to 2012, include the US, EU, UAE, Turkey,

Singapore, Hong Kong, Israel and Saudi Arabia. In

stepping up the export drive, Indian MSMEs need to

diversify its export destination and gain a larger share of

the emerging markets as well.

So, what specific steps are needed to help Indian MSMEs

The sudden decline in MSME share of national exports

from 40 per cent to an estimated 36 per cent has

prompted major Government steps to strengthen the

sector's global competitiveness. While the dip in exports

is chiefly attributed to continuing contraction of global

markets, Indian industry is aware that inadequate

market development, limited R&D and innovation, and

physical infrastructure bottlenecks have also

contributed to the slowdown.

MSME sector has a key role to play in boosting India's

export growth, especially in the wake of the country's

exports declining by about 2 per cent to $300 billion in

2012-13, way below the $360 billion targeted at the

beginning of the year. Worse still, trade deficit touched

an all-time high of $190.1 billion in 2012-13, and current

account deficit scaled 6.7 per cent of GDP in the third

quarter of last fiscal - worrisome developments for both

Government and industry.

Export growth is of vital importance to the MSME

sector. It is a measure of the sector's competitiveness.

Hence, in times like now when export growth dips,

MSMEs have good reasons to step up their innovation

drive to gain a larger share of global markets, and

become more nimble-footed and responsive to

emerging market trends. Export markets also help

MSMEs reduce their dependence on the relatively price-

sensitive domestic market.

Yet, estimates suggest that less than 0.5 per cent of

Indian MSMEs are engaged in exports. In comparison, 25

per cent of European SMEs participate in exports within

EU and half of them (13 per cent) exports worldwide. The

corresponding figures for Asian economies like Taiwan,

Mr Raman SalujaChairman, CII Northern Regional Committee on MSMEs

Managing Director- Oriental Engineering Works Pvt Limited

30ECONOMY MATTERS 31 OCTOBER-NOVEMBER 2013

resources to create in-house testing facilities, unlike the

larger enterprises. In these circumstances, Government

would do well to create world class testing

infrastructure for the vast multitude of MSMEs in the

country.

Further, there is a dire need for pushing for Mutual

Recognition Agreements with other countries so that

tests conducted in India gain global acceptance and

recognition. To expand the base of exporting MSMEs,

Government could initiate identification of MSMEs that

are export worthy and provide them robust market

intelligence, training and capacity building in relevant

areas.

Certain industry quarters have also urged Government

to provide assistance for establishing Export

Development Companies (EDCs) floated collectively by

at least 10 MSMEs (of same or similar product groups or

based in clusters) to collectively market their produce.

Also, trading houses with competencies of market

development and international trade may be invited to

come up in private or public-private partnerships to

procure goods from MSMEs and export.

Currently, the number of companies, showrooms and

the outward FDI for capturing foreign markets is

negligible. The sector would benefit immensely if

Government were to extend financial support to

MSMEs to open show rooms overseas. Similar financial

support could also be given to MSME Associations /

cluster associations for setting up office in focused

markets/ foreign countries. MSMEs foraying into

developed and emerging markets need robust market

intelligence support. Government and industry could

undertake product- or market-specific studies to help

enterprises identify the right opportunities.

Looking ahead, MSME exports could increase

exponentially if timely policy interventions are made

toward building the right ecosystem for targeting global

markets. MSMEs on their part need to pro-actively focus

on R&D and innovation and raise the quality standards

of their offerings without blunting their cost

competitiveness.

gain a large share of global markets?

Government has already accorded high priority to

MSME export promotion, supported by key measures

like simplification of procedures, incentives for higher

production of exports, preferential treatments to

MSMEs in the market development fund, simplification

of duty drawback rules, etc.

There is a clear expectation that MSME share of total

exports will reach 50 per cent in the 12th Plan period,

from 36 per cent now. Minister of State (Independent

Charge) for MSME, Mr K H Muniyappa, said recently the

export revival will be largely driven by increasing

demand from the western and emerging markets. The

US and Europe account for 60 per cent of India's total

exports.

Some of the other steps taken by Government that

would greatly aid MSME exports are:

Hike in rate of interest subsidy from 2 per cent at

present and providing financial assistance for

product designing and skill development.

Doubling the upper eligibility limit for MSME

exporters from Rs.15 crore to Rs 30 crore under the

Market Development Assistance (MDA) scheme.

Enhancement of the financial ceiling for

participation in trade fairs and exhibitions from Rs

1.8 lakh to Rs 2.5 lakh for focus Latin American

countries, from Rs 1.5 lakh to Rs.2 lakh for focus

African countries, focus CIS countries, focus

ASEAN, Australia and New Zealand and from Rs

80,000 to Rs 1.5 lakh for other countries.

Enhanced reimbursement to the EPCs and higher

ceiling of Rs 40 lakh for international exhibitions in

excess of 75 members, which would encourage

these organisations to provide greater exposure

to Indian exporters.

Enterprises on their part also need to match the

increasing standards of global supply chains to increase

their own market share. However, they are likely to face

greater challenges in meeting the standards for want of

easy access to test facilities. MSMEs by and large lack the

v

v

v

v

Leveraging Global Opportunities

South Korea, Singapore, and Malaysia are even higher

where SMEs drive their export boom.

Over the years, Indian MSME manufacturers of items

like readymade garments, leather goods, processed

foods, engineering items, and sports goods have

captured a sizeable share of global markets. Some of the

other key MSME export products groups include pearls,

precious stones and metals; electrical and electronic

equipment; textiles, apparel and accessories;

pharmaceutical products; machinery and mechanical

appliances; items made of iron or steel; organic

chemicals; vehicles other than railways and tramways;

plastics, rubber and articles made from them; footwear,

leather and leather products; travel goods; tools,

implements and cutlery; tanning and dyeing extracts,

tannins, derivatives and pigments; essential oils,

perfumes, cosmetics and toiletries; stone, plaster,

cement, asbestos and mica; carpets and other textile

floor coverings; furniture, lighting, signs and

prefabricated buildings. While this is a fairly diversified

export portfolio, the sector will need to move up the

global manufacturing value chain and capture a chunk of

the high-end global markets.

In terms of destination, the main markets for 20 most-

exported Indian MSME product groups, which

accounted for more than 90 per cent of MSME exports

from 2009 to 2012, include the US, EU, UAE, Turkey,

Singapore, Hong Kong, Israel and Saudi Arabia. In

stepping up the export drive, Indian MSMEs need to

diversify its export destination and gain a larger share of

the emerging markets as well.

So, what specific steps are needed to help Indian MSMEs

The sudden decline in MSME share of national exports

from 40 per cent to an estimated 36 per cent has

prompted major Government steps to strengthen the

sector's global competitiveness. While the dip in exports

is chiefly attributed to continuing contraction of global

markets, Indian industry is aware that inadequate

market development, limited R&D and innovation, and

physical infrastructure bottlenecks have also

contributed to the slowdown.

MSME sector has a key role to play in boosting India's

export growth, especially in the wake of the country's

exports declining by about 2 per cent to $300 billion in

2012-13, way below the $360 billion targeted at the

beginning of the year. Worse still, trade deficit touched

an all-time high of $190.1 billion in 2012-13, and current

account deficit scaled 6.7 per cent of GDP in the third

quarter of last fiscal - worrisome developments for both

Government and industry.

Export growth is of vital importance to the MSME

sector. It is a measure of the sector's competitiveness.

Hence, in times like now when export growth dips,

MSMEs have good reasons to step up their innovation

drive to gain a larger share of global markets, and

become more nimble-footed and responsive to

emerging market trends. Export markets also help

MSMEs reduce their dependence on the relatively price-

sensitive domestic market.

Yet, estimates suggest that less than 0.5 per cent of

Indian MSMEs are engaged in exports. In comparison, 25

per cent of European SMEs participate in exports within

EU and half of them (13 per cent) exports worldwide. The

corresponding figures for Asian economies like Taiwan,

Mr Raman SalujaChairman, CII Northern Regional Committee on MSMEs

Managing Director- Oriental Engineering Works Pvt Limited

30ECONOMY MATTERS 31 OCTOBER-NOVEMBER 2013

exchanges expect at least 10 small and medium

enterprises to list over a period of twelve months.

To support the growth of technology-based enterprises,

the government plans to set up 100 incubators under the

auspices of engineering and technology institutions by

2015. There is also a proposal to expand the services of

MSME Development Institutes and technology

incubators to provide hand-holding and advisory

support to enterprises. This would provide confidence

to financial institutions about the viability of an

enterprise.

The MSME sector is characterized by low adoption of

t e c h n o l o g y , w h i c h i m p a c t s t h e s e c t o r ' s

competitiveness. In order to encourage enterprises to

invest in technology, the government also provides

Credit-Linked Capital Subsidies (CLCS) for technology

investments. The government leverages the credit

infrastructure of the public sector banking network to

make the subsidy available to MSMEs.

There have been significant efforts to strengthen the

enabling environment for MSME service sector, which

have had a positive impact on the sector as a whole.

However, challenges in formulating and implementing

effective policy continue to impede the growth of

MSME service.

Skill Development

Technology Adoption

Conclusion

as Growth capital and Equity assistance for MSME

(GEMS). In addition to providing debt finance, SIDBI has

also set up SIDBI Venture Capital Limited to supply

equity to the MSME sector. To minimise the effect of

immovable collateral on access to finance for MSMEs,

the government and SIDBI have co-funded a credit

guarantee fund, Credit Guarantee Trust for Micro and

Small Enterprises.

To encourage book-keeping and improve financial

awareness of enterprises, the government has

instituted a credit rating scheme for the MSME sector

with NSIC as the coordinating agency. The rating scheme

offers subsidized credit rating services to enterprises

with the intention of supporting market development in

this regard and encouraging more enterprises to get

rated. Given the right momentum, availability of a

credible rating could have a positive impact in terms of

financial institutions willingness to finance certain

enterprises, as well as in terms of reducing turnaround

time eventually, by using the rating to substitute some

parts of the credit risk assessment process.

In order to facilitate the flow of equity capital to the

small and medium enterprises, and offer potential

investors a platform for exit, the government and the

Securities and Exchange Board of India (SEBI) proposed

the formation of the SME Stock Exchange. Currently,

two mainstream stock exchanges -- the Bombay Stock

Exchange (BSE) and the National Stock Exchange (NSE) -

- have started SME stock exchanges in India. Both the

SME Stock Exchange

Service industries such as retail trade, repair and

maintenance, and restaurants are typically cash

businesses with shorter turnaround, because of which

their overall external capital requirements tend to be

low on an average. On the other hand, there are

knowledge-based services industries such as software

development and management consulting within the

services sector, the finance requirements of which are

similar to that of manufacturing industries i.e. higher

working capital and capital expenditure requirements.

Some characteristic traits of the demand of services

enterprises are: The share of working capital as a portion

of the average debt demand for services enterprises is

estimated to be 41 per cent. Services enterprises require

less external capital on an on-going basis, except for

such things as work premises renovation, purchase and

refurbishment of equipment.

They do, however, need significant capital support

during the start-up stage. Given the nature of most of

these enterprises, they have limited access to

immovable collateral which makes access to formal

finance challenging. Knowledge-based enterprises

require working capital for primarily investing in people.

For this, businesses either depend on internal accruals

or internal equity investments, as debt from formal

financial institutions for financing of man power costs

remains a challenge.

Growth of MSME services needs to be reinforced by

holistic fiscal support and enabling policies. Similarly,

improving the policy framework and incentivizing

financial institutions to innovate can increase the

penetration of formal financial services to the MSME

sector. The government provides financing support to

the sector through the Small Industries Development

Bank of India (SIDBI). SIDBI provides wholesale

financing support to small financial institutions such as

NBFCs that operate in the MSME sector.

SIDBI also provides retail finance support to MSMEs,

particularly in the growth stage through schemes such

Enabling Environment

In the overall pie of small enterprise (29.8 million) in the

country, MSME services sector accounts a lion share, as,

according to the 2012-13 annual report of the Ministry of

MSME, Government of India, in the total small

enterprises, 68 per cent of the enterprises are in the

services and in the total registered small enterprises 33

per cent of the enterprises are engaged in the services

activities. Besides, the services sector stands above the

manufacturing sector in terms of business confidence.

Despite the significant contributions of the MSME

services sector, the sector continues to face certain

constraints like, as pointed out in PM's Task Force

Report, availability of adequate and timely credit, high

cost of credit, collateral requirements and access to

equity capital. It thus emerges that adequate, timely and

affordable credit is one of the bigger issues for the

MSME sector.

Services enterprises make up 27 per cent of the overall

viable and addressable debt gap. Financing is better in

traditional services industries such as retail, small

transport operators, and hospitality, as financial

industries have a better understanding of these sectors.

Some of the reasons for gap in the sector are: Traditional

services experience a greater debt shortfall in capital

expenditure financing compared to working capital

requirements because there is a high level of cash

transactions in business operations that can be used to

finance working capital needs.

Although traditional services enterprises often have

access to primary security, they tend to transact mostly

in cash, with limited records of their financial

transactions. Due to inadequate information on financial

behavior of the enterprise and entrepreneur; the

sanctioned finance limits tend to be lower than what

they need. Financial institutions do not have reliable

financing benchmarks for the services sector unlike for

the manufacturing sector. As a result, there is greater

difficulty in determining the actual financing needs of

different types of enterprises in the services sector,

leading to under-financing of the sector.

Financial Issues

Meeting the challgnes of Services MSMEs

32ECONOMY MATTERS 33 OCTOBER-NOVEMBER 2013

exchanges expect at least 10 small and medium

enterprises to list over a period of twelve months.

To support the growth of technology-based enterprises,

the government plans to set up 100 incubators under the

auspices of engineering and technology institutions by

2015. There is also a proposal to expand the services of

MSME Development Institutes and technology

incubators to provide hand-holding and advisory

support to enterprises. This would provide confidence

to financial institutions about the viability of an

enterprise.

The MSME sector is characterized by low adoption of

t e c h n o l o g y , w h i c h i m p a c t s t h e s e c t o r ' s

competitiveness. In order to encourage enterprises to

invest in technology, the government also provides

Credit-Linked Capital Subsidies (CLCS) for technology

investments. The government leverages the credit

infrastructure of the public sector banking network to

make the subsidy available to MSMEs.

There have been significant efforts to strengthen the

enabling environment for MSME service sector, which

have had a positive impact on the sector as a whole.

However, challenges in formulating and implementing

effective policy continue to impede the growth of

MSME service.

Skill Development

Technology Adoption

Conclusion

as Growth capital and Equity assistance for MSME

(GEMS). In addition to providing debt finance, SIDBI has

also set up SIDBI Venture Capital Limited to supply

equity to the MSME sector. To minimise the effect of

immovable collateral on access to finance for MSMEs,

the government and SIDBI have co-funded a credit

guarantee fund, Credit Guarantee Trust for Micro and

Small Enterprises.

To encourage book-keeping and improve financial

awareness of enterprises, the government has

instituted a credit rating scheme for the MSME sector

with NSIC as the coordinating agency. The rating scheme

offers subsidized credit rating services to enterprises

with the intention of supporting market development in

this regard and encouraging more enterprises to get

rated. Given the right momentum, availability of a

credible rating could have a positive impact in terms of

financial institutions willingness to finance certain

enterprises, as well as in terms of reducing turnaround

time eventually, by using the rating to substitute some

parts of the credit risk assessment process.

In order to facilitate the flow of equity capital to the

small and medium enterprises, and offer potential

investors a platform for exit, the government and the

Securities and Exchange Board of India (SEBI) proposed

the formation of the SME Stock Exchange. Currently,

two mainstream stock exchanges -- the Bombay Stock

Exchange (BSE) and the National Stock Exchange (NSE) -

- have started SME stock exchanges in India. Both the

SME Stock Exchange

Service industries such as retail trade, repair and

maintenance, and restaurants are typically cash

businesses with shorter turnaround, because of which

their overall external capital requirements tend to be

low on an average. On the other hand, there are

knowledge-based services industries such as software

development and management consulting within the

services sector, the finance requirements of which are

similar to that of manufacturing industries i.e. higher

working capital and capital expenditure requirements.

Some characteristic traits of the demand of services

enterprises are: The share of working capital as a portion

of the average debt demand for services enterprises is

estimated to be 41 per cent. Services enterprises require

less external capital on an on-going basis, except for

such things as work premises renovation, purchase and

refurbishment of equipment.

They do, however, need significant capital support

during the start-up stage. Given the nature of most of

these enterprises, they have limited access to

immovable collateral which makes access to formal

finance challenging. Knowledge-based enterprises

require working capital for primarily investing in people.

For this, businesses either depend on internal accruals

or internal equity investments, as debt from formal

financial institutions for financing of man power costs

remains a challenge.

Growth of MSME services needs to be reinforced by

holistic fiscal support and enabling policies. Similarly,

improving the policy framework and incentivizing

financial institutions to innovate can increase the

penetration of formal financial services to the MSME

sector. The government provides financing support to

the sector through the Small Industries Development

Bank of India (SIDBI). SIDBI provides wholesale

financing support to small financial institutions such as

NBFCs that operate in the MSME sector.

SIDBI also provides retail finance support to MSMEs,

particularly in the growth stage through schemes such

Enabling Environment

In the overall pie of small enterprise (29.8 million) in the

country, MSME services sector accounts a lion share, as,

according to the 2012-13 annual report of the Ministry of

MSME, Government of India, in the total small

enterprises, 68 per cent of the enterprises are in the

services and in the total registered small enterprises 33

per cent of the enterprises are engaged in the services

activities. Besides, the services sector stands above the

manufacturing sector in terms of business confidence.

Despite the significant contributions of the MSME

services sector, the sector continues to face certain

constraints like, as pointed out in PM's Task Force

Report, availability of adequate and timely credit, high

cost of credit, collateral requirements and access to

equity capital. It thus emerges that adequate, timely and

affordable credit is one of the bigger issues for the

MSME sector.

Services enterprises make up 27 per cent of the overall

viable and addressable debt gap. Financing is better in

traditional services industries such as retail, small

transport operators, and hospitality, as financial

industries have a better understanding of these sectors.

Some of the reasons for gap in the sector are: Traditional

services experience a greater debt shortfall in capital

expenditure financing compared to working capital

requirements because there is a high level of cash

transactions in business operations that can be used to

finance working capital needs.

Although traditional services enterprises often have

access to primary security, they tend to transact mostly

in cash, with limited records of their financial

transactions. Due to inadequate information on financial

behavior of the enterprise and entrepreneur; the

sanctioned finance limits tend to be lower than what

they need. Financial institutions do not have reliable

financing benchmarks for the services sector unlike for

the manufacturing sector. As a result, there is greater

difficulty in determining the actual financing needs of

different types of enterprises in the services sector,

leading to under-financing of the sector.

Financial Issues

Meeting the challgnes of Services MSMEs

32ECONOMY MATTERS 33 OCTOBER-NOVEMBER 2013

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

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Domestic Trends

Corporate Performance

Sector in Focus

Special Article

Special Feature

Economy Monitor

Global Trends

The Coverage

CII invites full-page* Advertisements for

this flagship document at an attractive rate

of Rs 60,000 per issue and Rs 6 lakh for 12

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Dr. Danish A. Hashim, Director- Economic Research

ECONOMY MONITOR

GDP GROWTH (y-o-y%)

WPI INFLATION (y-o-y%)

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

US GDP Growth Japan GDP Growth

IndustryOverall GDP

Overall

Euro Area GDP Growth China GDP Growth

Agriculture Services

Primary Fuel Manufacturing

General Manufacturing Electricity Mining

3Q12 4Q12 1Q13 2Q13

7.47.9 7.7 7.5 7.8

2.01.3 1.6

-0.7-1.0

-1.2

-0.4-0.6

3Q12 4Q12 1Q13 3Q132Q13

3.8

0.3 0.4 0.30.9

2Q12 3Q12 4Q12 1Q13 2Q13

5.4 5.24.7 4.8 4.4

1QFY13 2QFY13 3QFY13 4QFY13 1QFY14

2.9

1.7 1.81.4

2.7

1QFY13 2QFY13 3QFY13 4QFY13 1QFY14

1.8

1.3

2.52.7

0.2

1QFY13 2QFY13 3QFY13 4QFY13 1QFY14

7.7 7.6

6.7 6.6 6.6

1QFY13 2QFY13 3QFY13 4QFY13 1QFY14

3Q12 4Q12 1Q13 2Q13 3Q13

5.2

Jun-13 Jul-13 Aug-13 Sep-13 Oct-13

13.5

14.7

Jun-13 Jul-13 Aug-13 Sep-13 Oct-13

12.7

10.3

Jun-13 Jul-13 Aug-13 Sep-13 Oct-13

2.5

Jun-13 Jul-13 Aug-13 Sep-13 Oct-13

-2.5

May-13 Jun-13 Jul-13 Aug-13 Sep-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13

12.9

May-13 Jun-13 Jul-13 Aug-13 Sep-13

-1.0

May-13 Jun-13 Jul-13 Aug-13 Sep-13

GLOBAL GDP (y-o-y%)

35 OCTOBER-NOVEMBER 2013

3Q13

3.1

1.6

5.9 6.57.0 7.0

8.89.7

13.6

7.5

11.410.1

2.9 2.62.3 2.0

-1.8

2.8

0.4

2.0

-3.2

-1.7

3.2

-0.2

0.6

6.2

0.0

5.2

7.2

-5.9

-4.3

-2.5

3.3

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

n

Domestic Trends

Corporate Performance

Sector in Focus

Special Article

Special Feature

Economy Monitor

Global Trends

The Coverage

CII invites full-page* Advertisements for

this flagship document at an attractive rate

of Rs 60,000 per issue and Rs 6 lakh for 12

issues.

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: Ecoresearch@cii.in

Dr. Danish A. Hashim, Director- Economic Research

ECONOMY MONITOR

GDP GROWTH (y-o-y%)

WPI INFLATION (y-o-y%)

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

US GDP Growth Japan GDP Growth

IndustryOverall GDP

Overall

Euro Area GDP Growth China GDP Growth

Agriculture Services

Primary Fuel Manufacturing

General Manufacturing Electricity Mining

3Q12 4Q12 1Q13 2Q13

7.47.9 7.7 7.5 7.8

2.01.3 1.6

-0.7-1.0

-1.2

-0.4-0.6

3Q12 4Q12 1Q13 3Q132Q13

3.8

0.3 0.4 0.30.9

2Q12 3Q12 4Q12 1Q13 2Q13

5.4 5.24.7 4.8 4.4

1QFY13 2QFY13 3QFY13 4QFY13 1QFY14

2.9

1.7 1.81.4

2.7

1QFY13 2QFY13 3QFY13 4QFY13 1QFY14

1.8

1.3

2.52.7

0.2

1QFY13 2QFY13 3QFY13 4QFY13 1QFY14

7.7 7.6

6.7 6.6 6.6

1QFY13 2QFY13 3QFY13 4QFY13 1QFY14

3Q12 4Q12 1Q13 2Q13 3Q13

5.2

Jun-13 Jul-13 Aug-13 Sep-13 Oct-13

13.5

14.7

Jun-13 Jul-13 Aug-13 Sep-13 Oct-13

12.7

10.3

Jun-13 Jul-13 Aug-13 Sep-13 Oct-13

2.5

Jun-13 Jul-13 Aug-13 Sep-13 Oct-13

-2.5

May-13 Jun-13 Jul-13 Aug-13 Sep-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13

12.9

May-13 Jun-13 Jul-13 Aug-13 Sep-13

-1.0

May-13 Jun-13 Jul-13 Aug-13 Sep-13

GLOBAL GDP (y-o-y%)

35 OCTOBER-NOVEMBER 2013

3Q13

3.1

1.6

5.9 6.57.0 7.0

8.89.7

13.6

7.5

11.410.1

2.9 2.62.3 2.0

-1.8

2.8

0.4

2.0

-3.2

-1.7

3.2

-0.2

0.6

6.2

0.0

5.2

7.2

-5.9

-4.3

-2.5

3.3

Exports (%) Imports (%) Trade Deficit (US$ Bn) Current Account Deficit (US$ Bn) Avg Exchange Rate (Rs/US$)

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%)

Non-Food Credit Growth (y-o-y%) M3Growth (y-o-y%) Repo Rate (%) Cash Reserve Ratio (%)

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

Core Sector Growth (y-o-y%) Cement Production Growth (y-o-y%) Steel Production Growth (y-o-y%)Commercial Vehicles

Production Growth (y-o-y%)

7.25 7.257.75

4.00 4.00 4.00 4.00 4.00

13.5

-14.5

Jun-13 Jul-13 Aug-13 Sep-13 Oct-13

10.5

Jun-13 Jul-13 Aug-13 Sep-13 Oct-13

17.1

21.1

31.8

18.221.8

1QFY13 2QFY13 3QFY13 4QFY13 1QFY14

61.6

Jun-13 Jul-13 Aug-13 Sep-13 Oct-13

14.6

17.318.4

17.916.8

Jun-13 Jul-13 Aug-13 Sep-13 Oct-13

14.1

Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13

0.4

Jun-13 Jul-13 Aug-13 Sep-13 Oct-13

1.7

3.2

May-13 Jun-13 Jul-13 Aug-13 Sep-13

281.3

Jun-13 Jul-13 Aug-13 Sep-13 Oct-13

0.5 1.0

2.8

4.2

0.9

1QFY13 2QFY13 3QFY13 4QFY13 1QFY14

2.3

8.0

May-13 Jun-13 Jul-13 Aug-13 Sep-13

11.5

May-13 Jun-13 Jul-13 Aug-13 Sep-13

1.9

6.6

May-13 Jun-13 Jul-13 Aug-13 Sep-13

-22.6

Jun-13 Jul-13 Aug-13 Sep-13 Oct-13

EXTERNAL ACCOUNT

36ECONOMY MATTERS

-5.3

0.1

11.6

-6.2

13.0

-0.7

11.2

-18.1

12.2 12.310.9

6.8

58.459.8

63.263.8

7.25

12.8 12.5 12.2 12.5

Jun-13 Jul-13 Aug-13 Sep-13 Oct-13

7.50

-7.5

-3.0 -2.5

1.22.0 2.1 1.7

284.6

277.2 275.5 276.3

0.1

3.13.7

2.4 2.3

0.8

5.5

4.0 3.4

7.0

4.3

2.0

4.0

6.0

8.0

10.0

12.0

0.0

-15.4-17.9 -19.6

-28.6

Exports (%) Imports (%) Trade Deficit (US$ Bn) Current Account Deficit (US$ Bn) Avg Exchange Rate (Rs/US$)

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%)

Non-Food Credit Growth (y-o-y%) M3Growth (y-o-y%) Repo Rate (%) Cash Reserve Ratio (%)

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

Core Sector Growth (y-o-y%) Cement Production Growth (y-o-y%) Steel Production Growth (y-o-y%)Commercial Vehicles

Production Growth (y-o-y%)

7.25 7.257.75

4.00 4.00 4.00 4.00 4.00

13.5

-14.5

Jun-13 Jul-13 Aug-13 Sep-13 Oct-13

10.5

Jun-13 Jul-13 Aug-13 Sep-13 Oct-13

17.1

21.1

31.8

18.221.8

1QFY13 2QFY13 3QFY13 4QFY13 1QFY14

61.6

Jun-13 Jul-13 Aug-13 Sep-13 Oct-13

14.6

17.318.4

17.916.8

Jun-13 Jul-13 Aug-13 Sep-13 Oct-13

14.1

Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13

0.4

Jun-13 Jul-13 Aug-13 Sep-13 Oct-13

1.7

3.2

May-13 Jun-13 Jul-13 Aug-13 Sep-13

281.3

Jun-13 Jul-13 Aug-13 Sep-13 Oct-13

0.5 1.0

2.8

4.2

0.9

1QFY13 2QFY13 3QFY13 4QFY13 1QFY14

2.3

8.0

May-13 Jun-13 Jul-13 Aug-13 Sep-13

11.5

May-13 Jun-13 Jul-13 Aug-13 Sep-13

1.9

6.6

May-13 Jun-13 Jul-13 Aug-13 Sep-13

-22.6

Jun-13 Jul-13 Aug-13 Sep-13 Oct-13

EXTERNAL ACCOUNT

36ECONOMY MATTERS

-5.3

0.1

11.6

-6.2

13.0

-0.7

11.2

-18.1

12.2 12.310.9

6.8

58.459.8

63.263.8

7.25

12.8 12.5 12.2 12.5

Jun-13 Jul-13 Aug-13 Sep-13 Oct-13

7.50

-7.5

-3.0 -2.5

1.22.0 2.1 1.7

284.6

277.2 275.5 276.3

0.1

3.13.7

2.4 2.3

0.8

5.5

4.0 3.4

7.0

4.3

2.0

4.0

6.0

8.0

10.0

12.0

0.0

-15.4-17.9 -19.6

-28.6