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Current State of IndianEconomy

June 2011

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Current State of Indian Economy – June 20111

EXECUTIVESUMMARY GDPgrowthGDP growth figures for Q4, 2010-11, highlight an unmistakable downward trend. While in Q1, 2010-1

grew by 9.3 percent, in Q4, 2010-11, GDP growth came down to 7.8 percent.Sectors like manufacturing and mining & quarrying have seen considerable erosion of growth momentum

the last one year.While consumption demand is still holding, a sharp decline in growth of investments is seen. Growth in

Fixed Capital Formation [GFCF] has dipped from 17.4 percent in Q1, 2010-11 to 0.4 percent in Q4, 20 Given the evolving situation, growth in 2011-12 is likely to be close to the 8 percent mark.

IndustrialProductionWeakness in industrial production trend continues. In April 2011, IIP registered a growth of 6.3 perc

April 2010, growth in IIP was to the tune of 13.1 percent.Amongst the use based industrial groups, a similar streak of weakness is seen with growth in the capital

segment, intermediate goods segment and consumer goods segment slowing down from 35.5 percentpercent and 13.8 percent respectively in April 2010 to 14.5 percent, 3.4 percent and 2.9 percent in April

1This report has been prepared by the Economic Affairs and Research Division, FICCI

0

2

4

6

8

10

12

14

Q12010-11

Q22010-11

Q32010-11

Q42010-11

Quarterly Growth in GDP (2004-05 prices)

Mining and quarrying ManufacturingGDP at factor cost

456789

1011121314

Apr'10

May'10

Jun'10

Jul'10

Aug'10

Sep'10

Oct,10

Nov'10

Dec'10

Jan'11

Feb'11

Mar'11

Apr'11

IIP growth and Repo rate



IIP Repo rate



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CoreSectorData for April 2011 shows a perceptible decline in performance of the core sector with growth dipping

8.5 percent in April 2010 to 4.6 percent in April 2011. Sectors like natural gas, fertilizers, cement and stelargely responsible for this poor performance. Growth in the coal sector however moved from (-) 2.9 pe

in April 2010 to 2.8 percent in April 2011.

Inflation

The inflation situation in the economy continues to be a cause for concern. Despite large scale tightenthe monetary policy by the RBI and other steps taken by the government, inflation continues to remain

to the double digit mark. In May 2011, WPI based headline inflation stood at 9.1 percent. This is higher than 8.7 percent inrecorded in April 2011. Core inflation too has moved up from 8 percent in April 2011 to 8.6 percent i

2011.Near term outlook for inflation is not too encouraging and there are chances that we may see inflation

to the double digit territory on a few occasions.High international oil prices, likely decontrol of diesel prices, high global food prices and hike in Min

Support Prices for the upcoming agriculture season are some of the factors that constitute the upside rinflation.

ForeignTrade The strong momentum in exports, seen particularly during the second half of 2010-11, has continued

year 2011-12 as well.In April 2011 exports totaled US$ 23.8 billion and represented a growth of 34.4 percent over the same

of the previous year when exports totaled US$ 17.7 billion. While this strong start in 2011-12 is encouraging, there are indications that this high growth will

sustained in the months ahead.Rising interest rates, rising raw materials costs and oil prices, withdrawal of incentive schemes like DEP

likely slowdown in Asian economies are some of the reason that have tempered the outlook for ex

In April 2011, our imports totaled US$ 32.8 billion and registered a growth of 14.1 percent over themonth of the previous year when imports amounted to US$ 28.8 billion.With developments in the Middle East and North Africa region showing no signs of a let up and with

resisting any upward revision in daily oil production quota, oil prices are likely to remain firm in the neardZ]ﾐAÁ]ooA}vš]vµAš}A‰µšA‰ŒﾐﾐµŒA}vA/v][ﾐA}ÀŒooA}]oA]u‰}ŒšA]ooXA

As regards non-oil imports, while a slowdown in the domestic economy could lead to some moderation non-oil import bill, any large respite here can be ruled as prices of commodities other than oil are also fir

up.

ForeignInvestmentsIn 2010-11, foreign investment flows into India saw a dip of about 17 percent over the previous year. F

this dip is largely on account of a slowdown seen in case of FDI.In 2009-10, FDI inflows into India totaled US$ 37.7 billion. In 2010-11, this figure came down to US$ 27 Data also shows that of out of the top 25 sectors, 15 sectors have seen a dip in FDI flows during Apr

2010-11 compared to the same period in 2009-10. Sectors like services, construction, housing and real etelecommunication and agricultural services are the ones where investment flows have slowed dconsiderably.

In 2010-11, portfolio flows totaled US$ 31.5 billion and were only a tad below US$ 32.4 billion rece2009-10.

The outlook for portfolio flows in the current year is not too encouraging. Global fund managers particularly concerned over the evolving macro-economic situation with inflation showing limited sig

abatement and growth slowing down at a fast clip.



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The re-emergence and intensification of the sovereign debt crisis in Europe and the expected haquantitative easing policy in the US by the end of June 2011 are also downside factors for portfolio flo

emerging markets including India.

ForexReserves

/vA‰Œ]oAîìííUA/v][ﾐA(}Œ]PvAÆZvPAŒﾐŒÀﾐAš}šoAh^¨AïíïA]oo]}vX The increasing size of our foreign exchange reserves has drawn attention of the policymakers. Just some

back, Dr. Kaushik Basu, Chief Economic Advisor, Ministry of Finance, had raised the question of Inconsider having a Sovereign Wealth Fund. In more recent times, a few independent analysts have opinea part of these huge reserves be deployed to import commodities which are or could be in short supply

economy.

Money andBanking The year on year growth in money supply in the period up to May 21, 2011 was 16.8 percent. Growth

corresponding period [up to May 22, 2010] in the previous year was 15.1 percent. The year on year growth in non-food credit in the period up to May 21, 2011 has been almost 22.1 pe

This is higher than the credit growth target of 19 percent set by the RBI for the current year. Grodeposits in the period up to May 21, 2011 has been of the order of 17.4 percent and is in line with RBI

growth of 17 percent for the current year. These numbers indicate that the trend seen in the previous year t of deposit growth lagging credit gr

continues in the current financial year. The growth rate in deposits has picked up in recent months and textent eased some pressure on the banks as they worked hard to maintain their margins.

FiscalSituation The provisional estimates for 2010-11 for various fiscal variables show a definite improvement ov

revised estimates (RE), with a more than anticipated rise in revenue collection and reduction in expend The striking feature of the new estimates is the reduction in fiscal deficit [4.7 percent] number compa

the revised estimate [5.1 percent] given during presentation of the union budget.

Though the fiscal deficit numbers for 2010-11 are encouraging, maintaining fiscal discipline in 2011looking increasingly difficult.

Corporate Sector Performance – Q4, 2010-11In the fourth quarter of fiscal 2010-11, corporate India turned out a good performance both in terms ofand profits. Such a performance is particularly noteworthy as it came at a time when overall expens

going up at a fast clip.EšAﾐoﾐA}(AZooA/vµﾐšŒ]ﾐ[A]vAšZA(}µŒšZA‹µŒšŒA}(Aîìíì-11 registered a growth of 23.5 percent. This

highest growth in net sales that we have seen in the last eight quarters.Further, while firms from the manufacturing sector saw an increase of 22.26 percent in net sales in tquarter of 2010-11, companies from the services (other than financial) sector saw sales going up by

percent.Within the manufacturing sector, growth in sales has been particularly strong in sectors such as tecement, steel and transport equipment. Performance of the food and beverages sector and the chem

sector lagged the average growth for the manufacturing sector as a whole.d}šoAÆ‰vﾐﾐA(}ŒAZooA/vµﾐšŒ]ﾐ[AÁvšAµ‰AÇAîïXñîA‰ŒvšA]vAYðUAîìíì-11. This growth is the highest se

last four quarters.Further, while the manufacturing sector saw total expenses rise by 21.68 percent in Q4, 2010-11, se

(other than financial) saw an increase of 31.29 percent.Within the manufacturing sector, the increase in total expenses in the quarter under review was partic

high in sectors such as cement [48.12 percent] and steel [30.06 percent].

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Growth in Net Sales (%) Growth in Total Expenses (%)

-20

-10

0

10

20

30

Q109-10

Q209-10

Q309-10

Q409-10

Q110-11

Q210-11

Q310-11

Q410-11

All industriesManufacturingServices (other than financial)

-20

-10

0

10

20

30

40

Q109-10

Q209-10

Q309-10

Q409-10

Q110-11

Q210-11

Q310-11

Q410-11



All industriesManufacturingServices (other than financial)




INDEX

MACRO ECONOMY 7

GDP Growth 7 Industrial

Production9

CoreSector

13 Inflatio

n15

Foreign Trade

18 Foreign Investments 20 Forex

Reserves23

ExchangeRate

24Money and Banking 25 Fiscal Situation27

CORPORATE SECTOR PERFORMANCE – Q4, 2010-11

31

All industries 31 Textile

s33

Cement 34 Steel 35Chemical

s36

Transportation

37 Food and

Beverages38

ROUND UP OF KEY

DEVELOPMENTS

39

Draft National ManufacturingPolicy

39ZB/[ﾐA&]vv]oA^š]o]šÇAZ

‰}ŒšA39

CHARTS 40

IndustrialProduction

40 Inflatio

n42

Foreign Trade and ForeignInvestments

43

DATA ON INTEREST

RATES

44



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GDP Growth

The Central Statistical Organisation (CSO) has released the revised estimates for GDP for 211.Alongside, it also released the quarterly estimates for GDP for the fourth quarter of 2010-11.}Œ]vPAš}AšZAošﾐšAvµuŒﾐAuAÀ]ooAÇAC^KUA/v][ﾐA'WAšA(š}ŒA}ﾐšAšA}vﾐšvšA‰Œ]ﾐAregistered an increase of 8.5 percent in the year 2010-11. This revised estimate of 8.5 percent

growthfor GDP in 2010-11 is only a shade below the advance estimates that had pegged GDP growth for2010- 11at 8.6 percent.

This slight dip in overall GDP growth can be attributed to weaker performance in sectors such asZminingand quarrying[, Zmanufacturing[, ZšŒUAZ}šoﾐUAšŒv ‰ﾐ }ŒšAvA}uuµv]š]}v[AvAZ(]vv]vPUA]vﾐµŒvUAŒoAﾐššAvAµﾐ]vﾐﾐAﾐŒÀ]ﾐ[AšZvAvš]]

‰šAŒo]ŒXAAIn case of the agriculture and allied activities sector, we find that the revised estimates havepeggedgrowth in 2010-11 at 6.6 percent, which is much higher compared to the advance estimates that h

growth at 5.4 percent.

In this context it is important to note that the third advance estimates of crop production releabythe Ministry of Agriculture have shown a significant upward revision as compared to secondadvanceestimates in the production of wheat [84.27 million tonnes from 81.47 million tonnes], pulses

million tonnes from 16.51 million tonnes], oilseeds [302.51 lakh tonnes from 278.48 lakh tonnesugarcane [340.54 million tonnes from 336.70 million tonnes]. These revisions are responsible folifting the GDP growth rate for agriculture and allied activities

sector.Another sector where we see a substantial upward revision in growth rate between the advaandrevised estimates is the Zcommunity, social and personal services[ sector. While in its advance

estimate,CSO had indicated a growth of 5.7 percent for this sector, in the revised estimates this figure habeenmoved up to 7.0 percent. This revision comes on the back of a larger increase in total expenditur

the central government than anticipatedearlier.dZAu}Œš]}vA]vAšZAÆ‰šA‰A}(AÆ‰vﾐ]}vA}(AšZAZu]v]vP[AvAZuvµ(šµŒ]vP[Aﾐš}ŒﾐAvAArelated to certain adverse policy developments as well as hardening of the interest rates inthe}v}uÇXA&µŒšZŒUAﾐA‰Œ(}ŒuvA}(AšZAZ(]vv

]vPUA]vﾐµŒvUAŒoAﾐššAvAµﾐ]vﾐﾐAﾐŒÀ]ﾐ[Aﾐš}ŒAis closely related to performance of the manufacturing sector, this sector too has seen a slipingrowth between advance and revisedestimates.

Table 1 – Growth in GDP at factor cost by economic activity (2004-05 prices

2008-09 2009-10

(QE)

2010-11

(AE)

2010-11

(RE)1 Agriculture, forestry and fishing -0.1 0.4 5.46.62 Mining and quarrying 1.3 6.9 6.2 5.83 Manufacturing 4.2 8.8 8.8 8.34 Electricity, gas and water supply 4.9 6.4 5.1 5.75 Construction 5.4 7.0 8.0 8.16 Trade, hotels, transport and communication 7.6 9.7 11.0 10.37 Financing, insurance, real estate and business services12.5 9.2 10.6 9.98 Community, social and personal services 12.7 11.8 5.7 7.09 GDP at factor cost 6.8 8.0 8.68.5QE: Quick EstimatesAE: Advance Estimates RE: Revised Estimates Source t CSO, MOSPI, Govt. of India



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Moving on to the quarterly estimates for GDP growth for the fourth quarter of 2010-11, we sthatošZ}µPZAšZA}v}uÇ[ﾐA‰Œ(}ŒuvA]ﾐAﾐš]ooAdecent at 7.8 percent, an unmistakable downward

is visible. Quarterly growth estimates show that GDP growth has come down from 9.3 percenQ1,2010-11 to 8.9 percent in Q2, 2010-11 to 8.3 percent in Q3, 2010-11 and further down to 7.8 percQ4, 2010-11.

Amongst sectors, the ones that have seen a considerable erosion of growth momentum over lastone ÇŒAŒAZu]v]vPAvA‹µŒŒÇ]vP[AvAZuvµ(šµŒ]vP[XAtZ]oA]vAﾐA}

(AšZA(}ŒuŒUAšZAPŒ}ÁšZA(]PµŒﾐAhave come down from 7.1 percent in Q1, 2010-11 to 1.7 percent in Q4, 2010-11, in case of thegrowth has moderated from 12.7 percent in Q1, 2010-11 to 5.5 percent in Q4, 2010-11.

dZA‰Œ(}ŒuvA}(AšZAZPŒ]µošµŒAvAoo]Aš]À]š]ﾐ[Aﾐš}ŒA]vAšZA(}µŒšZA‹µŒšŒAZﾐAvAparticularly strong at 7.5 percent. The other sectors that have registered strong growth in Q4, 2

11 ŒAZošŒ]]šÇUAPﾐAvAÁš

ŒAﾐ

µ‰‰oÇ[A€óXôA‰ŒvšﾁUA}vﾐšŒµš]}vA€ôXîA‰ŒvšﾁUAZšŒUAZ}

šoﾐ

UAšŒvﾐ‰}ŒšA

vA}uuµv]š]}v[A€õXïA‰ŒvšﾁAvAZ(]vv]vPUA]vﾐµŒvUAŒoAﾐššAvAµﾐ]vﾐﾐAﾐŒÀ]ﾐ[A€õXìApercent].

Table 2 – Growth in GDP at factor cost by economic activity (2004-05 prices) – Quarterly num

Q12010-11

Q22010-11

Q32010-11

Q42010-11

1 Agriculture, forestry and fishing 2.4 5.4 9.97.52 Mining and quarrying 7.1 8.2 6.9 1.73 Manufacturing 12.7 10.0 6.0 5.54 Electricity, gas and water supply 5.6 2.8 6.4 7.85 Construction 7.7 6.7 9.7 8.26 Trade, hotels, transport and communication 12.6 10.9 8.6 9.37 Financing, insurance, real estate and business services9.8 10.0 10.8 9.08 Community, social and personal services 8.2 7.9 5.1 7.09 GDP at factor cost 9.3 8.9 8.37.8

Source t CSO, MOSPI, Govt. of India

A look at quarterly GDP figures by expenditure class shows that growth in private finalconsumptionexpenditure is maintained at a robust 8 percent even in the fourth quarter of the fiscal 201

11.However, what is worrisome is the trend in the growth numbers for gross fixed capital formationwhichshows that year on year growth has tapered from 17.4 percent in Q1, 2010-11 to just about 0.4 p

in Q4, 2010-11. This is a clear indication of weakness in the investment activity level in the econoand does not bode well for growth in the current

year.Table 3 – Growth in GDP at market prices by expenditure (2004-05 prices) – Quarterly num

Q1 2010-11

Q2 2010-11

Q3 2010-11

Q4 2010-11

1 Private Final Consumption Expenditure 8.9 8.9 8.68.02 Government Final Consumption Expenditure 6.7 6.4 1.9 4.93 Gross Fixed Capital Formation 17.4 11.9 7.8 0.44 Change in Stocks 11.7 9.0 5.1 4.65 Valuables 28.0 21.2 18.5 32.36 Exports 10.0 10.7 24.8 25.07 Imports 15.5 11.6 0.4 10.38 GDP at Market Prices 9.4 9.1 9.27.7

Source t FICCI computations based on data provided by CSO, MOSPI, Govt. of Ind



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With regard to GDP growth in the year 2011-12, it was noted even in our earlier report that thinitialguidance provided by Ministry of Finance of 9 percent growth is looking increasingly difficult to

achieve.With time even the government has come around this view and growth projection for the year 212 has been lowered to 8 to 8.5

percent.It iﾐA]všŒﾐš]vPAš}Av}šAšZšA]vA&/CC/[ﾐAu}ﾐšAŒvšA}v}u]AKµšo}}lA^µŒÀÇUAŒ ﾐµošﾐA}(AÁZ]ZAÁŒAreleased in May 2011, the median forecast for GDP growth in the current year comes to 8

percent. The inputs and projections provided by various participating economists in this survey show thawhilethe agriculture and allied activities sector is projected to grow by 3.7 percent this year, indus

andservices sector are poised to grow by 8 percent and 9.2 percentrespectively.

The key risks to growth in India in the current year are the negative impact of continuous tighteof monetary policy by RBI and a slowdown in global growth due to high international oil prices.

Further,although the Indian Meteorological Department has projected a normal monsoon this year, we whave to wait for more updates to get a clearer picture on the spatial distribution of the

monsoon.Projected GDP growth [India] in 2011-12

Organisation Projection in % Morgan Stanley 7.7

IMF 7.8FICCI 8.0

Nomura 8.0DBS 8.0CARE 8.0

Standard Chartered 8.1Indicus 8.7

Dun and Bradstreet 8.8ADB 8.8

Source t FICCI CompilationSource t FICCI Economic Outlook Survey, May 2011

Industrial Production

The Central Statistical Organisation (CSO) has revised the base year for the industrial productidataseries from 1993-94 to 2004-05. The new series also incorporates a much larger set of items tha

reflect

2

the contemporary production activity in the country and is expected to offer a better gaugethe}µvšŒÇ[ﾐA]vµﾐšŒ]oAš]À]šÇXAdZAÁ]PZš]vPA]PŒuA}(AšZAšZŒAmajor sectors under two d

levelindices and four different goods sectors under use t based classification has also changed to captthechanging structure of economy effectively. The new set of weights that would now be followed

givenin the following table.

2ome of the items included in the new series are mobile phones, digital cameras, fruit juices, laptops, new chemical items a

processed food.

8

3.7

89.2

0

2

4

6

8

10

GDP Agricultureand alliedactivities

Industry Services

Projected growth [Sectors] in 2011-12



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Table 4 – Comparison of weights assigned in the Old and New series of IIP Ind

Sectors Old series New series1993-94 Base Year 2004-05 Base Year

Two-digit level IndicesMining 10.47 14.16Manufacturing 79.36 75.53Electricity 10.17 10.32General Index 100.00100.00

Use- based IndexBasic goods 35.57 45.68Capital goods 9.26 8.83Intermediate goods 26.51 15.69Consumer goods 28.66 29.81

Durables 5.37 8.46Non durables 23.30 21.35

General Index 100.00 100.00Source t CSO, MOSPI, Govt. of India

As the above table shows, in the new series, while the weight of the mining sector has gone up

of the manufacturing sector has gone down. Amongst the use based segments, while basic goodhaveseen their weight go up substantially, intermediate goods have seen a reduction in the weight

assignedfor construction of theindex.

Even before data as per the new series for industrial production was brought out by CSO,economicanalysts had predicted that data as per the new series would provide an upward bias to grow

it Á}µoA]v}Œ‰}ŒšAZvÁA(ﾐšAPŒ}Á]vPAﾐš}Œﾐ[A}(AšZA}v}uÇXA

The new numbers have confirmed this and we see a substantial change in growth performance in2010-11when we compare the results of the new series with the results based on the old series. I

alsointeresting to note that the adverse impact on industrial production in the period following theglobalslowdown is also accentuated as per the new series and this is reflected in the numbers for 20

10.As the data given in the next table shows, overall industrial production [as per the new series]registereda growth of 8.2 percent in 2010-11. And this is much better than the 5.3 percent growth cloc

2009-10. Further, a good part of industrial growth in 2010-11 was driven by the manufacturing which recorded a growth of 8.9 percent compared to a growth of 4.8 percent in 2009-10. The ottwosectors, mining and manufacturing, however saw their performance going down in 2010-11comparedto 2009-10.

Coming to the use-based classification, we see that all sectors, barring consumer durables,animprovement in performance in 2010-11 over 2009-10. And among the sectors that sawanimprovement in performance, the capital goods sector stands out as its growth improved f1percent in 2009-10 to 15 percent in 2010-11.

As mentioned earlier, these numbers, based on the new industrial production series, reflect muchdifferent and improved performance compared to results based on the old

series.



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Table 5 – Trends in Industrial Production – YOY growth in percent

2009-10 2010-11 2010-Apr 2011-Apr

OldSeries

NewSeries

OldSeries

NewSeries

OldSeries

NewSeries

OldSeries

NewSeries

General Index 10.5 5.3 7.8 8.2 16.6 13.1 4.4 6.3

Mining 9.9 7.9 5.9 5.2 12.0 9.2 2.1 2.2Manufacturing 11.0 4.8 8.2 8.9 18.0 14.5 4.4 6.9Electricity 6.0 6.1 5.6 5.5 6.9 6.5 6.4 6.4

Use-based industrial groupsBasic goods 7.2 4.7 6.3 6.0 9.1 6.7 5.6 7.3Capital goods 20.9 1.0 9.5 15.0 64.1 35.5 2.5 14.5Intermediate goods 13.6 6.0 8.8 7.2 10.8 11.9 2.4 3.4Consumer goods 6.2 7.7 7.5 8.3 11.9 13.8 5.9 2.9Durables 24.6 17.0 21.0 14.1 32.1 23.3 9.2 3.8Non-durables 0.4 1.4 2.2 3.9 4.8 6.8 4.5 2.1


Coming now to the growth figures for the month of April 2011, we see that overall industrialproduction[as per the new series] registered a growth of 6.3 percent. This performance is much weakercomparedto a growth of 13.1 percent registered in April 2010. Amongst other sectors a palpable slow

isnoticeable in sectors such as mining and manufacturing with growth slowing from 9.2 percent an14.5 percent respectively in April 2010 to 2.2 percent and 6.9 percent respectively in April

2011.Amongst the use based industrial groups, a similar streak of weakness is seen with growth in thecapitalgoods segment, intermediate goods segment and consumer goods segment slowing down fropercent, 11.9 percent and 13.8 percent respectively in April 2010 to 14.5 percent, 3.4 percent a

percent in April 2011.

Table 6 – Trends in Industrial Production – YOY growth in percent [Old Serie

Month/

Year

Mining Mfg Electricity General IIP

growth

Month/

Year

Mining Mfg Electricity General IIP

growth

Dec'09 11.12 19.62 5.42 17.95 Dec'10 5.97 2.07 5.99 2.58 Jan'10 15.34 17.90 5.57 16.78 Jan'11 1.76 3.68 10.47 4.03Feb'10 11.02 16.11 7.33 15.13 Feb'11 0.99 3.63 6.75 3.65Mar'10 12.31 16.45 8.33 15.55 Mar'11 0.39 8.42 7.19 7.78Apr'10 11.97 18.00 6.87 16.64 Apr'11 2.06 4.37 6.43 4.38


Table 7 – Trends in Industrial Production – YOY growth in percent [New Serie

Month/ Year

Mining Mfg Electricity General IIPgrowth

Month/ Year Mining Mfg Electricity General IIPgrowth

Dec'09 7.52 10.24 5.45 9.50 Dec'10 5.93 8.72 5.97 8.17 Jan'10 11.61 14.48 5.55 13.33 Jan'11 1.69 8.09 10.49 7.52Feb'10 8.17 15.30 7.35 13.73 Feb'11 0.95 7.21 6.76 6.44Mar'10 11.07 16.31 8.33 14.94 Mar'11 0.27 10.35 7.18 8.87Apr'10 9.20 14.45 6.53 13.08 Apr'11 2.15 6.88 6.44 6.30


The slow growth of the industrial sector seen in the month of April 2011 is part of a longer trendvisiblesince the close of 2010. As data given in the tables above show, industrial production numbe

havebeen weak for some time now and this trend is confirmed irrespective of the data series thone



Page | 12

chooses to evaluate. In fact, as per the old series, the slowdown in industrial growth ismoreaccentuated with growth in IIP being under 5 percent in four of the last fivemonths.

If we look at the numbers for the industrial production as per the use based classification, we agseea loss of momentum in industrial production in recent months. The only point of departure

betweendata based on the old and the new series is in the reported performance of the capital goodssector.Using the old series, we see that capital goods production has registered negative growth in thre

thelast five months with growth in April 2011 still being an anemic 2.53 percent. However, as per tnewseries, capital goods production registered a growth of 15.4 percent and 14.5 percent in the moof March and April 2011.These figures, which are not all that weak, will have to be monitored goingaheadto see if some trend is emerging

here.Table 8 – Trends in Industrial Production – Use Based / YOY growth in percent [Old Se

Month/ Year Basic Capital Intermediate Consumer

Total Durable Non-durableDec'09 8.35 42.89 23.50 10.45 41.04 2.96 Jan'10 11.47 57.93 22.23 0.42 28.21 -7.02

Feb'10 8.53 46.68 15.85 6.27 29.09 -0.83Mar'10 10.79 36.00 13.54 9.27 32.57 1.50Apr'10 9.12 64.10 10.82 11.88 32.12 4.83


Table 9 – Trends in Industrial Production – Use Based / YOY growth in percent [Old Se

Month/ Year Basic Capital Intermediate Consumer Total Durable Non-durable

Dec'10 6.10 -9.00 6.79 3.50 19.48 -1.89 Jan'11 7.57 -18.06 7.75 12.22 23.88 7.89Feb'11 6.03 -18.15 8.61 11.04 23.46 6.00Mar'11 4.39 13.56 6.14 8.16 12.74 6.15Apr'11 5.63 2.53 2.37 5.92 9.19 4.47


Table 10 – Trends in Industrial Production – Use Based / YOY growth in percent [New Se

Month/ Year Basic Capital Intermediate Consumer goods Total Durable Non-durable

Dec'09 5.81 4.84 12.44 15.08 46.45 0.20 Jan'10 8.74 14.28 14.19 18.61 57.40 0.01Feb'10 5.61 39.41 10.34 16.61 28.89 8.73Mar'10 7.35 48.60 10.97 12.62 12.96 12.36Apr'10 6.66 35.48 11.89 13.82 23.28 6.75


Table 11 – Trends in Industrial Production – Use Based / YOY growth in percent [New Se

Month/ Year Basic Capital Intermediate Consumer Total Durable Non-durable

Dec'10 7.80 20.16 8.08 3.57 7.78 0.65 Jan'11 7.68 5.35 7.39 8.23 12.49 5.02Feb'11 5.58 -4.05 5.75 12.13 18.23 7.49Mar'11 6.26 15.40 1.80 11.67 13.92 9.86Apr'11 7.31 14.46 3.43 2.87 3.80 2.07




Page | 13

It was mentioned even in our earlier report that the rising interest rates in the economy havestartedhaving a bearing on industrial activity. Recent news reports indicating increase in inventor

withautomobile dealers, decline in steel imports, slowdown in cement sales, fewer inquiries for purcof commercial vehicles and build up of unsold stocks with real estate players are all symptom

aslowdown and highlight how consumption and investment demand are responding to the ev

interest rate scenario. Such developments have created a negative perception and deprestheconfidence level of corporateIndia.

Table 12 – Projects under implementation stalled and new projects announc

Under Implementation Stalled New ProjectsQtr ending Nos Rs Crore Nos Rs Crore Jun 2009 257 281384 654 242061Sep 2009 293 337359 760 382118Dec 2009 308 311214 1047 458435Mar 2010 330 318251 1169 572300 Jun 2010 338 305545 1178 708103Sep 2010 376 272760 993 356784Dec 2010 390 291816 982 292872

Mar 2011 389 274366 989 252912Source t CMIE

In this context it may be mentioned that once the pace of investments, which is crucial foroverallgrowth of the economy, loses momentum, it is difficult to bring it back. Unfortunately, we may

bestanding at the tipping point of such a situation. The data on projects under implementation stalland new projects announced provided by the Centre for Monitoring the Indian Economy (CMIE)

confirmsthat the pace of investments has taken a beating. As the table given above shows while thtotalnumber of projects under implementation stalled has been slowly inching up over the last one ye

the total number of new projects announced in a quarter has been falling during the sametime.When we view the trends in GDP growth and gross fixed capital formation presented in the

earliersection along with the trends in industrial production and new investment intentions of corporatIndia,we reach the conclusion that the health of the economy is not in the best of states and that some

urgentaction is required to arrest this slowdown ininvestments./vA(šUA]vA&/CC/[ﾐAu}ﾐšAŒvšABµﾐ]vﾐﾐAC}v(]vA^µŒÀÇUAuuŒﾐA}(A}Œ‰}ŒšA/v]AZA]v]šAšZAfollowing five point strategy for the authorities to revitalize industrial and economic growththecountry t

Lower interest rates, particularly the cost of credit toSMEs. Fasten the pace of implementation of infrastructureprojects. Check the incessant rise in price of industrial inputs and rawmaterials. Continue with incentives offered to

exporters. Maintain fiscal discipline.

Core Sector

The composition of the core sector has also undergone a change with two new segments being ato the existing list of six industries. These two new segments are fertilizers and natural gas and w

theaddition of these segments the combined weight of core sector in IIP has increased from 27 peto 37.9percent. As part of this revision, weights of the existing sectors have also seen some chan

and



Page | 14

base year has also been revised to 2004-05. The new expanded list of sectors that now make up tcore sector along with the weights attached is presented in the following

table.Table 13 – Segments of the Core Sector

Segment Weight in the old series Weight in the new series

Overall Index 26.68 37.90Coal 3.22 4.38Crude Oil 4.17 5.21Natural Gas - 1.71Refinery Products 2.00 5.94Fertilizers - 1.25Steel 5.13 6.68Cement 1.99 2.41Electricity 10.17 10.32

Source t Office of Economic Adviser, MOC&I, Govt of India

If we look at the numbers for the core sector as per the new series, we see that this sector regiagrowth of 5.7 percent during the year 2010-11. This growth was lower than the growth of 6.6

percentthat was posted in the year 2009-10. At the disaggregated level, the sectors that saw aweakerperformance in the year 2010-11 vis-à-vis 2009-10 are coal, natural gas, fertilizers, cemenandelectricity. The remaining sectors namely crude oil, refinery products and steel saw an improve

in performance in 2010-11 over 2009-10.

Table 14 – Growth in the core sector – New series

Source t Office of Economic Adviser, MOC&I, Govt of India

As the data given in the table above shows, performance of the coal sector nose-dived in 2010-withgrowth plummeting from 8.12 percent in 2009-10 to (t) 0.3 percent in 2010-11. The main reaso

production in the coal sector remained almost flat in 2010-11 is the tough stance andstringentenvironmental norms with regard to coal mining adopted by the Ministry for Environment and

Forests.Additionally, law and order problems in select mining areas of the country also had a bearing onoverallcoalproduction.

Just like coal, performance of the natural gas sector also deteriorated with growth slipping fromhighof 44.6 percent in 2009-10 to just about 10 percent in 2010-11. This dip in growth of natura

production can be ascribed to the fall in natural gas production in the KG D6 basin operated byReliance.

The performance of the fertilizer sector has also been lackluster with growth slowing downdramaticallyfrom 12.69 percent in 2009-10 to a negative 0.02 percent in 2010-11. This poor state of affairs

2009-10(Apr-March)

2010-11(Apr-March)

April 2010 April 2011

Overall 6.64 5.72 8.50 4.62Coal 8.12 -0.30 -2.96 2.84Crude Oil 0.55 11.94 5.16 10.97Natural Gas 44.59 9.97 54.11 -9.32Refinery Products -0.45 2.98 5.34 6.62Fertilizers 12.69 -0.02 7.83 -1.33Steel 6.05 8.89 12.91 4.80Cement 10.53 4.52 8.76 -1.06Electricity 6.17 5.48 6.89 6.79



Page | 15

fertilizer sector can be attributed to reported shortages in availability and supply of both coandnatural gas.

In case of the cement sector, the growth numbers show a drop from 10.53 percent in 2009-10 percent in 2010-11. As mentioned in our earlier report, this drop can be attributed to rising costraw materials (particularly coal) and difficulties in getting environmental clearances. Slowdown

theexecution of government projects in recent months particularly in the five poll bound states has ahad an impact on cement sector. Additionally, there are reports that the construction sector is

facingshortages of labour and this has affected cement dispatches andproduction.

The slowdown in growth in the electricity sector from 6.17 percent in 2009-10 to 5.48 percent in2010-11can mainly be attributed to poor performance in the thermal power generation segment

thataccounts for nearly 65 percent of the total generation capacity in the country. Thermalpowergeneration suffered a major setback during the last fiscal due to shortage of coal and delays in

providingfuel linkages to thermal plants. A considerable number of power projects were said to getdelayedbecause of uncertainty in the availability and supply of coal. The Ministry of Environment and

Forest(MoE&F) categorized 203 coal blocks as 'no go' mining zones and this has also contributed to

supplyshortfalls. According to estimates given by Ministry of Coal, these 203 coal blocks could havegeneratedaround 1.3 lakh MW of power annually, thus, helping attain the yearly target for theyear.

Amongst the sectors that saw an improvement in performance in 2010-11 over the previous yearcrudeoil stands out as growth in this sector jumped from 0.55 percent in 2009-10 to 11.94 percent in 20

This growth was driven by companies in the private sector and the joint sector and their shindomestic oil production improved from 15.6 percent in 2009-10 to 25.7 percent in 2010-11.

RelianceIndustries and Cairn India showed exemplary performance and contributed the maximum tthisincrease in oil output during theyear.

The latest numbers for the month of April 2011 show that there has been a perceptible declinetheperformance of the core sector with growth dipping from 8.5 percent in April 2010 to 4.62 per

inApril 2011. Sectors like natural gas, fertilizers, cement and steel are largely responsible for tpoorperformance. A positive take away from April 2011 numbers is the performance of the coasector,which grew by 2.84 percent.

Inflation

The inflation situation in the economy continues to be a cause for concern. Despite largescaletightening of the monetary policy by the RBI and other steps taken by the government,inflationcontinues to remain close to the double digitmark.

Data shows that WPI based headline inflation stood at 10 percent in the year 2010-11. This is nonlymuch higher compared to the average inflation rate of 3.6 percent seen in 2009-10 but also way

abovee 5 percent uŒlA}vﾐ]ŒAﾐAšZAZPŒ}ÁšZA‰Œ}u}š]vPA]v(oš]}vAoÀo[A}ŒAšZAZv}ŒuoA]v(oš]}vAoÀo[Abythe RBI.

Latest numbers on inflation are available for the month of May 2011 and these show thatheadlineinflation stood at 9.1 percent in May 2011. Although it is slightly lower than 10.5 percentinflation]ﾐšŒA]vADÇAîìíìUA]šA]ﾐAﾐš]ooAš}}AZ]PZAﾐA‰ŒAZB/

ﾐšvŒﾐXAšA}vAšZAu}všZA}vAu}všZAPŒ}ÁšZA]vAWPI based inflation also shows that the underlying inflationary pressures in the economyaremaintained. The month on month growth in inflation in May 2011 stood at 0.7 percent. In the prtwo months t March and April t the corresponding figures stood at 0.9 percent and 0.7percentrespectively.



. 1 . 1 .(B) Non-food articles 8 1 4 8 5 8 5 3 5 8 0 8 5 7 5 5 5 4 6 6 4 4 7 3 7 3 23

1 . 1 . 1 . 1 . 1 . 3 . 4 . 4 . 4 . 5 . 8 . 8 . 8 . 5 .Raw cotton 6 2 4 5 7 3 3 2 3 1 5 3 3 7 6 6 7 5 9 6 0 .4 0 .0 0 .2 84

1 . 1 . 1 . 2 . 2 . 4 . 3 . 4 . 4 . 3 . 3 . 3 . 3 . 4 .b. Oil seeds .5 .3 .1 .2 .5 .7 .5 .1 .3 .5 .9 0 9 0 0 22

3 . 2 . 2 . 3 . 2 . 2 . 2 . 2 . 3 . 1 . 1 . 1 . 7 1 .a. Metallic minerals 6 4 9 9 3 7 3 3 9 8 5 1 4 2 9 9 3 7 4 6 3 6 5 8 3 0 31

1 . 1 . 1 . 1 . 1 . 1 . 1 . 1 . 1 . 1 . 1 . 1 . 1 . 1 .(A) 7 7 7 7 7 7 3 0 0 0 3 1 . 1 . 1 .(B) 1 . 1 . 1 . 1 . 1 . 1 . 1 . 1 . 1 . 1 . 1 . 1 . 1 . 1 .(C) 3 8 8 8 5 5 5 5 5 3 3 3 3 - .III Manufactured products .4 .9 .6 .8 .2 .0 .1 .0 .4 .3 .3 .4 .2 .3

9 7 6 7 4 3 3 1 1 - . 0 2 5 7(B) Beverages, tobacco .8 .5 .4 .3 .8 .3 .4 .0 .7 .6 .6 .8 .4 .9

1 . 1 . 1 . 1 . 1 . 9 1 . 1 . 1 . 1 . 1 . 1 . 1 . 1 .(D) Wood and wood products .4 .7 .8 .9 .7 .8 .4 .2 .1 .6 .8 .6 .0 .7

5 3 3 4 5 5 5 5 4 5 7 8 6 7(F) Leather and leather products 0 8 .0 1 2 .0 .1 0 1 1 4 1 8 1 4 2 5 1 2 1 5 1 2 1 4

4 4 5 5 4 4 6 7 7 9 9 1 . 9 8(H) Chemicals and products .5 .2 .2 .4 .3 .6 .9 .2 .0 .5 .6 .4 .0 .1

3 3 2 3 2 1 2 2 3 2 2 3 3 3(J) Basic metal, alloys .8 .4 .2 .9 .5 .2 .7 .8 .2 .5 1 1 1 7 .1 .9

2 2 2 2 2 3 3 2 3 3 3 3 2 3(L) Transport, equpt and parts .7 .9 .9 .8 .9 .9 .0 .7 .7 .9 .0 .6 .2.0

C}u]vPAv}ÁAš}AšZAﾐPuvšAÁ]ﾐAvoÇﾐ]ﾐUAÁAﾐAšZšA‰Œ]ﾐA]vAšZAZDvµ(šµŒA'}}ﾐ[AšP}ŒÇA



Page | 17

‰ŒvšXA&µŒšZŒUAﾐA‰ŒAšZAošﾐšAšAÀ]ooUAZDvµ(šµŒA'}}ﾐ[AﾐPuvšAŒ}ŒAvA]v(oš]}vAof 7.3 percent in May 2011. Looking at the sub-categories within this broad group, we see that

sectorslike food products, beverages and tobacco, paper and paper products, rubber and plasticproducts,chemical and chemical products, and basic metals and metal products are seeing significant infla

As already mentioned, the buildup in prices in many of these industries is largely due to increasi

costpressures which manufacturers are now finding difficult toabsorb./vAﾐA}(AšZAZ&µoAvAW}ÁŒ[UA}ÀŒooA]v(oš]}vA]vAîìíì-11 stood at 12.2 percent. Thecorrespondingfigure in 2009-10 was (-) 2.1 percent. Further, as per the latest data available, this segment recor

aninflation of 12.3 percent in May 2011. Inflation in this segment is being driven by high and risingof items like coal and mineral oils. One may recall that petrol prices in the country are nowbeingregularly aligned with international prices following decontrol of the price mechanism and this is

havinga bearing on overall inflation in this broadcategory.

&]vooÇUA]vAﾐA}(AšZAZWŒ]uŒÇAŒš]oﾐ[AšPory overall inflation in 2010-11 stood at 17.7 perce Thecorresponding figure in 2009-10 was 12.7 percent. Further, in the month of May 2011, this se

recorded an inflation of 11.3 percent. Although over time inflation in this segment has been

showingsigns of moderation and which have come on the back of inflation going down in case of foodarticles,the non-food articles segment has seen a trend of rising inflation. In fact, in May 2011, inflatiothenon-food articles segment stood at a high 22.3 percent. High and rising prices of fibers like rawcottonand raw jute are responsible for high inflation seen in case of non-food

articles.With regard to outlook for inflation in the months ahead, it may be mentioned that at least in tfirsthalf of the current year, overall inflation is likely to remain sticky at the present levels. In fact t

aregood chances that we may see a jump back to the double digit territory on a few occasions. Athefactors that lie behind this prognosis are given

below.First, international crude oil prices continue to remain high. With developments in the Middle Eand North Africa region showing no signs of abatement and with OPEC countries in their most

recentmeeting [June 8, 2011] failing to reach a consensus on increasing their daily oil production quotathereare limited chances of oil prices coming down in the near future. A slowdown in global growth 2011that is widely anticipated could put a lid to international oil prices but any large scale downward

revisionis being ruled out at this moment. ﾐAAŒﾐµošUAÁAvAÆ‰šA]v(oš]}vŒÇA‰ŒﾐﾐµŒﾐA]vAšZAZ&µoAvAW}ÁŒ[AšP}ŒÇAš}A}vš]vµXAD}Œ}ÀŒUAšZ]ﾐA‰ŒﾐﾐµŒA}µoA(µŒšZŒAu}µvšA}vAšZAP}ÀŒvuvšAannounces decontrol of diesel and LPG

prices.Second, ivAšZA}všÆšA}(A]v(oš]}vA]vAšZAZ&µoAvAW}ÁŒ[AﾐPuvšUA}vAuµﾐšAoﾐ}AšlAv}šA}(AšZAŒ]ﾐ]vPAprices of coal. Recent media reports show that coal production target for 2011-12 has been cu

downprimarily on account of rising concerns over environmental issues. Coal shortage of nearly 142milliontonnes is expected in 2011-12 and our imports this year could be as much as 114 million tonnes. Bpower generation, this situation of coal shortage does not augur well even for the price line in

of coal.

Third, global food prices are likely to remain firm in the near term. According to recent reportsbroughtout by FAO, global food prices would continue to remain a concern in 2011. The FAO has warnthatwhile the harvest this year would be critical, restoring market balances will take some time. He

wecan expect upward pressures on food prices in the global markets to persist. As global food pricesa bearing on food prices in India, we have another element that is not likely to work in favour of

bringinginflation down.



Page | 18

Fourth, the government has recently announced a hike in the Minimum Support Prices [MSP] forgoodslike paddy, soybean and corn for the upcoming agricultural season. This increase in MSP will also

a bearing on the trend in food prices in the near term. There are chances that food inflationmayaccelerate once the new crop comes into the market in October2011.

Given the above factors, we expect concerns on inflation to remain on the policy agenda throtheyear 2011. Further, with policy rate hikes by RBI having failed to deliver on the stated obje

of reining in inflationary pressures and bringing down inflationary expectations, it is time thatgovernmentactively pursues supply side measures to curtail inflation.

Foreign Trade

Financial year 2010-11 was exceptionally good for Indian exporters. With overall exports amoutoUS$ 245.5 billion, the sector registered a growth of 37.7 percent in 2010-11 over the previous ye

And this was a record growth witnessed in exports sinceindependence.

Further, when we look at the monthly data for exports for the year 2010-11 as given in the tablebelow,we see that growth in exports has been particularly strong since November 2010. While dur

theperiod April to October 2010, exports grew at an average rate of 26.8 percent, overall growth wamuchhigher in the remaining part of the year. In fact, during November 2010 and March 2011, /v][ﾐAexportsgrew at a whopping 44.3 percent on

average. The onset of recovery in the global economy, which was led by the emerging economies, coupwithcontinuation of export sops announced by the government as part of the fiscal packages offered

duringthe crisis period gave the sector the much needed impetus. The support provided by the governminthe form of measures such as interest subvention of 2 percent on pre and post shipment expor

creditwas instrumental in reviving the badly hit labor intensive export orientedindustries.

Table 16 – Exports and Imports in US$ billion / YOY growth in percent

Exports Imports Tradebalance

Petroleumcrude &productsimports

Non-POLitems

imports

Exportgrowth

Importgrowth

2010-Apr 17.7 28.8 -11.0 9.5 19.3 42.2 48.92010-May 15.7 26.6 -10.9 8.6 18.0 27.57 32.612010-June 19.3 25.9 -6.7 7.8 18.1 41.5 12.42010-July 16.0 26.5 -10.5 8.2 18.3 11.7 22.02010-Aug 16.4 27.1 -10.6 6.9 20.2 21.0 20.62010-Sep 18.1 25.1 -7.0 7.5 17.6 23.9 16.72010-Oct 17.7 28.6 -11.0 8.1 20.6 19.4 10.42010-Nov 20.2 25.3 -5.2 7.4 17.9 35.0 1.42010-Dec 25.6 28.2 -2.6 8.4 19.7 55.2 -0.32011-Jan 21.4 31.4 -10.0 9.6 21.8 37.5 24.4

2011-Feb 23.6 31.7 -8.1 8.2 23.5 49.7 21.12011-Mar 29.1 34.7 -5.6 9.4 25.3 43.9 17.32011-Apr 23.8 32.8 -9.0 10.2 22.6 34.4 14.1

Source t CMIE

/vA]š]}vUAšZAﾐšŒšPÇA}(AšZAP}ÀŒvuvšAš}A}vš]vµAÆ‰o}Œ]vPAvÁAvA]ÀŒﾐAuŒlšﾐA(}Œ[ﾐAexports proved to be truly rewarding. Destination wise data available for the period April-December2010shows a significant increase in exports to regions like Latin America, Africa and other

Asian}µvšŒ]ﾐXA&}ŒAAo}vPAš]uA/v][ﾐAÆ‰}ŒšﾐAZAvA}vvšŒšA]vAh^AvAšZAµŒ}‰vA}µvšŒ]ﾐAvA

šZAŒ]ﾐ]ﾐA‰Œ}À]AAP}}A}‰‰}Œšµv]šÇAš}AÆ‰o}ŒAšZﾐ

A}šZŒAuŒlšﾐXA/v][ﾐAÆ

‰}ŒšﾐAš}A(Œ]APŒÁAÇA



Page | 19

44.9percent, to Asia by 43 percent and to Middle East by 31 percent during April-December 201overthe corresponding period in 2009-10.

Given this exemplary performance in exports, Commerce Minister, Mr. Anand Sharma,recentlyindicated that India should be able to achieve exports of US$ 500 billion by the year 2013-14.

alsopointed out that sectors like engineering goods, petroleum products, gems and jewellery, druandpharmaceuticals have done particularly well during the year 2010-11. Engineering go}ﾐAÁŒ[ﾐAtop exports in the year 2010-11 amounting to US$ 60 billion and registering a growth of over 80

percentvis-à-vis the previous year. Further, while readymade garments registered a growth of 42.9 peinthe year 2010-11 over 2009-10, gems and jewellery and pharmaceuticals both witnessed a grof about 15 percent. Petroleum products recorded a growth of 50.5 percent in 2010-

11. The strong momentum in exports, seen particularly during the second half of 2010-11, has continthe year 2011-12 as well. Latest numbers available for the month of April 2011 show that exportsthismonth amounted to US$ 23.8 billion and represented a growth of 34.4 percent over the same mof the previous year when exports totaled US$ 17.7

billion.While this strong start in the year 2011-12 is encouraging, there are indications that this highgrowthmay not be sustained in the months ahead. And there are both domestic and external reaso

thatulAﾐµZAA(}ŒﾐšAo]loÇXA/vA(šA]vA&/CC/[ﾐAošﾐšA^µŒÀÇA}vAÆ‰}ŒšﾐUAÁZ]ZAÁﾐA}u‰ošA]vAšZAmonth of May 2011, exporters indicated that going ahead their performance could weaken on

accountof the following factorst

Firstly, the interest subvention of 2 percent on pre and post shipment credit announced to suppexporters during the slowdown owing to the crisis came to an end in March 2011. The exportenowhave to pay a higher rate of interest to the banks for obtaining export credit. Further, this is

happeningat a time when the lending rates are already going up following the increase in the base ratethebanks and this would impact the production cost structure of the

exporters.

Secondly, the DEPB scheme is finally coming to an end. As this is coming in quick successionfollowingthe withdrawal of interest subvention, the exporters are finding themselves under reasonablepressureto maintain competitiveness in the global market. Although most recent reports show that

thegovernment has agreed to an extension of the DEPB scheme by another three months i.e. tillSeptember20113UAAoŒPAﾐš]}vA}(AšZAÆ‰}Œš]vPA}uuµv]šÇA(oAšZšA/v][ ﾐAÆ‰}ŒšﾐAŒAﾐš]ooAv}šAŒ}µﾐšAv}µPZAand that such incentives should not be completely done away with. Exporters are hoping that dur

theintervening three month period, the government would evolve an alternate scheme that wouldsupportexporters.

Thirdly, off late there has been a significant increase in exports from India to Asian countries.However,with inflation emerging as concern in other Asian countries as well and the central banks respon

by raising interest rates, the demand in this region is likely to face some moderation. This will

certainlyZÀAﾐ}uAŒ]vPA}vA/v][ﾐAÆ‰}ŒšﾐAto the Asianmarket.Fourthly, rising raw material costs and oil prices is also having a bearing on the exporters. Almothree

quaŒšŒﾐA}(AšZAŒﾐ

‰}vvšﾐA]vA&/CC/[ﾐAošﾐšAÆ‰}ŒšA^µŒÀÇAsaidthatthey arefacing

difficultydue tohigh

raw material prices. The textile sector is facing the heat due to surging cotton and yarn prithechemical sector is being impacted due to increasing polymer prices, processed foods segment i

facingthe brunt of high fruit and vegetable prices and engineering goods are being affected by hig

3 The DEPB scheme was to come to a close by end June 2011. However, the government has decided to extend it by ano

three months.



Page | 20

prices. It is also important to note that rising crude oil prices have increased the inlandtransportationcost and even the international ocean freight rates have moved up

recently.While the aforementioned factors are likely to dampen the buoyancy seen in exports in recentimes,one must also take note of the state of the global economy as this has a bearing on the perform

of /v][ﾐAÆ‰}ŒšﾐXA>šﾐšAﾐš]utes provided by the IMF show that global growth is expected tomoderatein the year 2011. According to the IMF, the global economy is expected to grow by 4.4 percentheyear 2011. In 2010, the global economy grew by 5.0 percent. The IMF has also indicated that the

worldtrade volume is likely to grow by 7.4 percent in 2011 as against a growth of 12.4 percent seen in The general slowdown in the global economy and global trade volumes projected for 2011 ia}Ávﾐ]AŒ]ﾐlAš}A/v][ﾐAÆ‰}ŒšA‰Œ(ormance in the currentyear.

Coming to imports next, we see that in the year 2010-11 our imports totaled US$ 350.4 billio Thisrepresents an increase of about 21.8 percent over šZA‰ŒÀ]}µﾐAÇŒ[ﾐA]u‰}ŒšﾐA}(A

}µšAh^¨AîôóXòAbillion. During the year 2010-11, imports of both petroleum crude and products (POL) and npetroleum crude and products (Non POL) went up. While POL imports amounted to US$ 101.7 b

2010-11 and posted a growth of 16.7 percent over the previous year, non-POL imports amounted

US$248.7 billion and registered a growth of 24.0 percent over the previousyear.Latest data available shows that in the month of April 2011 our imports totaled US$ 32.8 billandregistered a growth of 14.1 percent over the same month of the previous year when imports

amountedto US$ 28.8 billion.

In the context of this rise in imports, it is important to take note of the rising international priceoil, which have pushed our POL import bill upwardsXAKšZŒÁ]ﾐA]vAšŒuﾐA}

(AÀ}oµuAšZŒAZﾐv[šAvAAsignificant increase in POL imports. Price of oil in the international market has been moving up othelast year with the spot price for Brent crude ruling around US$ 113 a barrel t an increase of 45percentover the previous year t in the last week of May

2011.

With developments in the Middle East and North Africa region showing no signs of a let up awithOPEC in its last meeting deciding not to hike the overall quota for oil production, oil prices are to Œu

]vA(]ŒuA]vAšZAvŒAšŒuXAdZ]ﾐAÁ]ooA}vš]vµAš}A‰µšA‰ŒﾐﾐµŒA}vA/v

][ﾐA}ÀŒooA}]oA]u‰}ŒšA]ooXAﾐA

regards non-oil imports, while a slowdown in the domestic economy could lead to some moderinthe non-oil import bill, any large respite here can be ruled as prices of commodities other thaarealso firming up. Another point to take note of is the likely increase in imports of LNG in 2011

toﾐZ}Œš(ooA]vAZ/>[ﾐA<'AòAo}lXAdZ]ﾐAš}}AÁ}µoAoAš}AvA]vŒﾐA]vA/v][ﾐA]u‰}ŒšA]ll as importeis nearly 3 times as costly compared to gas supplied by

Reliance.With exports likely to come under pressure and imports showing little signs of easing in thecomingmonths, the trade balance in 2011-12 could widen.

Foreign InvestmentsData on total foreign investment flows into the country shows that in 2010-11, foreign investmenflowsinto India saw a dip of about 17 percent over the previous year. Further, when we look at the twmaincomponents of foreign investment, namely foreign direct investment and portfolio investment,seethat the dip is largely on account of a slowdown seen in case of FDI. As the table below shows, F

flowsinto India in 2009-10 were to the tune of US$ 37.7 billion and in 2010-11 this figure came down 27billion. Portfolio flows, which were to the tune of US$ 32.4 billion in 2009-10, saw a marginatoabout US$ 31.5 billion in 2010-11.



Page | 21

Table 17 – Foreign Investment Flows in US$ Million

Year FDI YoYGrowth

PortfolioInvestments

YoYGrowth

FII* YoYGrowth

Total Investment(FDI+ Portfolio)

YoYGrowth

2000-01 4,029 2,760 1,847 6,7892001-02 6,130 52.1 2,021 -26.8 1,505 -18.5 8,151 20.1

2002-03 5,035 -17.9 979 -51.6 377 -75.0 6,014 -26.22003-04 4,322 -14.2 11,377 1,062.1 10,918 2,796.0 15,699 161.02004-05 6,051 40.0 9,315 -18.1 8,686 -20.4 15,366 -2.12005-06 8,961 48.1 12,492 34.1 9,926 14.3 21,453 39.62006-07 22,826 154.7 7,003 -43.9 3,225 -67.5 29,829 39.02007-08 34,835 52.6 27,271 289.4 20,328 530.3 62,106 108.22008-09 37,838 8.6 -13,855 -150.8 -15,017 -173.9 23,983 -61.4

2009-10(P) 37,763 -0.2 32,376 -333.7 29,048 -293.4 70,139 192.52010-11(P) 27,024 -28.4 31,471 -2.8 29,422 1.3 58,495 -16.6

* FII is included in Portfolio Investment Source t Reserve Bank of India

If we look at the figures for FDI over the last few years, we see that the quantum received in 211was the lowest in the last four years. Quarterly numbers further highlight that FDI flows in the

fourthquarter of 2010-11 were the lowest since the third quarter of 2007-08. This clear slowing dowtheflow of FDI funds towards India should be a matter of concern for the

authorities.Further, data on sector wise FDI flows into India for the period April to February 2010-11 shows tout of a total of top 25 sectors, 15 sectors saw a dip in FDI flows in 2010-11 compared to flows

theprevious year. And out of these 15 sectors, it is sectors like services, construction activities, housand real estate, telecommunication and agricultural services that have taken the biggest hit in t

of inflows compared to corresponding period of the previous year i.e. 2009-10.

Table 18 – Sector Wise Foreign Direct Investment Flows in US$ Million

Sector 2010-11(Apr- Feb)US$ million

2009-10(Apr- Feb)US$ million

% changein 2010-11vis-à-vis2009-10

% to totalFDI

Inflows(Apr- Feb2010-11)

% to totalFDI

Inflows(Apr- Feb2009-10)

1 Services sector 3,274.02 4,184.64 -21.76 Y 17.84 17.022 Telecommunications 1,410.14 2,495.34 -43.49 Y 7.68 10.26 Y3 Automobile 1,320.38 1,009.34 30.82 7.19 4.124 Power 1,236.76 1,335.70 -7.41 Y 6.74 5.485 Housing and real estate 1,109.33 2,703.50 -58.97 Y 6.04 11.01 Y6 Construction 1,071.64 2,810.18 -61.87 Y 5.84 11.29 Y7 Metallurgical industries 1,044.37 372.83 180.12 5.69 1.518 Computer software / hardware766.24 872.88 -12.22 Y 4.18 3.529 Cement and gypsum products 607.58 33.64 1,706.12 3.31 0.1310 Petroleum and natural gas 562.38 223.43 151.70 3.06 0.94

11 Industrial machinery 553.49 246.27 124.75 3.02 0.9912 Trading 473.39 560.23 -15.50 Y 2.58 2.2713 Information and broadcasting 406.37 467.39 -13.06 Y 2.21 1.914 Chemicals other than fertilizers383.69 346.19 10.83 2.09 1.3915 Hotel and tourism 301.43 707.93 -57.42 Y 1.64 2.86 Y16 Sea transport 290.46 275.21 5.54 1.58 1.117 Consultancy services 237.87 340.65 -30.17 Y 1.30 1.38 Y18 Hospital and diagnostic centres231.63 129.49 78.88 1.26 0.5219 Drugs and pharmaceuticals 211.53 210.39 0.54 1.15 0.8520 Non-conventional energy 181.94 497.91 -63.46 Y 0.99 1.96 Y21 Food processing 166.37 262.71 -36.67 Y 0.91 1.05 Y



Page | 22

22 Electrical equipments 154.36 641.41 -75.93 Y 0.84 2.61 Y23 Textiles 108.46 139.03 -21.99 Y 0.59 0.5624 Agricultural services 41.75 1,317.06 -96.83 Y 0.23 5.43 Y25 Miscellaneous industries 1,323.01 1,003.14 31.89 7.24 4.03

Source t SIA Newsletter, DIPP

As this slowdown in FDI is happening at a time when the country is preparing plans to achieve atargetgrowth of 9 to 9.5 percent over the 12thPlan Period, it becomes important to get to the core of thisissueand take corrective action. FDI flows are an important source of funds for us and have in th

pastsupplemented domestic resources for meeting investment requirements in a whole host of sectors.&/CC/[s interaction with economists, policy experts and analysts shows that the emergence othercompeting economies, particularly in the Asian region, could be one of the factors that lie beh

thisslowdown in FDI flows towards India. While this proposition requires further research, economandpolicy experts concur with the view that there are tangible factors linked to India which couldberesponsible for making foreign investors a little wary for committing more funds. And amongsthesedomestic factors, two issues stand

out.

First is the state of the macro-economy, which is far from comfortable. With inflationremainingstubbornly high, growth slowing down due to aggressive monetary tightening by RBI and thgovernment throwing limited light on how the fiscal deficit target of 4.6 percent for the curreyearÁ}µoAAZ]ÀUA]vÀﾐš}ŒﾐAuÇAZÀAvA‰Œ}u‰šAš}APšA]vš}AAZÁ]šAvAÁšZ[Au}Abefore

thedomestic situationimproves.

Second set comprises factors such as environment sensitive policies being pursued with restocertain sectors, slow movement on resolving the land acquisition problem and issues of governa

and corruption that have been grabbing headlines and showing the country in poor light. As all otheseissues have a bearing on the perception and confidence level of foreign investors, these mahavelimited FDI inflows into thecountry.

In this context, it may be reiterated that completion of the much awaited FDI policy reforms insectorssuch as insurance, defence and multi-brand retail would also give a boost to overall FDI flows thecountry.

Coming to portfolio investments, as already mentioned, in 2010-11 portfolio flows totaled U31.5billion and were only a tad below US$ 32.4 billion received in the previous year. FIIs, which form

majorcomponent of portfolio investments, were to the tune of US$ 29.4 billion in 2010-11 and salittlechange from the figure for the previous year which was US$ 29 billion. While portfolio flowsstoodhigher than FDI flows last year, the outlook for funds flows on portfolio account going ahead is a

not too encouraging.

Given continuous monetary policy tightening by the central bank, interest rates are on an upswin

Thiscoupled with rising prices of raw materials is likely to have an adverse impact on the profit maof firms across sectors in the year ahead. As this would constrain the capacity of firms to

distributedividends, FIIs are likely to take a conservative view on India and Indian companies as they theirreturn on investment calculations. Signs of this are already emerging as in a recent survey [June

2011]conducted by the Bank of America Merrill Lynch amongst global fund managers, India wasplacedamongst the least favourite equity market by Asia-Pacificinvestors.Additionally, with the RBI contemplating tightening of rules relating to exit of foreign investand‰Œ]ÀšA‹µ]šÇA(µvﾐAÁZ}A‰µšAšZ]ŒAu}vÇA]vA/v]vA(]ŒuﾐUA]vÀﾐš}Œﾐ[Aﾐvš]uvšﾐAŒAÆ

‰šAš}A(µŒšZŒA



Page | 23

weaken. The re-emergence and intensification of the sovereign debt crisis in Europe and theexpectedhalt of quantitative easing policy in the US by the end of June 2011 are also downside facto

forportfolio flows for emerging markets includingIndia.

It may be mentioned that the Finance Minister of India, Pranab Mukherjee, tried to allay fearsfundmanagers and foreign institutions investors focused on India at recent conference. He urged FI

beoptimistic about Indian growth story and to take a long term view on its performance rathergettingdisturbed with the short term developments and

statistics.As a measure of assurance, the Finance Minister told fund managers that the governmentwouldcontinue to take investor friendly policies and has already started the next generation financia

sectorreforms such as widening and deepening of the Indian securities markets, liberalizing the poonforeign capital flows, strengthening the regulatory and other institutional architecture andreducingtransaction cost in the securitiesmarkets.

These announcements however did little to reduce concerns amongst fund managers, who arelookingfor better management of the macro-economy and forward movement on crucial economic

reforms.Forex Reserves

/v][ﾐA(}Œ]PvAÆZvPAŒﾐŒÀﾐA]vŒﾐAﾐ we moved ahead in fiscal 2010-11. As datagiven]vAšZAšoAo}ÁAﾐZ}ÁﾐUAÁZ]oA]vA‰Œ]oAîìíìUA/v][ﾐA(}Œ]PvAÆZvPAŒﾐŒÀﾐAš}šoAh^¨279.6 billion, in September 2010 this figure had increased to US$ 292.9 billion. Most recentnumbers show that the }µvšŒÇ[ﾐA(}Œ]PvAÆZvPAŒﾐŒÀﾐAZÀAﾐZ}šAµ‰A(µŒšZŒAŒ}ﾐﾐ]vPAšZUS$ 300 billion mark. With this level of reserves, India is amongst the ten largest holders of

foreignexchange reserves in theworld.

Table 19 – Foreign Exchange Reserves in US$ Million

Forex Reserves

April 2010 279,633May 2010 273,544 June 2010 275,710 July 2010 284,183Aug 2010 283,142Sept 2010 292,870Oct 2010 297,956Nov 2010 292,389Dec 2010 297,334 Jan 2011 299,224Feb 2011 301,592

March 2011 305,486April 2011 313,671

Source t Reserve Bank of India

The increasing size of our foreign exchange reserves has drawn attention of the policymakAsmentioned in our previous report, just some time back, Dr. Kaushik Basu, Chief EconomicAdvisor,Ministry of Finance, had raised the question of India to consider having a Sovereign Wealth F

Inmore recent times, a few independent analysts have opined that a part of these huge resebedeployed to import commodities which are or could be in short supply in the economy. Thislastsuggestion was made in context of managing the stubbornly high inflation by bridging the desupply mismatch.



Page | 24

Exchange Rate

Most recent trends in the movement of the INR vis-à-vis major vehicle currencies show that thIndianRupee has depreciated against all the major global

currencies.

As the data given in the table below shows, the Rupee depreciated against the US$ by 1.2percentbetween April 2011 and May 2011. During the same time period, while the value of the Rupe

wentdown against the Pound Sterling by 1 percent, Zµ‰[ﾐA‰Œ]š]}vAP]vﾐšAšZA:‰vﾐAzvAÁﾐA(AAmuch larger magnitude t 3.8 percent. Against the Euro too we saw the Rupee becoming a litt

weakand depreciating by about 0.4 percent between April 2011 and May 2011.

Table 20 – Rupees per unit of foreign currency (Yearly/monthly average bas

USD Pound Sterling Japanese Yen EuroMarch, 2008 40.3561 80.8054 0.4009 62.6272March, 2009 51.2287 72.9041 0.5251 66.9207March, 2010 45.4965 68.4360 0.5018 61.7653

2010-11April 2010 44.4995 68.2384 0.4763 59.6648May 2010 45.7865 67.1747 0.4969 57.6553

June 2010 46.5443 68.6952 0.5122 56.9016 July 2010 46.8373 71.5150 0.5343 59.7636Aug 2010 46.5679 72.9736 0.5465 59.9700Sept 2010 46.0616 71.6578 0.5454 60.0592Oct 2010 44.4583 70.3381 0.5428 61.7153Nov 2010 45.0183 71.8498 0.5457 61.4981Dec 2010 45.1568 70.4635 0.5425 59.6652 Jan 2011 45.3934 71.5394 0.5496 60.5178Feb 2011 45.4538 73.2921 0.5503 62.0904Mar 2011 44.9895 72.7033 0.5502 63.0314April 2011 44.3681 72.7215 0.5334 64.2269May 2011 44.9048 73.4310 0.5535 64.4829

MOM growth inMay 2011

1.2 1.0 3.8 0.4

Source t Reserve Bank of India

KvA}(AšZA(š}ŒﾐAšZšA((šAšZA}u‰š]š]ÀvﾐﾐA}(A/v][ﾐAÆ‰}ŒšﾐAÀ]ﾐ-à-vis exports fromothercountries is the relative movement in the national exchange rates. In the following table, we prov

the movement in the national currencies of select countries vis-à-vis theUS$.

The data shows that between April 2011 and May 2011, majority of the currencies analyzehavedepreciated against the US$. The only exception is the Indonesian Rupiah, which has appreciated

againstthe US$ over the same time period. The Malaysian Ringgit did not see any movement against tUS$during the period under study.

Further, amongst all currencies that have weakened against the US$ during this period, it is theSouthAfrican Rand that lost the most t a depreciation of almost 2.1 percent. This is followed by theBrazilianReal (depreciated by 1.3 percent) and the Indian Rupee (depreciated by 1.1 percent). Both the

PakistaniRupee and the Thai Baht have lost about 0.6 percent each against the US$ over the two mtApril/May 2011 t period.



Page | 25

Table 21 - Exchange rate vis-à-vis USD for selected countries (monthly average b

Brazilian RealIndianRupee

IndonesianRupiah

MalaysianRinggit

PakistaniRupee South African RandThai Baht

2010-11April 2010 1.76 44.50 9027.33 3.21 83.99 7.35 32.28May 2010 1.80 45.77 9183.39 3.26 84.38 7.65 32.37

June 2010 1.81 46.56 9148.36 3.26 85.37 7.63 32.48 July 2010 1.77 46.87 9053.80 3.21 85.60 7.54 32.3Aug 2010 1.76 46.57 8971.76 3.15 85.68 7.30 31.78Sept 2010 1.72 46.04 8975.11 3.11 85.86 7.13 30.82Oct 2010 1.68 44.42 8928.05 3.10 86.01 6.91 29.97Nov 2010 1.71 44.88 8931.61 3.11 85.60 6.96 29.85Dec 2010 1.70 45.17 9024.20 3.13 85.78 6.84 30.11 Jan 2011 1.67 45.38 9036.00 3.06 85.76 6.92 30.5Feb 2011 1.67 45.46 8916.53 3.04 85.38 7.17 30.71Mar 2011 1.66 44.99 8760.48 3.03 85.40 6.92 30.37April 2011 1.59 44.39 8651.30 3.01 84.68 6.73 30.04May 2011 1.61 44.90 8556.15 3.01 85.22 6.87 30.24M-o-M

growth inMay 2011 1.3 1.1 -1.1 0.0 0.6 2.1 0.7Source t International Monetary Fund

Regarding the outlook for the Indian Rupee against the US$ in the months ahead, the majoriviewamongst analysts and currency strategists is one of depreciation. This bearish view with regar

the Indian Rupee is based on two factors. First is the likely deterioration in the current accounttomoderation in exports, continuous rise in imports and a possible slowdown in invisible receipts.

Secondis the expected slowdown in funds flows into India. While FDI flows into the Indian market arealreadyon a slowdown mode, FII flows too are showing signs of anxiety over the evolving macro-

economicsituation with inflation remaining high and growth slowing down.

Money and BankingData on money supply growth shows that broad money (M3) registered a growth of 15.9 percentheyear 2010-11. This growth was only a tad lower when compared to a growth of 16.9 percentregisteredin the year 2009-10. However, it is important to note that growth in money supply in 2010-

considerably weak when compared to the growth of nominal GDP that stood at 19.1percent.

Money supply growth in 2010-11 was driven by growth seen in bank credit to the commerciasector[20.6 percent]. The other important component of money supply, net foreign exchange of asset

the banking sector, registered a moderate growth of just about 7.4 percent in 2010-11.

Latest numbers available show that year on year growth in money supply in the period up to M21,2011was 16.8 percent. Growth in the corresponding period [up to May 22, 2010] in the previou

was 15.1 percent.

Amongst sources of money supply, while bank credit to the commercial sector registered a grof 21.3percent in the period up to May 21, 2011, net bank credit to the government went up b

percent. Net foreign exchange assets of the banking sector registered a growth of 7.6 percent durthe same time

period.



Page | 26

Table 22 - Sources of Money Supply (percentage change over previous year

2009-10 2010-11 9-Apr-11 23-Apr-11 7-May-11 21-May-11

M3 16.9 15.9 17.0 17.6 16.916.8Net Bank Credit to Government 30.7 18.2 15.2 17.2 17.417.9Bank Credit to Commercial Sector 15.8 20.6 21.1 21.0 21.7 21.3

Net Foreign Exchange Assets of BankingSector -5.2 7.4 8.5 9.4 9.47.6

Government's currency liabilities to thepublic

12.1 11.7 11.7 10.4 10.4 9.4

Banking sectors net non-monetaryliabilities other than time deposits

-1.1 26.9 17.9 18.9 26.623.3

Source t CMIE

A look at the components of money supply reveals that the year on year growth in the period upMay 21, 2011 in both demand deposits with banks and other deposits with RBI has been negative. Cu

with the public and time deposits with banks t the two main components of money supply thoweverhave seen a reasonable growth of 16.5 percent and 19.7 percent

respectively.Table 23 - Components of Money Supply (percentage change over previous pe

2009-10 2010-11 09-Apr-11 23-Apr-11 07-May-11 21-May-11

Currency with the public 15.33 19.11 18.5 18.61 17.62 16.52Demand deposits with banks 21.96 -0.59 4.25 0.73 -0.32 -1.46

Time deposits with banks 16.36 18.15 18.8 19.99 19.47 19.69Other deposits with RBI -31.08 -2.58 -55.25 -6.92 -18.62 -21.52

Source t CMIE

Coming now to trends in bank credit and deposit growth, we see that the year on year growthnon-food credit in the period up to May 21, 2011 has been almost 22.1 percent. This is higher than thegrowth target of 19 percent set by the RBI for the current year. Growth in deposits in the perio

toMay 21, 2011 has been of the order of 17.4 percent and is in line with RBI target growth of 17percentfor the current year. These numbers indicate that the trend seen in the previous year t of depositgrowth lagging credit growth t continues in the current financial year. Of course the growthindeposits has picked up in recent months and to that extent eased some pressure on the banks aworked hard to maintain theirmargins.Given the present credit and deposit situation, banks have been complaining of a tightliquiditysituation. There has also been an evident increase in the borrowing of banks under the LAF repo

facilityover the past few weeks. While the banks on average borrowed Rs. 20,742 crore everyday fRBIduring the month of April 2011, the average borrowing amount per day went up to almost Rs.

crore in the month of May 2011. With advance tax payments for corporates due for the first quof fiscal 2011-12 and further tightening of monetary policy looking likely, banks have stepped u

theirefforts to raise more funds. This is getting reflected in the higher borrowings seen under the LArepofacility and higher interest rates being offered for issuance of certificate of deposits

[CDs].Table 24 – Growth in Bank Credit and Deposits of SCBs (in percent)

2010-11 9-Apr-11 23-Apr-11 7-May-11 21-May-11Bank Credit 21.4 21.97 21.89 22.5 22.28Food Credit 32.6 3.69 -9.07 12.16 34.72Non food credit 21.2 22.24 22.36 22.67 22.08Aggregate Deposits 15.9 17.2 17.9 17.117.4

Source t CMIE



Page | 27

The tightness in the loanable funds market however is expected to ease in the months ahead. Andis on account of both an expected slowdown in the credit growth rate and an improvement in the

depositgrowth rate.

With RBI continuing with its tight monetary policy stance, interest rates in the economy have beegoing up and have reached a stage where these have started hurting both investment and

consumptiondemand. Already many corporates have indicated that it is becoming difficult to fund investmenplansat current interest rates. Also, with demand for automobiles, commercial vehicles and

realtymoderating, one can expect credit growth to taper off in the comingmonths.

As regards deposits, in the year 2010-11 we saw that deposit growth was weak in the first hatheyear and then it started going up as banks increased the card rates. Data available for the curre

yearshows that the uptick in deposit growth continues and with deposit rates expected to remain atcurrentlevels and the outlook for the equity market being not too encouraging, banks should see

greatermobilization of deposits.

Fiscal Situation

The provisional data for fiscal indicators of the central government for the year 2010-11 was releby the Controller General of Accounts during the first week of June 2011. These provisional estim

forvarious fiscal variables show a definite improvement over the revised estimates (RE), with a mothananticipated rise in revenue collection and reduction in expenditure during 2010-11. The striking

featureof the new estimate is the reduction in fiscal deficit number compared to the revised estimatgivenduring presentation of the union budget. This depicts the comfortable fiscal position the

countryenjoyed in the previousfiscal.

A look at receipt trends of the central government shows that the total receipts increased by alm37percent in 2010-11 over 2009-10. While revenue receipts, the major chunk under the receipts

head,increased by 38.7 percent, non- debt capital receipts, the other component, showed only a

marginalincrease of 7 percent during 2010-11 over the previous year. Again, within revenue receipts,thoughnon- tax revenue contributed less than tax revenue in absolute terms, the former showed a growrateof a whopping 90.5 percent. This was due to the huge amount of money government raised t

auction of 3G and BWA spectrum.

Table 25 - Trends in Receipt and Expenditure of Central Government: 2010-11 (Rs. Cr

Fiscal Indicators BE2010-11

RE2010-11

Provisional2010-11

Diff betweenProvisional and RE

Actuals2009-10

Growth in 10-11 over 09-10

Revenue Receipts 682212 783833 794277 10444 57281138.66 Tax Revenues (Net) 534094 563685 572790 9105 456536 25.46Non Tax 148118 220148 221487 1339 116275 90.49

Non-Debt Capital Receipts 45129 31745 35599 3854 33194 7.25

Recovery of Loans 5129 9001 12752 3751 8613 48.06Other Receipts 40000 22744 22847 103 24581 -7.05 Total Receipts 727341 815578 829876 14298 606005 36.94Non-Plan Expenditure 735657 821552 821569 17 721096 13.93

On Revenue Account 643599 726729 726767 38 657925 10.46Interest Payments 248664 240757 234739 -6018 213093 10.16

On Capital Account 92058 94803 94802 -1 63171 50.07Plan Expenditure 373092 395024 377350 -17674 303391 24.38

On Revenue Account 315125 326928 312363 -14565 253884 23.03On Capital Account 57967 68096 64987 -3109 49507 31.27

Total Expenditure 1108749 1216576 1198919 -17657 102448717.03Source t Budget Documents and Controller General of Accounts, Government of



Page | 28

Further, within tax revenue, it is the customs duty which showed a robust collection of 63.29 perin 2010-11 over 2009-10 followed by excise duty (33.54), corporation tax (22.35) and service tax (2

Table 26 – Trends in Major Taxes of Central Government: 2010-11 (Rs. Crore

Major Taxes BE

2010-11

RE

2010-11

Provisional

2010-11

Actuals

2009-10

Growth in 2010-11 over

2009-10 Tax revenue (net) 534094 563685 572790 456536 25.46Excise duties 132000 137778 138372 103621 33.54Customs duty 115000 131800 136058 83324 63.29Corporation tax 301331 296377 299422 244725 22.35 Taxes on income 128066 149066 139148 132315 5.16Service tax 68000 69400 71309 58422 22.06

Source t Budget Documents and Controller General of Accounts, Government of

Coming next to the trend in expenditure of central government, it may be noted that thetotalexpenditure has grown by 17 percent in 2010-11 over 2009-10, much less than the 37 percent groreceipts. Within overall expenditure, while the plan expenditure grew at 24.4 percent, non-planexpenditure showed an increase of 13.9

percent.Excellent tax collection, buoyant non tax revenue and an effective cut down on expendituregrowthhelped the government to bring down the fiscal deficit for the year 2010-11 to 4.7 percent t a

figuremuch lower than the revised estimate of 5.1 percent announced by the finance minister in his 212budget speech. This is again much lower than the budget estimate (BE) of 5.5 percent announced

the 2010-11 budget speech. The revenue deficit for the fiscal 2010-11 is 3.1 percent and theprimarydeficit for the same year is 1.7 percent. These are lower than the revised estimate of 3.4 percen

2 percentrespectively.

Table 27 – Deficit Indicators of Central Government: 2010-11 (Rs. Crore)

Deficit Indicators BE

2010-11

RE 2010-

11

Provisional

2010-11

Difference

betweenProvisionaland RE

RE as % of GDP Provisional

as % of GDP

Fiscal Deficit 381408 400998 369043 -31955 5.1 4.7

Revenue Deficit 276512 269844 244853 -24991 3.4 3.1

Primary Deficit 132744 160241 134304 -25937 2.0 1.7

Source t Budget Documents and Controller General of Accounts, Government of

Though the deficit for 2010-11 gives a sense of relief as far as central government finance thismoment of elation may just be short lived. Given the evolving economic situation, there is now

wideacceptance amongst economists and public finance experts that during the current year it watough task for the government to rein in the fiscal deficit at the targeted budget estimate of 4.6

percent.And if the figures for central government finances for the month of April 2011 are any indicatiothenthe process of fiscal deterioration may well have started already. To get a better sense of theevolvingfiscal situation we have compared the figures for April 2011 with the figures for April

2010.As the data given in the following table shows, total expenditure of the central governmenthemonth of April 2011 stood at Rs. 87,130 crore. In April 2010, total government expenditure was

the tune of Rs. 67,226 crore. Further, under the expenditure head, we see that it is the non-planexpenditure that has ballooned from Rs. 48,206 crore in April 2010 to Rs. 70,123 crore in Apri



Page | 29

While the government has seen a surge in expenditure in April 2011, total receipts have showslipwith large scale moderation noticeable in (net) tax

receipts.Table 28 – Receipt and Expenditure of Central Government: April 2011 and April 2010 (Rs. Cr

Fiscal Indicators Apr-11 Apr-10 Difference between Apr

2011 and Apr 2010Revenue Receipts 6880 12979 -6099

Tax Revenues (Net) 3774 10062 -6288Non Tax 3106 2917 189

Non-Debt Capital Receipts 5589 254 5335 Total Receipts 12469 13233 -764

Non-Plan Expenditure 70123 48206 21917On Revenue Account 53087 47496 5591

Interest Payments 15078 14134 944On Capital Account 17036 710 16326

Plan Expenditure 17007 19020 -2013On Revenue Account 14408 16121 -1713

On Capital Account 2599 2899 -300 Total Expenditure 87130 67226 19904Source - Controller General of Accounts, Government of India

The early trends seen in the revenue t expenditure mix also find a reflection in the deficit positiothe central government for the month of April 2011. The fiscal deficit for the month of April 201

hasovershot the figure for fiscal deficit of April 2010 by a huge margin. The same trend is seen iotherdeficit indicators also. It may also be noted that the fiscal deficit in April 2011 constituted a18percent of the total estimated fiscal deficit for the year 2011-12. The situation was better du

thecorresponding period of the previous fiscal. A similar difference is seen in case of revenue deandprimary

deficit.Table 29 - Trends in Deficit Indicators of Central Government: April 2011 Vs April 2010 (Rs. Cr

Deficit Indicators Apr-11 BE 2011-12 Apr-11 as %of BE

Apr-10 BE 2010-11 Apr-10 as % of BE

Fiscal Deficit 74661 412817 18.09 53993 381408 14.16Revenue Deficit 60615 160417 37.79 50638 276512 18.31Primary Deficit 59583 144831 41.14 39859 132744 30.03

Source- Controller General of Accounts, Government of India

If the fiscal trend seen in April 2011 continues t a likely situation t then as mentioned earliethegovernment will face difficulties in keeping the deficit figures under control. The fiscal target for t

year 2011-12 was pegged at 4.6 percent anticipating higher revenues and moderation in expenditurethegovernment.

However, possibilities of higher receipts in 2011-12 look increasingly ambitious. All themaincomponents under the receipts head - tax, non-tax and non-debt capital receipt - may showamoderation in the current fiscal. With no major tax changes announced in the budget for 2011-

thegovernment was banking on strong growth in the economy and industry, good corporateperformanceand a rise in wages and salaries to translate into high growth in tax collections. Now that there a

clear indications of an economic and industrial slowdown and fiscal strains building up in thecorporatesector, even senior government functionaries have started doubting the feasibility of stickin

thebudgeted targets for revenues.



Page | 30

Union Finance Minister, Mr. Pranab Mukherjee, shared these concerns recently while addressingseniorofficials of the Central Board of Excise and Customs (CBEC). He warned that the task of mee

therevenue target is very challenging and will require sustained and strategic efforts throughothefinancial year. Further, CBEC Chairman, SD Majumdar, also hinted that they will have to see i

mid-course revision in revenue targets is required. Earlier, Finance Secretary, Sunil Mitra had indica

thatamidst slowdown in tax collections, the Finance Ministry may go slow on disbursal of pendingincometax refunds.

While this is the case with tax collectionsUAP}ÀŒvuvš[ﾐA}šZŒAŒÀvµAŒ]ﾐ]vPAﾐ}µŒﾐAo]lAµš]}vtheremaining 3G spectrum and disinvestment of select PSUs may also not fetch anticipated reve

as there may not be enough takers given the tough market conditions.

On the expenditure front, government has estimated a very small increase of 3.4 percent in itsoverallexpenditure for the year 2011-12. In all probability this estimate will be exceeded in the curre

yearmainly because of expenditures under the heads of MGNREGA, food, petroleum and fertilizersubsidy.

While increased wage rate will push up the MGNREGA expenditure, international price of oandfertilizer will push up petroleum and fertilizer subsidy. Also, the food subsidy bill will see a rise w

the introduction of Food Security Bill and the associated high cost that would have to be incurrforcollecting and storing much larger amounts of foodgrains.

Considering this mismatch in revenue t expenditures, some analysts fear that the fiscal deficit tyear may eventually go up to anywhere between 6 to 7

percent. The only way to rectify the expected dent in revenue collections is to improve efficiency intaxcollections. The tax departments of the government should leverage information technology to

andevolve a process wherein refunds become automatic. Further, steps should be taken to widen taxbase in the country. Today, just about 3 percent of the people in the country file tax returns. Ef

of the government should be geared towards increasing this base of tax payers and curbing tax

evasion. This would automatically lead to a jump in tax revenues. Further, the government should go ahewith reforms like decontrolling diesel and LPG prices to augmentrevenue.



Page | 31

Performance of the Corporate Sector – Q4, 2010-11

Data made available by CMIE on corporate sector performance shows that in the fourth quarterfiscal2010-11, corporate India turned out a good performance both in terms of sales and profits. S

aperformance is particularly noteworthy as it came at a time when overall expenses are going up fast clip.

ﾐAšAP]ÀvA]vAšZA(}oo}Á]vPAšoAﾐZ}ÁﾐUAvšAﾐoﾐA}(AZooA/vµﾐšŒ]ﾐ[A]vAšZA(}µŒšZA‹µŒšŒA}(registered a growth of 23.5 percent. This is the highest growth in net sales that we have seen in tlasteight quarters. Further, while firms from the manufacturing sector saw an increase of 22.26 pe

innet sales in the last quarter of 2010-11, companies from the services (other than financial) secsawsales going up by 27.46 percent.

Further, within the manufacturing sector, growth in sales has been particularly strong in sectors astextiles, cement, steel and transport equipment. Performance of the food and beverages sector thechemicals sector lagged the average for the manufacturing sector as a whole with food and

beveragessector seeing net sales going up by about 8.5 percent in Q4, 2010-11.

Table 1 – Performance of the Corporate Sector – Growth in Net Sales, Total Expenses and Profits

2009-10 2010-11Q1 Q2 Q3 Q4 Q1 Q2 Q3Q4

Net sales (%)All industries 0.03 -6.83 5.14 15.95 15.67 17.76 17.81 23.50Manufacturing -8.83 -14.89 7.25 24.29 22.72 19.39 15.67 22.26Food & beverages 6.83 -7.28 -3.23 58.30 31.79 41.16 23.59 8.49Chemicals 13.68 -5.15 3.27 19.85 14.77 17.48 17.28 17.86

Textiles 15.94 13.51 13.84 17.61 13.39 7.05 22.78 2Non-metallic mineral products 5.96 2.54 8.68 6.66 21.12 32.38 26.85 30.75

Cement 8.00 -12.06 -11.23 -4.88 -6.51 0.54 26.63 43.54Metals & metal products -35.39 -31.62 -5.77 17.44 19.34 13.41 11.55 28.88

Steel -39.76 -36.87 -14.05 10.53 16.70 15.47 13.61 25.28 Transport equipment 16.96 -1.81 50.26 86.02 61.52 35.25 22.78 22.94

Services (other than financial) 10.75 3.25 3.70 3.67 10.44 19.51 21.80 27.46 Total expenses (%)

All industries 2.98 -4.52 3.89 11.78 13.19 18.06 16.56 23.52Manufacturing -6.81 -13.02 3.75 20.95 19.16 18.63 14.48 21.68Food & beverages -2.14 -13.09 -8.60 49.67 42.32 36.85 23.76 8.55Chemicals 7.61 -7.65 -0.34 5.16 15.02 30.87 18.39 21.27

Textiles 13.71 10.98 10.37 18.58 18.51 11.90 24.98 2Non-metallic mineral products -6.97 -3.53 1.93 0.40 39.08 40.20 20.70 42.36

Cement -3.12 -15.66 -15.91 -3.60 5.00 8.79 59.19 48.12Metals & metal products -30.85 -25.79 -2.49 11.26 15.30 6.82 8.42 32.68

Steel -35.42 -30.51 -10.28 5.25 12.58 3.83 9.09 30.06 Transport equipment 21.45 -3.90 33.65 91.72 45.70 26.01 19.22 17.88Services (other than financial) 11.74 3.05 2.50 -1.60 12.15 21.39 24.92 31.29

PBDIT (%)All industries 4.04 -2.44 18.22 33.34 16.45 6 9 8

- 2 23.2 68.5 168. 45.0 130. 21.2 23.1Food & beverages 23.4 - 5.4 4.48 8.79 1. 3 10. 1Chemicals 25.8 28.4 149. 9.54 30 46

55.9 57.8 58.7 9.11 18.3 - 6 9 146.1 12.5 22.1 8.64 12.2 - 2 31.7

Cement 3 7 0 8.78 31.2 - 7 39.4 35.3Metals & metal products 60.5 - 0 2 02 6 44 43

- 8 80.4 23.7 - 58 85 32.5 Transport equipment 18.0 237. - 81 70 60 91

13.7 7.92 6 3.26 0 03



All industries

ManufacturingServices (other than financial)

Page | 33

Performance of the Textiles sector – Q4, 2010-11

SectorUpdates

Textile park to come up in Punjab. A 1700 acre textile parkis coming up in the Malwa region with world class facilties.DEPB extended by three months. DEPB scheme has beenextended by three months and will now be available tillSeptember 2011. In the interim government will work outan alternate duty neutralization scheme for exporters.

Government for greater FDI in specialty textile

Government is contemplating steps to enhancFDI flows in segments like technical textiles.Government allows additional cotton exports.Government has allowed exports of anadditional one million bales of cotton in thecurrent season.

0

5

10

15

20

25

30

Q109-10

Q209-10

Q309-10

Q409-10

Q110-11

Q210-11

Q310-11

Q410-11

Textiles: Growth in Net Sales and Total Income

Net Sales

Total income

-30

-20

-10

0

10

20

30

40

TotalExpenses

Raw materialStores spares& purchase of finished goods

Salaries &wages

Power & Fuel InterestExpenses

Textiles: Growth in Total Expenses

Q409-10 Q410-11

11.6

8.67.4 7.4 6.7

5.46.9

9.1

0.02.04.06.08.0

10.012.014.0

Q109-10

Q209-10

Q309-10

Q409-10

Q110-11

Q210-11

Q310-11

Q42010-11

Textiles: PAT / Total Income



PAT /Total Income

Net sales grew by 24.7 percent in Q4, 2010-

Q4, 2009-10, growth in net sales was of theof 17.6 percent.

Export income to net sales ratio touched 5 pin Q4, 2010-11. In Q4, 2009-10, this figure close to 2.7 percent.

Cost pressures in the sector are building u

Total expenses went up by 23.5 percent in2010-11. In Q4, 2009-10, the increase in totaexpenses was of the order of 18.58 percen

The increasing pressure on costs is led byexpenses on power and fuel and expensesother raw materials. Outlays on interest co

wages and salaries have also jumped in Q4, 11.

PAT grew by 48.4 percent in Q4, 2010-11.

Margins have improved in the last quarter 2010-11.

Page | 34

Performance of the Cement sector – Q4, 2010-11

SectorUpdates

Cement prices dip on weak demand, onset of monsoon. Topdealers have reported a decline in prices across regions in

June 2011. Demand from infrastructure and realty sectorexpected to moderate.

Cement majors brace up for margin pressure.

Steep increase in energy costs [coal] and highfreight costs to keep margin under pressure.

-20

-10

0

10

20

30

40

50

Q109-10

Q209-10

Q309-10

Q409-10

Q110-11

Q210-11

Q310-11

Q42010-11

Cement: Growth in Net Sales and Total Income

Net Sales Total income

-60

-40

-20

0

20

40

60

80

100

Total Expenses Raw materialStores spares& purchase of finished goods

Salaries &wages


Cement: Growth in Total Expenses

Q409-10 Q410-11

15.418.3

12.614.3

12.6

5.93.1

12.5

0.02.04.06.08.0

10.012.014.016.018.020.0

Q109-10

Q209-10

Q309-10

Q409-10

Q110-11

Q210-11

Q310-11

Q42010-11

Cement: PAT/Total Income



PAT/Total Income

Net sales have seen a strongperformance in the second half of 2010-11

Net sales registered a growth of 43.5percent in Q4, 2010-11. In Q4, 2009-10,net sales had dipped by 4.9 percent.

Overall expenses have shot up in Q4,2010-11.The growth in total expenses inQ4, 2010-11 was to the tune of 48.1percent. In Q4, 2009-10, total expenseshad declined by 3.6 percent.

Evident increase in expenses across allsegments. Interest costs and rawmaterial expenses are hitting theindustry hard.

PAT registered a growth of 26 percent inQ4, 2010-11.

Profit margin has shown animprovement in Q4, 2010-11. However,at these levels, margins are still lowcompared to what was seen in 2009-10.

Page | 35

Performance of the Steel sector – Q4, 2010-11

SectorUpdatesSteel imports down 65 percent in April. Steel imports are

slowing down. The fall is most visible in sectors that are hitby high interest costs t auto and construction.Steel firms may have to pay more for coking coal imports. Inthe forthcoming renewal of quarterly contracts, prices forimported coking coal could go up.

JPC to monitor prices of raw materials. Steelministry has asked the Joint Plant Committee analyses prices of raw materials for steelmanufacturing along with their impact on finasteel prices.

-50

-40

-30

-20

-10

0

1020

30

40

Q109-10

Q209-10

Q309-10

Q409-10

Q110-11

Q210-11

Q310-11

Q42010-11

Steel: Growth in Net Sales and Total Income


-10

0

10

20

30

40

50

60

Total ExpensesRaw materialStores spares& purchase of finished goods

Salaries &wages

Power & FuelInterestExpenses

Steel: Growth in Total Expenses (%)

Q409-10 Q410-11

-2.8-4.6

5.2

10.88.7 8.3

5.9

12.3

-10.0

-5.0

0.0

5.0

10.0

15.0

Q109-10

Q209-10

Q309-10

Q409-10

Q110-11

Q210-11

Q310-11

Q42010-11

Steel: PAT /Total Income



PAT/Total Income

Net sales registered a growth of 25.3percent in Q4, 2010-11. In Q4, 2009-10, nesales had shown a growth of 10.5 percent.

Total expenses of companies from the stee

sector registered a growth of 30.1 percentQ4, 2010-11. In Q4, 2009-10, total expenshad gone up by a mere 5.25 percent.

Amongst different heads under totalexpenses, firms from the steel sector arefeeling maximum pressure on account of rising prices of raw materials. In fact,expenses on raw materials registered agrowth of more than 50 percent in Q4,2010-11.

PAT for firms belonging to the steel sectorhas gone up by 47.9 percent in Q4, 2010-1

Profit margin in Q4, 2010-11, has seen animprovement with a figure of 12.3 percentIn Q4, 2009-10, profit margin was to thetune of 10.8 percent.

Page | 36

Performance of the Chemicals sector – Q4, 2010-11

SectorUpdatesCentral panel clears mega petrochemical hub in Tamil

Nadu. A PCPIR region has been cleared by an inter-ministerial group. It is expected to attract investmentsworth Rs. 1 lakh crore.

Oil ministry supports gas price pool for fertiliz

The recommendation made by SaumitraCZµZµŒ]AC}uu]ššAš}A]u‰ouvšAZ‰Œ]A‰}}o]vP[A}(AvšµŒoAPs for fertilizer sector h

(}µvA‰šŒ}oµuAu]v]ﾐšŒÇ[ﾐAﾐµ‰‰}ŒšXA

-100

1020304050607080

Q109-10

Q209-10

Q309-10

Q409-10

Q110-11

Q210-11

Q310-11

Q42010-11

Chemical: Growth in Net Sales and Total Income


-50

-40

-30

-20

-10

0

10

20

30

40

Total Expenses Raw materialStores spares& purchase of finished goods

Salaries &wages


Chemical: Growth in Expenses (%)

Q409-10 Q410-11

9.5 10.78.4

11.4 10.7

31.3

10.9 11.7

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

Q109-10

Q209-10

Q309-10

Q409-10

Q110-11

Q210-11

Q310-11

Q420

10-11

Chemicals: PAT /Total Income



PAT/ Total Income

Net sales registered a growth of 17.8percent in Q4, 2010-11.In Q4, 2009-10,net sales had shown a growth of 19.9percent.

Ratio of exports to net sales has shown adecline from 7.2 percent in Q4, 2009-10to 4.3 percent in Q4, 2010-11.

Total expenses have shown a growth of 21.3percent in the fourth quarter of 2010-11. In Q4, 2009-10, total expenseshad shown a growth of 5.1 percent.

Expenses on interest costs and rawmaterials have seen a sizable jumpduring the quarter under review.

PAT has increased by 20.9 percent in Q4,2010-11.

The margins continue to be underpressure and stood at 11.7 percent inQ4, 2010-11.

Page | 37

Performance of the Transport equipment sector – Q4, 2010-11

SectorUpdatesCar sales grow slowest in 24 months. Passenger car sales

witnessed a growth of 7 percent in May 2011, which is theslowest in 24 months. Rising interest rates and fuel costsare beginning to take a toll on the automotive sector.

Truck sales slow as rising interest rates begin

bite. Truck fleet operators and financiers arereporting a decline in truck sales owing to risiinterest rates.

-20

0

20

40

6080

100

Q109-10

Q209-10

Q309-10

Q409-10

Q110-11

Q210-11

Q310-11

Q42010-11

Transport Equipment: Growth in Net Sales andTotal Income


-100

0

100

200

300

400

500

600

700

TotalExpenses

Raw materialStores spares& purchase of finished goods

Salaries &wages


Transport Equipment: Growth in Total Expenses

Q409-10 Q410-11

-1.1

0.6

2.8

7.2 6.9 7.1 7.2 7.1

-2.0

0.0

2.0

4.0

6.0

8.0

Q109-10

Q209-10

Q309-10

Q409-10

Q110-11

Q210-11

Q310-11

Q42010-11

Transport Equipment: PAT /Total Income



PAT /Total Income

Growth in net sales has been on adowntrend over the last one year.

In Q4, 2010-11, net sales registered agrowth of 22.9 percent. In Q4, 2009-10, nesales had zoomed registering a growth of 86percent on a year on year basis.

Growth in total expenses has moderated inQ4, 2010-11, compared to the growth seenin Q4, 2009-10.

While total expenses registered a growthof 17.9 percent in the quarter endingMarch 2011, total expenses had grown by91.7percent in the quarter ending March2010.

PAT has registered a growth of 19.4percent in Q4, 2010-11.

Not much change is seen in the profitmargin levels over the last one year. Thesehave been close to the 7 percent markthroughout 2010-11.

Page | 38

Performance of the Food and Beverages sector – Q4, 2010-11

SectorUpdates

J&K to encourage investment in establishing food and

horticulture processing units. J&K government said it willencourage local as well as outside investments to set upfood processing units in the state.

New safety law to cost India over 15,000 cror

The implementation of the Food Safety andStandards Rule, 2011 is likely to cost Rs. 15,0to 17,000 crore to the exchequer.

-20-10

010203040506070

Q109-10

Q209-10

Q309-10

Q409-10

Q110-11

Q210-11

Q310-11

Q410-11

Food and Beverages: Growth in Net Sales andTotal Income

Total income Net sales

-20

0

20

40

60

80

100

120

140

Total expenses (%)Raw materials, stores,spares & purchase of finished goods (%)

Salaries and wages (%)Power & fuel (%) Interest expenses (%)

Food and Beverages: Growth in TotalExpenses

Q4 09-10 Q4 10-11

4.2

7.98.6

5.7

3.6 3.93.3

5.3

0123456789

10

Q109-10

Q209-10

Q309-10

Q409-10

Q110-11

Q210-11

Q310-11

Q410-11

Food and Beverages : PAT / Total income



PAT / Total income

Growth in net sales has been on a declineover the last few quarters.

In Q4, 2009-10, net sales had grown by58.4percent. In Q4, 2010-11, growth innet sales was down to just about 8.5percent.

Growth in total expenses has also come

down over the last one year.In Q4, 2009-10, total expenses went up by49.7percent. In Q4, 2010-11, totalexpenses showed a growth of 8.5 percent.

The only segment where growth inexpenses in Q4, 2010-11 was higher thangrowth seen in the corresponding periodof the previous year is interest payments.

The margins of firms in this sector havebeen under pressure whole of last year.

In Q4, 2009-10, profit margin was about5.7percent. In Q4, 2010-11, this camedown to 5.3 percent.



Page | 39

Round up of key developments

Draft National ManufacturingPolicy

A high level committee chaired by Prime Minister Dr. Manmohan Singh has approved in princthedraft National Manufacturing Policy. The policy will be placed before the cabinet soon after

environmentand labour concerns are resolved through inter-ministerialdiscussions.

The salient features of the policy are:

To increase the share of manufacturing in the GDP from the current 16 percent to 25 percby2025and in the process create an additional 100 million jobs. To create National Investment and Manufacturing Zones (NIMZs) with world classinfrastructurefacilities. The proposed zones will enjoy special policy regime, tax concessions, less stringen

labourand environment laws, and flexible compliance norms. To set up a Manufacturing Industry Promotion Board (MIPB) at the level of Union Ministeof Commerce and Industry to ensure coordination amongst Central Ministries and State

Governmentand to ensure effective implementation of the policy. To set up a Technology Acquisition and Development Fund to promote acquisition anddevelopmentof appropriate (primarily green technologies) technologies. To introduce policy measures to facilitate the expeditious redeployment of assets belongingnon-viable units, while giving full protection to the interests of employees. This will be done

throughappropriate Insurance Instrument and/or Sinking Fund.

Financial Stability Report byRBI

dZAZﾐŒÀABvlA}(A/v]A‰ŒﾐvšA]šﾐAﾐﾐﾐﾐuvšA}(AšZAZošZA}(A/v][ﾐA(]vv]oAﾐš}ŒA]vA]šﾐAFinancial Stability Report, during second week of June. The highlights of the report are:

The global risk scenario has improved, though there are signs of a slowdown in growth durin2011in most countries, including some developing economies in Asia.Liquidity in the system remained in deficit mode given strong credit demand and high leof currency in circulation.

Banks in India will face many challenges as they migrate to the advanced approaches underII and prepare for Basel III.

A series of stress testing in respect of credit, liquidity and interest rate risks showed thabanksremained reasonably resilient though their profitability could be affectedsignificantly.Banks need to remain vigilant to the headwinds from the prevailing inflation and interesratesituation which may affect their asset quality as changes in interest rate were found to h

themost significant (negative) impact on slippage ratio of the banks.Greater access of domestic corporates to ECBs has resulted in increased currencymismatches.Many companies which have raised money through foreign currency convertible bonds cou

facesevere funding problems in the next two years due to lackluster equity markets. According ta very large proportion of these FCCBs may not get converted into equity thus requiring

theirrefinancing at the much higher interest rates prevalenttoday.

Page | 40

Charts

-5.0

0.0

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Apr'09

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Growth in IIP

New Series Old Series

0.02.04.06.0

8.010.012.014.0

16.018.0

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Growth in Manufacturing Sector

New SeriesOld Series

0.0

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10.012.0

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Growth in Electricity Sector




Page | 41

Charts

0.0

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Growth : Basic Goods Segment


-30.0

-20.0

-10.0

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Growth: Capital Goods Segment


-5.0

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Growth: Intermediate Goods Segment

New SeriesOld Series

-10.0

-5.0

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Apr'09

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Growth: Consumer Goods Segment




Page | 42

Charts

4.0

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Growth : Headline & Core Inflation

HeadlineCore

0.0

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Growth in Broad Segments of WPI



Primary Articles Fuel & Power Manufactured Products

Page | 43

Charts

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India's Trade (US$ billion)

Export Import Trade Balance

-28,000

-18,000

-8,000

2,000

12,000

22,000

32,000

Apr-09

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Foreign Investment Inflows (USS million)



Direct Investment Portfolio Investment Total