ECONOMY MATTERS 2

1

FOREWORD

APR-MAY 2016

US GDP growth slowed down once again in the first quarter of 2016 amid signs of a global economic slowdown. Both consumers and businesses cut back on spending and US exports were hurt by economic weakness in overseas markets. Continued economic weakness, sub-par inflation and

global pressures are likely to cause the Federal Reserve to slow its pace of rate hikes this year from what had been expected. Closer home, in a significant move, India and Mauritius signed a landmark tax pact, aimed at tackling black money. The government expects the Protocol to tackle treaty abuse and round tripping of funds, curb revenue loss, prevent double non-taxation, streamline the flow of investment and stimulate the flow of exchange of information between India and Mauritius.

On the domestic front, industrial production growth remained subdued in March 2016 due to contrac-tion in output of manufacturing and capital goods sector. Going forward, we hope that IIP growth would pick up further as pro-active reform initiatives taken by the government in recent months coupled with lower interest rates and a favourable monsoon prognosis would make a positive impact on investment decisions and spur a turnaround in demand. In FY17, we expect industrial production to grow at a higher rate as compared to the previous fiscal on the back of policy aided domestic upturn and lower interest rates. Meanwhile, on the inflation front, both CPI and WPI edged upwards in April 2016 mainly on the back of higher food prices. We hope that the food prices would ease going forward, on account of a spate of reforms undertaken by the present government to address the supply bottlenecks and the expectation of a normal monsoon.

Though the occurrence of normal monsoon is pivotal in supporting the growth rate of the farm sector eve-ry year, this fiscal it assumes greater importance given the fact that the economy has been marred by two consecutive droughts. In the last two years, not only has agricultural output suffered a setback but the cost of cultivation has increased, affecting the profitability of agriculture. Food inflation has been volatile, with inflation in pulses reaching very high levels. This is why IMD’s latest forecast of a normal monsoon this year has provided a huge relief, which is sure to aid in alleviating rural distress and tame inflationary pressures in food items. Even though the share of agriculture in GDP has been declining over the years yet it holds immense importance for the overall stability of the economy. This calls for an active management by the government in reducing the dependence of our economy on monsoons by sorting out issues like - lack of proper irrigation, inadequate credit and insurance facility, inefficient delivery of subsidies and the lack of growth in capital formation in agriculture, which plague the agricultural sector and make it vulner-able to the vagaries of the monsoon.

Chandrajit BanerjeeDirector General, CII

3 APR-MAY 2016

5

EXECUTIVE SUMMARY

APR-MAY 2016

Global TrendsThe US economy saw a slump in growth, with the head-line figure being 2.0 per cent on a yearly basis, in the first quarter of the current fiscal year, as compared to 2.9 per cent in the same quarter in the previous year. This decline was largely driven by a colossal drop in gross pri-vate domestic investment which witnessed a de-growth compared to a solid growth in the comparable quarter previous year. While growth in personal consumption expenditure also moderated, government consump-tion expenditure and gross investment contributed positively to GDP growth. In a significant development, on 10th May, 2016, the Protocol for amendment of the avoidance of double taxation on income and capital gains between India and Mauritius was signed by both countries. While under the earlier bilateral agreement, capital gains from sale of securities have been taxable only in Mauritius, the newly signed protocol now gives India the right to tax capital gains arising from sale or transfer of shares of an Indian company acquired by a Mauritian tax resident. In a relief to the existing inves-tors, shares acquired before 1st April, 2017 will not be

taxed by Indian authorities.

Domestic TrendsHeadline IIP softened to 0.1 per cent in March 2016 as

against 2 per cent growth in the previous month, despite

a low base of last year. The deceleration in industrial

output was driven by contraction in output of manufac-

turing, mining and capital good sectors. With this, in-

dustrial production for the full year FY16 stood lower at

2.4 per cent as compared to 2.8 per cent in the previous

fiscal. Going forward, we hope that IIP growth would

pick up further as pro-active reform initiatives taken by

the government in recent months coupled with lower

interest rates and a favourable monsoon prognosis

would make a positive impact on investment decisions

and spur a turnaround in demand. Meanwhile, on the in-

flation front, both CPI and WPI indices edged up in April

2016 on the back of higher food prices. On the external

front, merchandise trade deficit narrowed further to

US$4.8 billion in April 2016 - its lowest level in five years

as against the prior reading of US$5.0 billion deficit.

Report in Focus: e-commerce in India - A Game Changer for the economy

E-Commerce has transformed the way business is done in India. With attractive and convenient shopping op-tions at the core of the consumer facing business, the e-Commerce industry offers the power to create inno-vative, sustainable, consistent and seamless shopping experience across all channels. In the last 4 years, while the e-Commerce B2C segment has grown significantly leading to creation of many Unicorns, the focus of the investors going forward seems to have shifted to profit-able growth to achieve a stabilization of the economic model. In this month’s Report in Focus, we present ex-cerpts from a recently released CII-Deloitte Report on ‘e-Commerce in India – A Game Changer for the Econo-my’. It presents the e-Commerce landscape in India with key trends and brings forth the point of view of major stakeholders in the Indian e-Commerce industry. It also highlights the significant challenges faced by these stakeholders and key recommendations that will help strengthen this nascent industry to scale and sustain.

Focus of the Month: Impact of Mon-soons on the Indian EconomyMonsoon remains crucial for the overall growth in the

agricultural sector as majority of the area is still un-irri-

gated. In such a case the dependence of the rural econ-

omy on monsoon cannot be overstated. The pattern in

area sown is completely guided by the variation in the

monsoon season as a bad monsoon directly impacts the

cost of cultivation and makes sowing of large areas un-

profitable for the farmers. Similar trends are observed

in the production and yield of the kharif crops which

are rain-fed in most agricultural states. The total agri-

cultural output in the country plays the role of an im-

portant variable on the supply side as it impacts the raw

material costs for many sectors. Low rural incomes also

act as a dampener to the overall growth momentum in

the economy as the overall demand in the economy is

reduced. Hence, even though the share of agriculture

may have been declining in the GDP over the years, yet

it holds immense importance for the overall stability of

the economy. This calls for an active management by

the government in reducing the dependence of our

economy on monsoons.

ECONOMY MATTERS 6

GLOBAL TRENDS

US GDP Slows Down in 1Q16

The US economy saw a slump in growth, with the headline figure being 2.0 per cent on a yearly ba-sis, in the first quarter of the current fiscal year,

as compared to 2.9 per cent in the same quarter of the previous year. This decline was largely driven by a co-

lossal drop in gross private domestic investment which witnessed a de-growth 0.1 per cent compared to a solid growth of 7.6 per cent in the comparable quarter previ-ous year. While growth in personal consumption expen-ditures also moderated, government consumption ex-penditures and gross investment contributed positively to GDP growth. Growth in both exports and imports declined.

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GLOBAL TRENDS

APR-MAY 2016

Growth in real personal consumption expenditure

stood at 2.7 per cent in the first quarter, as compared to

3.3 per cent in the first quarter of 2015. Expenditure on

durables witnessed softening of growth to 4.1 per cent,

as against 7.3 per cent in the same quarter last year.

Non-durables showed slightly positive improvement in

growth of expenditure to 2.5 per cent, compared with

an increase of 2.4 in the first quarter previous year. Ex-

penditure on services witnessed a slight moderation in

growth to 2.6 per cent compared with a growth of 3.0

per cent previously.

Growth in real non-residential fixed investment con-

tracted by 0.4 per cent in the first quarter, compared

with a growth of 3.9 per cent in the first quarter of last

year.This was largely led by contraction in both invest-

ment in structures and equipment. While the former

contracted further by 4.4 per cent, compared with a

contraction of 1.4 per cent previously, the latter too

contracted by 0.3 per cent, in contrast to a growth of

4.8 per cent in the first quarter in 2015. Real residential

fixed investment provided some respite as growth im-

proved to 10.6 per cent, in contrast to a growth of 8.4

per cent previously.

The federal government consumption expenditure and

gross investment provided some cushioning to the fall-

ing GDP as it improved to 1.4 per cent in the first quarter

of 2016 as compared to 0.4 per cent previously. Both de-

fense and non-defense components reflected positive

contributions. The improvement in growth of state and

local government consumption expenditure and gross

investment stood at 2.2 per cent, as compared with 1.0

per cent in the same quarter last year.

ECONOMY MATTERS 8

GLOBAL TRENDS

Growth of exports of goods and services fell to 0.3

per cent in the first quarter of the current fiscal year,

as compared to a growth of 2.6 per cent previously, on

the back of contraction in export of goods and waning

growth in export of services. This was however accom-

The change in prices for personal consumption expendi-

ture in the first quarter of 2016 stood at 1.0 per cent, as

compared to the 0.2 per cent figure in the first quarter

of 2015. Similar change excluding expenditure on food

at energy stood at 1.7 per cent, in the first quarter of

current fiscal, as compared to 1.3 per cent previously.

Labor markets witnessed a rosy scenario as the total

non-farm payroll employment increased by 160,000 in

April 2016, according to the Bureau of Labour Statistics.

Over the prior 12 months, employment growth had av-

eraged 232,000 per month. Employment gains occurred

in professional and business services, health care and

financial activities, while mining continued to lose jobs.

In April 2016, the unemployment rate held at 5.0 per-

panied by a moderation in imports, contributing favora-

bly to the GDP. Growth stood at 1.2 per cent, in the first

quarter of 2016 as imports of both goods and services

softened, as compared to growth of 6.5 per cent previ-

ously.

According to the Bureau of Labour Statistics, the Con-

sumer Price Index increased 0.4 per cent in April, with

the indices for food, energy and all items less food and

energy rising in April. The index for energy increased 3.4

per cent, with the gasoline index rising 8.1 per cent, and

the indices for fuel oil and natural gas also advancing.

cent, and the number of unemployed persons was little

changed at 7.9 million. Both measures have shown little

movement since August 2015.The number of long-term

unemployed, accounted for 25.7 per cent of the unem-

ployed, which declined by 150,000 to 2.1 million in April.

The labor force participation rate decreased to 62.8

per cent, and the employment-population ratio edged

down to 59.7 per cent.

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GLOBAL TRENDS

APR-MAY 2016

Professional and business services added 65,000 jobs

in April 2016. The industry added an average of 51,000

jobs per month over the prior 12 months. Job gains oc-

curred in management and technical consulting ser-

vices (+21,000) and in computer systems design and

related services (+7,000). Health care employment rose

by 44,000, with most of the increase occurring in hos-

pitals (+23,000) and ambulatory health care services

(+19,000). Over the year, health care employment has

increased by 502,000. Employment in financial activities

rose by 20,000 in April, with credit intermediation and

Following the last Federal Open Market Committee

(FOMC) meeting in March 2016 labor market conditions

have improved further even as growth in economic

activity appears to have slowed. Growth in household

spending has moderated, although households’ real in-

come has risen at a solid rate and consumer sentiment

remains high. The FOMC currently expects that, with

gradual adjustments in the stance of monetary policy,

economic activity will expand at a moderate pace and

labor market indicators will continue to strengthen. In-

flation is expected to remain low in the near term, in

part because of earlier declines in energy prices, but to

related activities (+8,000) contributing to the gain.Fi-

nancial activities have added 160,000 jobs over the past

12 months.Mining employment continued to decline

in April (-7,000). Since reaching a peak in September

2014, employment in mining has decreased by 191,000,

with more than three-quarters of the loss in support

activities for mining. Employment in other major indus-

tries, including construction, manufacturing, wholesale

trade, retail trade, transportation and warehousing,

information, leisure and hospitality, and government,

showed little or no change over the month.

rise to 2 percent over the medium term as the transitory

effects of declines in energy and import prices dissipate

and the labor market strengthens further.

Against this backdrop, the FOMC decided to maintain

the target range for the federal funds rate at 0.25 per

cent to 0.5 per cent. The stance of monetary policy re-

mains accommodative, thereby supporting further im-

provement in labor market conditions and a return to 2

percent inflation.

The FOMC expects that economic conditions will evolve

in a manner that will warrant only gradual increases in

ECONOMY MATTERS 10

GLOBAL TRENDS

the federal funds rate; the federal funds rate is likely to

remain, for some time, below levels that are expected

to prevail in the longer run. However, the actual path

of the federal funds rate will depend on the economic

outlook as informed by incoming data.

On 10th May, 2016, the Protocol for amendment of the

convention for the avoidance of double taxation and

the prevention of fiscal evasion with respect to taxes on

income and capital gains between India and Mauritius

was signed by both countries at Port Louis, Mauritius.

India had in 1983 signed a Double Taxation Avoidance

Treaty with the island nation of just 1.3 million people

which had become one of the biggest single source of

foreign direct investment into India. During April 2000

to February 2011, 42 per cent of foreign direct invest-

ment into India came through Mauritius and Singapore,

according to the Department of Industrial Policy and

Promotion. Nine of the ten largest foreign business or-

ganizations or companies investing in India during this

period were based in Mauritius. India has been trying

to renegotiate the tax pact with Mauritius for several

years to check suspected round-tripping and other trea-

ty abuses. Government had often complained about

the deal’s terms as a chunk of the funds were not real

foreign investment but Indians routing cash through

the island to avoid domestic taxes, a practice known as

round tripping.

India will shut the door on investors using Mauritius

and Singapore to avoid paying taxes in India, starting in

the next financial year, in a move that could also impact

capital inflows.The changes in the tax treaty will com-

plement the government’s efforts to plug tax evasion

and tax avoidance and its fight against black money—

untaxed, unaccounted wealth hidden away by Indians.

Under the earlier bilateral agreement between India

and Mauritius, capital gains from sale of securities have

been taxable only in Mauritius. Thanks to its low 3 per

cent capital gains tax, quality regulatory framework,

professional labor, geographical proximity, cultural af-

finities, and historical ties with India, Mauritius has been

the most attractive conduit for investments into India.

The Double Tax Avoidance Agreement has helped Mau-

ritius in developing its financial services industry while

India has benefitted through FDI and job creation.

The newly signed protocol, however, now gives India

the right to tax capital gains arising from sale or transfer

of shares of an Indian company acquired by a Mauritian

tax resident. In a relief to the existing investors, shares

acquired before 1st April, 2017 will not be taxed by In-

dian authorities. The amended treaty has also provided

a two-year transitionary phase wherein capital gains will

be taxed at 50 per cent of the existing tax rate, and the

full domestic tax rate will be applicable from the fiscal

year 2019-20, provided the limitation of benefit clauses

have been adhered to.

The amended India-Mauritius double taxation avoid-

ance treaty has provided for a limitation of benefit

clause that will ensure that only genuine Mauritius-

based companies get the benefit of the bilateral tax

treaty. Under the amended treaty, only those Mauritius-

based companies that have a total expenditure of more

than Rs 27 lakh in the preceding 12 months will be able

to benefit from the tax treaty.

India-Mauritius Sign Landmark Tax Pact

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GLOBAL TRENDS

APR-MAY 2016

The amended treaty also seeks to subject interest aris-

ing in India to Mauritian resident banks to a withholding

tax of 7.5 per cent in India for debt claims or loans made

from 1st April, 2017. A so-called grandfathering clause—

which provides for an old rule to apply to some existing

cases and a new rule to future ones—has been incorpo-

rated here too.

The Protocol also provides for updation of Exchange of

Information Article as per international standard, provi-

sion for assistance in collection of taxes, source-based

taxation of other income, amongst other changes.

The amendment to the 1983 India-Mauritius treaty,

which will come into force on 1st April, 2017, will also

apply to the India-Singapore treaty, shutting two lucra-

tive investment routes preferred by foreign investors.

The India-Singapore treaty links the capital gains tax re-

gime to that provided in the India-Mauritius treaty.The

changes will have an impact on foreign investors who

route their investments from these two countries to

avoid paying capital gains tax in India. During April 2000

to February 2011, 9 per cent of foreign direct investment

into India came through Singapore, second in position

after Mauritius, according to the Department of Indus-

trial Policy and Promotion. In 2005, the India-Singapore

tax treaty was amended vide a Protocol to provide a

similar capital gains tax benefit to Singapore tax resi-

dents subject to certain conditions (a motive test and

an expenditure test) which was also linked with the

continuity of the benefit under the India-Mauritius tax

treaty.

The proposed change to the India-Mauritius tax treaty

to remove the capital gains exemption would trigger

this Protocol to the India-Singapore tax treaty and

consequentially may impact the capital gains exemp-

tion under the India-Singapore treaty with effect from

1st April 2017. However, the exemption historically avail-

able under the India-Singapore tax treaty for capital

gains on transfer of securities/ instruments other than

shares may continue to be available. The Revenue Sec-

retary has also indicated that amendments to the India-

Singapore tax treaty are also being negotiated though

no details on this aspect are currently available.

There will be no retroactive impact on any investment

made till 1st April, 2017. Sometimes, even a prospective

amendment has a retroactive effect but the govern-

ment has done well to avoid that. With the Singapore

treaty co-joined with Mauritius treaty, those funds that

are purely India-centric will not have any incentive to

route their funds through Mauritius and Singapore. This

will impact private equity funds who invest in unlisted

securities. Portfolio investors investing in Indian stocks

will also be impacted if they sell in less than 12 months

as it will attract short-term capital gains tax.

The grandfathering date of April 2017 and a 50 per cent

concessional rate upto April 2019 augers well and lends

certainty to investors on the applicability of the treaty

as investors have been nervous on the future of the

Mauritius treaty. It would push tax costs for investors

but there is certainty and clarity for investors. In the

medium to long term, it will contribute to attracting in-

vestments.

In a statement by the government, the Protocol will

“tackle the long pending issues of treaty abuse and

round tripping of funds attributed to the India-Mauri-

tius treaty, curb revenue loss, prevent double non-tax-

ation, streamline the flow of investment and stimulate

the flow of exchange of information between India and

Mauritius. It will improve transparency in tax matters

and will help curb tax evasion and avoidance.”

ECONOMY MATTERS 12

DOMESTIC TRENDS

Industrial Production Records a Subdued Performance

Headline IIP softened to 0.1 per cent in March 2016 as against 2 per cent growth in the previ-ous month, despite a low base of last year. The

deceleration in industrial output was driven by contrac-

tion in output of manufacturing, mining and capital goods sector. Decline in mining sector output, the first since June 2015, was unexpected. With this, industrial production for the full year FY16 stood lower at 2.4 per cent as compared to 2.8 per cent in the previous fiscal. In FY17, we expect industrial production to grow at a higher rate as compared to the previous fiscal on the back of policy aided domestic upturn and lower com-modity prices.

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DOMESTIC TRENDS

APR-MAY 2016

In sharp contrast to the subdued performance by indus-trial output in March 2016, core sector output acceler-ated to 16-month high of 6.4 per cent during the month as compared to 5.7 per cent in February 2016, buoyed by a sharp uptick in the output of cement, electricity, fertilisers and refinery products. With this, the cumula-tive growth in 2015-16 stood at 2.7 per cent, lower than 4.5 per cent for the previous financial year.

The number of sectors which registered double-digit growth stood at four in March 2016 from two in the pre-vious month. Electricity generation, which has progres-sively risen since December, registered a growth of 11.3 per cent in March 2016, significantly faster than the 9.2 per cent seen in February. The same is true for refinery products, growth rates for which rose from 2.1 per to 10.8 per cent over the same period. The fertiliser sector

On the sectoral front, output of manufacturing sector, which constitutes over 75 per cent of the index, con-tracted at a rate of 1.2 per cent in March 2016 after mov-ing into the positive territory in February 2016. For FY16 as a whole, manufacturing sector output stood at 2 per cent as compared to 2.3 per cent in the previous fiscal. In terms of industries, twelve out of the twenty two in-dustry groups (as per 2- digit NIC-2004) in the manufac-turing sector showed positive growth during the month of March 2016 as compared to the corresponding month of the previous year. The industry group ‘Radio, TV and communication equipment & apparatus’ grew at

grew at 23 per cent in March 2016, up from 16.3 per cent in February. The cement sector saw a growth of 11.9 per cent in March 2016, slower than the 13.5 per cent in feb-ruary 2016 .

Growth rates for coal however, continued to fall sig-nificantly, from 9.1 per cent rise in January 2016 to a mere 1.7 per cent rise in March 2016. Steel production bounced back in March, rising at 3.4 per cent after the 0.5 per cent contraction seen in the previous month, suggesting Centre’s moves to protect domestic primary steel producers against cheaper imports were starting to have an impact. Output of fertilizers once again re-corded double-digit growth to the tune of 22.9 per cent in March 2016 as compared to 16.3 per cent posted in the previous month. For the past six months (except January 2016) fertilizers has recorded double-digit growth in output.

the highest positive growth of 36.5 per cent, followed by 19.8 per cent in ‘Tobacco products’ and 16.9 per cent in ‘Wearing apparel; dressing and dyeing of fur’. On the other hand, the industry group ‘Electrical machinery & apparatus n.e.c.’ showed the highest negative growth of (-) 36.2 per cent, followed by (-) 15.0 percent in ‘Food products and beverages’ and (-) 9.9 per cent in ‘Publish-ing, printing & reproduction of recorded media’.

Among the use-based classification, capital goods out-put, which is a volatile component continued to remain in negative territory for the fifth consecutive month,

ECONOMY MATTERS 14

DOMESTIC TRENDS

OutlookIndustrial production growth remained subdued in March 2016 due to contraction in output of manufacturing, mining and capital goods sector. With this, for the full year FY16, IIP growth rate came lower at 2.4 per cent as com-pared to 2.8 per cent in FY15. Going forward, we hope that IIP growth would pick up further as pro-active reform initiatives taken by the government in recent months coupled with lower interest rates and a favourable monsoon prognosis would make a positive impact on investment decisions and spur a turnaround in demand. In FY17, we expect industrial production to grow at a higher rate as compared to the previous fiscal on the back of policy aided domestic upturn and lower commodity prices.

albeit its rate of decline has moderated. It contracted by 15.4 per cent in March 2016 as compared to -9.5 per cent in the previous month. For FY16 as a whole, capi-tal goods sector growth declined by 2.9 per cent as compared to 6.4 per cent growth posted in FY15. The dismal performance of capital goods sector shows that private capex continues to remain weak in the economy and hence the Government’s role in capital expenditure becomes crucial to support growth recovery. Union Budget 2016-17 has outlined a series of steps in order to provide a boost to investment in the country.

Consumer durables have been on a strong footing for quite a few months now. After a minor blip in January 2016, the sector’s growth once again galloped to 8.7 per cent in March 2016, albeit a marginal deceleration

as compared to February 2016. This component has re-mained positive for ten months in a row now and has been aided by continuous improvement in sectors such as passenger cars. The weak growth in consumer non-durables pulled down overall consumer goods growth sector to 0.4 per cent during the month. Consumer goods have been positive for a while now but the sec-tor’s performance has mostly been tepid on account of weakness in consumer non-durables. For the month of March 2016, the non-durables sector registered nega-tive growth for the fifth consecutive month to the tune of -4.4 per cent as compared to -4.1 per cent in the Feb-ruary 2016. The weak growth of consumer non-durables is also reflective of the cumulative impact of two con-secutive years of drought and the growing distress in the rural economy.

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DOMESTIC TRENDS

APR-MAY 2016

Both Indices of Inflation Edge up in April 2016

Wholesale Price Index (WPI)-based inflation print turned positive after 17 months, posting an annual gain of 0.3 per cent in April 2016, on the back of a rise in food prices. The increase was broad based with strong se-quential build-up of prices in primary, fuel, and manu-facturing sectors. After a gap of three months, WPI inflation for February 2016 was revised upwards, albeit by a mild 6 bps to -0.85 per cent from -0.91 per cent. A delay in the onset of the monsoon as forecast by the India Meteorological Department (IMD) will extend the seasonal hardening in food prices. Though IMD has forecast that rainfall this year will be above normal. The hardening of WPI inflation has reduced the likelihood of a further interest rate cut by the RBI in June 2016. It is likely to hold the interest rates.

CPI based inflation, the one which the Central Bank tracks in taking its monetary policy decisions edged up to 5.4 per cent in April 2016 from 4.8 per cent in March

Inflation in primary article prices increased to 2.3 per cent in April 2016 from 2.1 per cent in the previous month. This was on account of acceleration in inflation in food articles. The increase in primary food articles in-flation was in tandem with the rise in CPI food inflation seen during the month. Prices of primary food articles witnessed inflation to the tune of 4.2 per cent during April 2016 as compared to high of 3.7 per cent wit-nessed in the last month. Worryingly, prices of pulses

2016 on the back of higher food inflation. Food infla-tion rose to a three month high of 6.2 per cent as com-pared to 5.2 per cent posted in the previous month. Barring cereals inflation (which held steady at 2.4 per cent), milk and prepared meals, all components within the food segment posted an increase. Vegetables infla-tion edged up to 4.8 per cent as compared to 0.5 per cent posted in March 2016. This is in line with the re-cent trend seen in on-the-ground prices. Fruits inflation moved to the positive territory after recording three consecutive months of contraction. Additionally, pulses inflation resumed its sequential upward trend (largely reflective of structural problems) after three months of slight cooling. Core inflation increased to 4.9 per cent from 4.7 per cent posted previously. Upside pressures on core inflation came from a rise in housing & clothing and footwear inflation. Transport and communication inflation rose to 1.7 per cent from 0.9 per cent; thereby pushing up the core inflation.

have continued to remain at an elevated level of 36.6 per cent in April 2016, marking a double-digit inflation in lentils since January 2015. In order to deal with the rising prices of pulses, the government had in October 2015 announced slew of steps including use of price stabilisa-tion fund and imports to cool prices and create a buffer stock. It had also launched a crackdown on hoarders to deal with the price situation. In contrast to the increase in inflation in primary food articles, inflation in non-food

ECONOMY MATTERS 16

DOMESTIC TRENDS

OutlookBoth CPI and WPI indices edged up in April 2016 on the back of higher food prices. CII hopes that the food prices would ease going forward on account of a spate of reforms undertaken by the present government to address the supply bottlenecks and the expectation that monsoon would be normal after two consecutive years of drought. What is notable is that the trajectory of core inflation, which is considered to reflect the demand side pressures in the economy, continues to be sluggish on account of soft crude oil prices and restrained manufacturing inflation.

Trade Deficit at its Lowest Level in 5 years Merchandise exports decelerated further in April 2016, as the exports contracted by 6.7 per cent from a year earlier to US$20.5 billion - declining for the 16th consecu-tive month. Exports contraction remained widespread, with petroleum products, engineering goods, rice, oil meals and yarn posting the steepest declines (on a year-

on-year basis). Meanwhile, tea, jute manufactures and plastic & linoleum were some of the segments that re-corded positive growth. The weak exports performance reflects weakness in global demand as well as steep decline in commodity prices. On a cumulative basis, for FY16 as a whole, exports contracted by 15.8 per cent on

category decelerated to 7.1 per cent in April 2016 from 8.1 per cent in March 2016, while minerals category re-corded deflation during the reporting month for the 21st consecutive month.

Deflation in the fuel group stood higher at -4.8 per cent in April 2016 as compared to -8.3 per cent in the previ-ous month. The deflationary trend in the group con-tinued for the 18th consecutive month. However, the jump in April was led by mineral oils on account of pass through of higher crude oil prices to all its constituents except LPG and lubricants. For instance, excluding tax-es, the prices of petrol and ATF were increased by Rs. 1.4/litre and Rs. 2.8/litre, respectively, over the course of the month. With global crude oil prices recovering

from their lows in recent weeks due to ongoing politi-cal tensions in Venezuela, Libya and Nigeria, we can ex-pect fuel category to record some mild inflation in the months to come.

After recording deflation for 13 consecutive months, manufactured products group recorded inflation to the tune of 0.7 per cent in April 2016 on the back of sharp rise in manufacturing food inflation. Inflation in food products almost doubled to 8.0 per cent from 4.5 per cent in the previous month. Non-food manufacturing or core inflation, which is widely regarded as the proxy for demand-side pressures in the economy came higher at -0.8 per cent during the month as compared to -1.1 per cent in March 2016.

17

DOMESTIC TRENDS

APR-MAY 2016

Merchandise trade deficit narrowed further to US$4.8 billion in April 2016 - its lowest level in five years as against the prior reading of US$5.0 billion deficit. Rate of contraction in both exports and imports moderated sharply during the month. The shrinkage in trade deficit to the tune of about US$20 billion in FY16 to US$117.9

billion mainly came through a fall in net oil trade deficit as oil prices halved, while non-oil trade deficit continued to expand. Though improving domestic competitive-ness through structural reforms is crucial to improve ex-port performance, we believe that can only materialize in the medium-term. In the near-term, a weaker Rupee can act as a catalyst to revive competitiveness.

a yearly basis. In absolute terms, exports amounted to US$261 billion in FY16, thus missing the US$300 billion mark by a big margin.

As per the Commerce Ministry press release, outbound shipments of 16 out of 30 commodities fell in April 2016. Exports of engineering goods, which accounts for over 20 per cent of total exports, declined by 18.9 per cent during the month. Other items like leather & leather products, man-made/cotton yarn and fabric, oil meals and rice also witnessed a decline in exports in April 2016. Iron ore exports rose to US$54.5 million in April 2016, the highest value in 13 months. A rally in global iron ore prices drove up the value of India’s exports. Ex-ports have declined continuously since December 2014 on a y-o-y basis. This is certainly not good news as India aims to take exports of goods and services to US$900 billion by 2020 and raise the country’s share in world exports to 3.5 per cent from 2 per cent now. Exports in the past four fiscal years have been hovering at around US$300 billion.

Worried by the continuous decline in exports, the gov-ernment has raised duty drawback rates for exporters and implemented the interest stabilization scheme in

November 2015. While the increase in duty drawback rates will help exporters recover higher input tax outgo that they pay during the process of making the final product, the interest stabilization scheme will allow ex-porters to receive bank loans at a lower rate of interest.

As per RBI’s Press Release dated 13th May 2016, the trade balance in Services (i.e. net export of Services) for March, 2016 was estimated at US$4.9 billion. The net ex-port of services for April-March, 2015-16 was estimated at US$69.6 billion which is lower than net export of ser-vices of US$76.58 billion during April-March, 2014-15.

Rate of decline in imports stood at 23.1 per cent in April 2016 as against a contraction of 21.6 per cent in March 2016. During April-March FY16, India’s cumulative im-ports stood at US$369.0 billion. Oil imports in April 2016 dipped by 24.0 per cent to US$5.6 billion. Non-oil im-ports too fell by 22.8 per cent to U$19.75 billion. Gold im-ports declined by 60 per cent to US$1.23 billion. Lower gold imports is a reflection of the jewellers’ strike which last till the mid of April. Non-oil non-crude imports re-main subdued, suggesting that the demand condition in the domestic economy remains uneven and subdued.

ECONOMY MATTERS 18

DOMESTIC TRENDS

After touching new lows of 68.8 per US$ in the last week of February 2016, Rupee has recovered some lost terri-tory, albeit remaining more-or-less range bound. It has strengthened by close to 3 per cent by 15th May, 2016 as compared to its multi-year lows in February 2016. Cur-rently, it is trading in the range of 66.0-67.5 per US$. The main reasons for the appreciation of Rupee have been the recovery seen in the global financial markets in recent months which has in turn reduced volatility considerably. Dollar index has weakened, capital flows to emerging market (EM) economies have returned, commodity prices have rebounded, the Chinese Yuan has stabilized and the EM currency basket has appreci-ated over the last two months. Indian Rupee has also benefitted from this trend. The record weakening of Rupee seen in the month of February 2016 was mainly attributable to a sell-off in most emerging market equities and currencies which had triggered outflows from the domestic stock mar-ket. Concerns of another yuan devaluation also kept investors edgy. A weakening Chinese yuan makes prod-ucts of other emerging market countries uncompeti-tive, thereby hitting their exports. Further, concerns that a deepening slowdown in the Chinese economy

will drag global growth also weighed on sentiment. Though since then, economic prospects of China have only improved marginally. The near term data trend from China suggests that its industrial production, fixed asset investments and retail sales were relatively better than expected. Despite that, any one-off devaluation in the Chinese Yuan in the near future remains tail risk event for the domestic currency.One crucial factor which is significant in driving the movement in Rupee against the Dollar in the near future are the capital flows. Capital inflows to EM economies have improved in the last two months. Going forward, the volatility in capital flows is expected to increase in second half of 2016 as the slowdown in EM econo-mies especially China becomes more visible. Timing of the next rate hike by the Fed is another factor that will weigh on capital flows. India’s external sector outlook has improved and given the expectation of strong FDI related flows the financ-ing of CAD is unlikely to be a challenge in FY17. We main-tain gradual depreciation bias for the Rupee in the near future. Medium term challenges with regard to China and the uncertainty regarding the Fed rate hikes remain the key risks to for the domestic currency.

Rupee Trades with a Depreciation Bias

OutlookNothwithstanding the current bout of weakness witnessed in the Rupee against the Greenback, we expect the Rupee to remain stable, going forward. The improvement in CAD, and the comfortable reserve position of the RBI would support the currency. Meanwhile, the risks to our view stem from global uncertainties like one-off devalua-tion in the Chinese Yuan and unanticipated policy moves by the Federal Reserve.

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DOMESTIC TRENDS

APR-MAY 2016

Rajya Sabha Passes Insolvency and Bankruptcy Code 2016In a landmark decision, the Rajya Sabha passed the Insolvency and Bankruptcy Code 2016 in a bid “to pro-mote entrepreneurship, credit availability and balance the interests of all stakeholders”. Once the President signs the legislation, we will have a new bankruptcy law that will ensure time-bound settlement of insolvency, enable faster turnaround of businesses and create a database of serial defaulters. The move is a welcome step as it will help improve efficiency in markets, and aid business and investment sentiment. The new code will replace existing bankruptcy laws and cover individuals, companies, limited liability partnerships and partner-ship firms. It will amend laws including the Companies Act to become the overarching legislation to deal with corporate insolvency.

The key highlights of the Insolvency and Bankruptcy Code 2016 are as follows:

Highlights of the Code

• The Code creates time-bound processes for insol-vency resolution of companies and individuals. These processes will be completed within 180 days. If insolvency cannot be resolved, the assets of the borrowers may be sold to repay creditors.

• The resolution processes will be conducted by li-censed insolvency professionals (IPs). These IPs will be members of insolvency professional agen-cies (IPAs). IPAs will also furnish performance bonds equal to the assets of a company under in-solvency resolution.

• Information utilities (IUs) will be established to col-lect, collate and disseminate financial information to facilitate insolvency resolution.

• The National Company Law Tribunal (NCLT) will ad-judicate insolvency resolution for companies. The Debt Recovery Tribunal (DRT) will adjudicate insol-vency resolution for individuals.

• The Insolvency and Bankruptcy Board of India will be set up to regulate functioning of IPs, IPAs and IUs.

Source: prs india

The Code details out four pillars of institutional infra-structure- insolvency professionals, information utili-ties, adjudicatory bodies and regulator- to be estab-lished to aid the early detection and action to resolve the issue. Further, it allows for a comprehensive reso-lution process to be triggered by either a creditor or debtor.Once the process is initiated, the oversight is provided by insolvency professionals (who also manage the debt-or’s assets during this period). This process can last for a period of 180 days (extendable by another 90 days) and failure to reach a revival plan within this time leads to the commencement of the liquidation process. During this process, no legal action can be taken against the debtor.The Code, noted to be only second in importance to the impending GST Bill, will have a momentous impact, such as:• More productive use of economic resources via

timely detection of unviable businesses.• Banking sector to receive some support as the

Code provides a legal platform for timely recovery of loans and acts as a deterrent to borrowers to de-fault/delay payments.

• Improve ease of doing business and promote en-trepreneurship

• Provide provisions to deal with cross border insol-vencies

• Further, a consolidated reform framework (instead of a multitude of laws) will provide for a greater clarity in law and effectively enable the application of provisions

But implementation will remain the key, as the new code is dependent on the creation of a complementary eco-system including insolvency professionals, informa-tion utilities and a bankruptcy regulator.

ECONOMY MATTERS 20

REPORT IN FOCUS

e-Commerce in India: A Game Changer for the Economy

E-Commerce has transformed the way business

is done in India. With attractive and convenient

shopping options at the core of the consumer

facing business, the e-Commerce industry offers the

power to create innovative, sustainable, consistent and

seamless shopping experience across all channels. In

the last 4 years, while the e-Commerce B2C segment

has grown significantly leading to creation of many

Unicorns. This seems to be resulting in collaborations

and partnerships across the value chain with the aim to

optimize the costs. Simultaneously, the e-Commerce

B2B segment is showing signs of rapid digital adoption

which is likely to feed the significant rise of MSMEs and

entrepreneurs from the Indian hinterland. The growth

of the e-Commerce industry has been triggered by in-

creasing internet and smartphone penetration in not

only metro cities but also in tier two & three cities of

India. Mobile devices are further expected to drive sales

via e-Commerce platforms over the next 5 years. In this

month’s Report in Focus, we cover CII’s and Deloitte’s

report on e-commerce titled ‘e-Commerce in India: A

Game Changer for the Economy’ which was released in

April 2016.

e-Commerce and the Indian economy

The Indian economy has been consistently showing

good signs of growth, with the average GDP growth

rate at 7.5 per cent in 2015-16. The retail sector is show-

ing a promising trend of 11 per cent CAGR, growing from

an estimated size of USD 600 billion and is now expect-

ed to touch USD 1 trillion in 2020. Although, currently

the total e-Commerce spend in India accounts for less

than 2 per cent of total retail spending, e-Commerce

has become a key driver to create new markets in erst-

while unreachable geographies. The Indian consumers

are rapidly advancing towards adopting technology.

While the overall tele-density is a sizeable 81.8 per cent,

the mobile tele-density is also high at 79.8 per cent as

of November, 2015. Additionally, during the same time,

India beat the United States of America to become the

2nd largest market after China, for smartphones with 220

Million users – This was attributable to the availability

of highly affordable smartphones and with easy-to-use

features which helped first-time smartphone users leap-

frog from the desktop/laptop phase.

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REPORT IN FOCUS

APR-MAY 2016

In addition, there is a shift in mobile usage from voice

to data. Mobile internet spend has risen from 54 per

cent to 64 per cent from 2014 to 2015. This is due to an

availability of high-speed 3G & 4G internet connectiv-

ity at affordable prices which has led to an increase in

transactions done via mobile. India’s rank in ease of do-

ing business went up by 12 in just one year due to an

improved regulatory framework thus creating a condu-

cive business-friendly environment. These factors have

positively impacted Private Equity and Venture Capital

investments into the country touching USD 20 billion

in 2015. Majority of these investments have been in e-

Commerce industry.

The e-Commerce industry is expected to form the larg-

est part of the Indian Internet market with a value of

approximately USD 100 billion by 2020. In addition to

transforming and revolutionising the retail sector in In-

dia, it is also facilitating MSMEs to jump the evolution

loop by providing means of financing, technology and

training. Advent of technology enabled innovations

such as Digital Payments, Hyper-local Logistics, Analyt-

ics driven Customer Engagement and Digital Advertise-

ments have enabled the e-Commerce industry to grow

at a much faster rate.

Within the e-Commerce industry, the Gross Merchan-

dise Value (GMV) is an important metric for valuations

especially during the early stages of growth. The major-

ity of B2C e-Commerce companies, globally, despite be-

ing operational for 5-20 years, report low profitability.

The situation in India is no different i.e. a growing GMV

but at an overall loss as the e-Commerce companies

establish themselves. The GMV for B2C segment in In-

dia was approximately USD 16 billion in 2015. This trend

however does not hold true for the B2B e-Commerce

companies which are profitable with greater GMV val-

ues. The Indian B2B e-Commerce market potential was

valued at USD 300 billion in 2014, and is expected to

reach USD 700 billion by 2020. The higher profitability

in the B2B segment is attributed to reasons such as lack

of heavy discounts, greater emphasis on quality rather

than on price, and higher volumes of purchases.

ECONOMY MATTERS 22

REPORT IN FOCUS

Evolving e-Commerce ecosystem (Mergers & Acquisitions)

Like any high-growth sector, the e-Commerce industry has witnessed consolidation in the past 2-3 years. Con-solidation has been taking place in the form of larger e-Commerce companies acquiring smaller companies to either diversify the offerings or to enhance their busi-ness operations. These mergers and acquisitions have largely focused on companies in the logistics, payment solutions and digital advertising space. It is estimated that a total of 930 M&A deals with a cumulative value of USD 26.3 billion took place in India in 2015, of which 259 deals worth USD 2.43 billion pertained to the e-Commerce industry.

Also, many strategic deals took place in the hyper-local, food-tech and real estate listing segments. In yet an-other record of sorts, the PE/VC investments reached an all-time high in 2015 at USD 20 billion. The key sec-tors in which investments were seen were Information Technology with 666 deals of value USD 4.49 billion, fol-lowed by consumer goods with 280 deals worth USD 4.69 billion. The majority of these investments have been concentrated in e-tailing (70 per cent of invest-ment), followed by online classifieds (17 per cent) and lastly online travel & taxi (9 per cent). However, with growing importance and push from investors for profit-ability and early break-evens, the leading e-Commerce

companies are aiming to cut down their burn rates by as high as 50 per cent. This aggressive drive comes at a point when capital is becoming scarce for top venture-backed online retail companies. There is also a reduction in the dependence on discounts as a growth strategy. Investors are currently focussing on start-ups that may scale slowly but have sound fundamentals and strong business models. In essence, these start-ups should have the ability to survive any scenario for e.g. reces-sion etc. Therefore, investors today are interested in start-ups in sectors like health care and education which by the nature of their offerings will provide sustainable models and create legacy firms.

Key trends driving e-Commerce in India

Trend 1. Government initiatives gaining mo-mentum

The Government of India has been proactive in em-bracing and leveraging e-Commerce digital platforms to transform and organize traditionally offline markets such as those of agricultural produce, etc. The Govern-ment has launched an e-market platform to connect farmers with the mandis of various states to sell agro-commodities. Besides these, flagship initiatives such as Digital India, Start-up India, Innovation Fund, Skill India, etc. are contributing to the growth of e-Commerce in-

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APR-MAY 2016

dustry. Enumerated is a brief description of these initia-tives:

• Digital India: One of the highly ambitious and big-gest ever conceived projects is Digital India which focuses on transforming India to a digitally empow-ered and knowledge economy. The three key areas that have identified are to Build Digital Infrastruc-ture as a Core utility, enable Government Citizen Services on demand and Digital Empowerment of citizens.

• Start-up India: This program intends to build a strong eco-system for nurturing “innovation” and “Exponential Start-ups”. The Government of India has taken steps such as providing funding support through a “Fund of Funds” (with a corpus of INR 10,000 crores); “Start-up India Hub” (a single point contact for the start-up ecosystem), tax exemp-tions for the initial 3 years; faster exit for start-ups besides many others.

• Make in India: Aimed at India’s industrial develop-ment, the key steps taken by the Government of India are: Improving the business environment in the country, enabling manufacturing and allowing FDI in key sectors. Key pillars of this program worth noting are “research and innovation” and “a con-ducive business environment”.

• Skill India: To bridge the shortage of skilled man-power, the Government of India has set a target to train 40.2 crores people under the new National Policy for Skill Development by 2022. The initiative includes National Skill Development Mission, Na-tional Policy for Skill Development and Entrepre-neurship 2015.

Trend 2. Increase in internet penetration

The e-Commerce industry in India has been propelled by the rise in internet penetration due to major improve-ments in the telecom infrastructure. With 3G and 4G services making way into India along with declining data tariffs, spend on internet data is growing significantly. While India ranks the lowest in Asia when it comes to internet speed, data rates in India are 2X cheaper than in China and 3X cheaper than in the US. Govern-

ment schemes such as National Optical Fibre Network (NOFN) can significantly increase internet penetration in the rural communities as well as provide a means to e-Commerce companies to tap the huge market poten-tial there.

Trend 3. Growth in smartphone adoption driving mobile based e-Commerce sales

Smartphones are outpacing feature phones and are ex-pected to exhibit massive growth in the coming years. The widespread adoption of smartphones is being pro-pelled by several factors such as – high competition leading to low prices, prevalence of internet enabled services and ease of accessibility to content. According to a report by venture capital firm KPCB, India has the highest share of mobile based e-Commerce sales glob-ally at 41 per cent. The leading e-Commerce companies state that almost 70-75 per cent of their online traffic comes from mobile phones and thus higher revenues are coming from mobile applications.

Trend 4. Evolution of new payment solutions

Cash-on-Delivery (CoD) remains a popular mode of pay-ment for Indian e-Commerce transactions. Cash trans-actions result in high administration costs even for the e-Commerce companies which reduces their margins. Hence, new digital payment solutions are evolving to address these challenges. Further, the Indian govern-ment’s initiative to extend banking facilities to its previ-ously unbanked citizens through the ‘Jan Dhan Yojna’ scheme has added significant number of debit cards (over 110 million) thereby providing these customers access to electronic payments. There has been launch of electronic wallets and also digital payment products from traditional banks for faster check-in and check-out of e-Commerce transactions to ease the payment pro-cess in e-Commerce.

The launch of Unified Payments Interface (UPI) by Re-serve Bank of India is aimed to transform mobile bank-ing. UPI is expected to benefit the e-Commerce industry as well by reducing the number of failed e-Commerce transactions due to complicated transaction flows in the current payment systems. The implementation of UPI will enable the e-Commerce delivery staff to collect money electronically for even CoD transactions. For

ECONOMY MATTERS 24

REPORT IN FOCUS

early adaptability, several e-Commerce companies have already started building applications that will facilitate mobile payments on UPI. However, the challenge will be to balance safety, integration and mass-adoption.

Trend 5. Logistics space witnessing partner-ships with hyper-local companies and India Post

Customers are getting accustomed to next-day deliv-ery of products. Due to challenges in terms of handling huge volumes of delivery, return orders and higher standards of customer service, the industry has seen rise of several third-party logistics service providers (3PLs) who handle last-mile deliveries. There is an in-creasing incidence of partnership of e-Commerce com-panies with the 3PLs in order to reach the hinterlands of the country mainly in tier 2 and 3 cities. Also leading e-tailers have set up their own logistics arms for greater control on deliveries and for enhanced customer expe-rience. India Post with its extensive reach of 19,000 pin-codes and 1,54,725 post offices across the country has set-up dedicated processing centres to handle last-mile deliveries of the e-Commerce companies.

Trend 6. GST expected to enhance the growth of e-Commerce

GST will enforce a single comprehensive indirect tax regime that will be applicable across all states on the supply of goods and services. The implementation of GST is expected to subsume central excise duty, service tax and additional customs duty at the central level and VAT, CST, entry tax etc. at the state level. GST will en-hance operational efficiency of the e-Commerce indus-try in the enumerated ways:

• Transparency and simplification of taxes across the borders in India

• Elimination of the incidence of double-taxation and improvement in the efficiency of supply chain

• Logistics service providers can leverage seamless hub-and-spoke models for delivery resulting in low-er costs and fewer bottlenecks. Warehouses can be set-up keeping in mind business objectives rather than for reduction in incidence of tax

Key Recommendations

1). Increase internet penetration: At the heart of e-Commerce lies the ability to not just stay connected online but also to do so at a fast speed. India ranks relatively lower when compared to its Asian coun-terparts, the U.S. and China in respect to internet speed. Additionally, many parts of rural India are yet to receive broadband connection. While efforts have been made in this direction, the Government plans to facilitate Internet connectivity for over two lakh Gram Panchayats. PPP (Public Private Partner-ship) projects in this space would become instru-mental in enhancing the reach of the Internet to rural parts of India.

2). Seamless integration between Government de-partments and agencies: An integrated and coordi-nated approach is much needed between different government agencies, such as policy-makers, In-come Tax, Sales Tax, Direct Tax, Excise, and Regis-trar of Companies, to ensure faster turnaround, ef-ficiency and transparency for all stakeholders in the e-Commerce ecosystem. With instances where one state is levying a flat entry tax on all e-Commerce consignments and another state barring taxi-hail-ing companies from dynamic surge pricing, the Government is likely to limit the business models of e-Commerce players. The Government should en-sure a uniform regulatory and tax structure across states to prevent such instances from dampening the growth of e-Commerce in India.

3). Faster implementation of initiatives: The Gov-ernment has already launched several initiatives such as Digital India, Skill India, Innovation Fund and Start-up India. However, the success of these initiatives lies in speedy and result-oriented imple-mentation. Thus, faster implementation of these initiatives would have a positive impact on the e-Commerce industry.

4). Build a conducive environment: A consultative ap-proach with periodic interactions with all stakehold-ers, trade bodies and industry associations such as CII, will help in building a uniform and favourable e-Commerce ecosystem. Government should pro-vide a level-playing field for Public and Private Sec-

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APR-MAY 2016

tor Enterprises as well as all models of e-Commerce platforms.

5). Training and Skill development: e-Commerce has already become an attractive destination for bud-ding entrepreneurs and MSMEs. This has gener-ated both blue-collar and white-collar employment opportunities in India. Further, functions such as logistics, analytics, pricing, inventory management, transportation, last-mile delivery etc. are unique and highly specialized. Lack of skilled manpower in these areas is one of the bottlenecks faced by the e-Commerce industry. To address this challenge, joint programmes by the private and government sector would be instrumental to ensure a steady flow of trained talent who have the ability to quickly adapt to the dynamic growth phases experienced by this industry.

Towards institutionalizing this recommendation, strategic alignment between the Central and State government is imperative to strengthen this talent development initiative. For example, e-Commerce private players could feed into the Skill India initia-tive of the Government to make it more relevant for industry while the State governments identify potential talent pockets in their area of influence to feed the raw potential into this programme.

6). Follow a procurement process to appoint Pub-lic Sector Enterprises (PSEs): A process whereby PSEs and private sector companies are selected us-ing bids or tenders to ensure that the public sector and the public exchequer get the best service pos-sible should be enforced. This will benefit the B2B e-Commerce companies.

7). Create customer and sellers scoring database: A consultative approach with participation from all stakeholders in the e-Commerce industry should be encouraged to come up with a scoring database of customers and sellers. Stakeholders should de-termine key scoring parameters based on previous online shopping behaviour for buyers. Similarly, scoring can be assigned to merchants based on their quality of products delivered, etc. The scoring mechanism will discourage the abuse and fraud in-

stances from both buyers and sellers.

8). Develop robust infrastructure: India needs a deep-er and wider network through efficiencies in road, rail, sea and air transportation. Better road connec-tivity, shorter turnaround time at sea ports; and a resilient railway service ecosystem will enhance ful-filment and last-mile deliveries for e-Commerce.

9). Enable sharing of railway containers: To strength-en logistics in India and to reap cost benefits in the railway freight system, sharing of freight containers should be allowed. This would enable e-Commerce companies to find a collaborative approach to use the current railway freight network.

10). Promote digital modes of payment: CoD is a ma-jor portion of e-Commerce transactions today. This results in risks of carrying cash and inefficiencies in cash lifecycle management, thus digital payment though credit/debit cards, net banking, wallets etc. should be promoted. Customers could be incentiv-ized to promote payments via digital mode. Launch of the Unified Payments Interface (UPI) is likely to address CoD challenges.

11). Optimize Reverse Logistics: Technology-enabled efficient solutions need to be developed to man-age the complex framework of reverse logistics. E-Commerce players should consider differential pricing for online shopping to minimize instances of returned good.

12). Facilitate easy movement of goods across States: To ensure faster delivery of goods across the coun-try, there needs to be an efficient mechanism in place at border check posts and railway cargo cen-tres, which allows for a thorough yet speedy clear-ance of e-Commerce consignments.

13). Adopt smart technology: Technology-enabled so-lutions such as apps, low-cost hardware devices, e-signature of customers etc. could be leveraged to reduce dependencies on paper-based fulfilment. Also, technology-enabled solutions across the lo-gistics supply chain would reduce turnaround time and enhance traceability of goods-in-transit.

ECONOMY MATTERS 26

REPORT IN FOCUS

Conclusion

Indians are known for their “street smart” frugal inno-

vative mind-set that enables them to find solutions to

seemingly impregnable challenges despite the prevail-

ing constraints. This is the same “innovative instinct”

which is making Indian entrepreneurs embrace Digiti-

sation, Analytics and Technology to develop platforms

and deliver products & services to the end customer

– thus creating a new online buying behaviour. In this

context, India’s retail opportunity is substantial and

spurred by several factors such as the demographic

dynamics (hyper-connected young population, rising

standards of living and upwardly mobile middle class),

deeper internet penetration, explosion of social-me-

dia platforms and increased smartphone penetration.

Thus, a significant growth of e-Commerce is imminent

in the next two years.

From an investment perspective, considerable funding

in the e-Commerce ecosystem has led to emergence of

new business models across B2B, B2C, Logistics Service

Providers, Payment Wallets, Digital Advertising and

Analytics. These investments have enabled the e-Com-

merce companies to leverage leading technology and

related practices to reach out to millions of new online

customers by delivering services more effectively and

efficiently.

The Government of India (GoI) policymakers are try-

ing to develop a conducive regulatory framework and

a level playing field for all stakeholders in the ecosys-

tem. In the recent guidelines issued by Department of

Industrial Policy & Promotion (DIPP), 100 per cent FDI in

B2C e-Commerce marketplace model has been allowed.

Additionally, DIPP has clearly defined e-Commerce, mar-

ketplace and inventory based models. Thus, at a stage

when India is rapidly becoming a digital economy, the

role of the government is critical to enable a condu-

cive and sustainable environment for the entire e-Com-

merce ecosystem. The recent Government Initiatives

such as Digital India, Make in India, Start-up India, Skill

India, Innovation Fund and e-market platform for agro-

commodities are positive steps in this direction.

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FOCUS OF THE MONTH

Impact of Monsoons on the Indian Economy

APR-MAY 2016

Introduction

There is no gainsaying the importance of monsoon for an agrarian economy like India. The Indian economy still remains a gamble on monsoons as Lord Curzon once fa-mously remarked. It is a common notion that monsoon rains greatly impact the health of the economy. Good monsoons correlate with a booming economy while weak or failed monsoons (droughts) result in wide-spread agricultural losses and substantially hinder over-all economic growth. Although the extent of the impact on the overall economy may have moderated over the years, it could still shave off a few basis points from GDP growth.

The Indian economy has faced two consecutive droughts in the last two years, thus impacting agricul-tural production severely as despite a significant in-crease in area under irrigation over the years, almost 55 per cent of total cultivable land is still un-irrigated. The drought years of 2002-03, 2009-10 saw food-grains pro-duction declining by 15 per cent and 7 per cent respec-

tively. The recent drought of 2014-15 too saw food-grain production declining by 5 per cent. Additionally, growth in food grain production has lagged behind population growth for the past 20 years. Over 1990 to 2012, food-grain production grew annually by 1.6 per cent com-pared to an average annual population growth of 1.9 per cent. Deficient monsoons tend to exacerbate this demand-supply mis-match further.

The industrial sector too is hit hard in the event of defi-cient monsoons. While good monsoon ensures higher income at the hands of the rural population that keeps demand buoyant, a bad one can hurt the FMCG sector, by way of bad debts in loans, non -servicing of interest and firming-up of agri-based raw material prices. The push to inflation due to poor rainfall can also result in declining consumption expenditure of households on consumer durables like TV, refrigerator, AC etc, which in turn has an adverse impact on the industries produc-ing these goods.

In this article, we will discuss the various aspects of im-portance of a normal monsoon for an agriculture de-pendent country like India and also present measures to reduce its dependence on monsoon going forward.

ECONOMY MATTERS 28

FOCUS OF THE MONTH

Key Trends and Impact of Deficient Rainfall

This year the occurrence of normal monsoons was ex-

tremely pivotal for the economy given the fact that it

has been marred by two consecutive droughts.For the

second year in a row, India witnessed a deficient mon-

soon in 2015-16. In June 2015, the Indian Meteorological

Department (IMD) had forecast 12 per cent shortfall in

rains, but the actual deficit turned out to be 14 per cent.

It is observed that while the severity of the drought has

escalated over time, and the incidence has increased

rendering agriculture more vulnerable to the vagaries

of monsoon.

The gravity of the situation could be understood from

the fact that one of the most prosperous state, Ma-

harashtra, has been hit by a severe drought this year.

Maharastra government has declared drought in 11,962

villages in Vidarbha region, taking the total number of

villages to be declared drought-hit to 27,723, nearly half

of the 43,000 villages in the state. According to govern-

ment estimates, around 330 million people — a quar-

ter of India’s population — have been affected by the

drought this year, which is only expected to become

more severe as temperatures rise across the country

during the summer.

Behind poor monsoons in India in the last few years, has

been an effect called El Niño. An El Niño condition oc-

curs when equatorial Pacific waters become unusually

warm. It can change ocean and wind currents across

the globe, wreaking havoc. It alters rainfall patterns and

can weaken or delay the monsoon. In the last decade,

it was one of the factors responsible for two of India’s

most severe monsoon failures (2002, 2009 and 2014).

However, an El Niño effect does not necessarily imply

monsoon failure in India. Since 1991, of the eight times

that an El Niño condition was experienced, only three

years had serious monsoon failure leading to a drought

situation.

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Impact of Deficient Rainfall on Agri-cultural Sector

India’s agricultural practices continue to be backward

in nature and make use of less sophisticated techniques

which increase the sector’s reliance on environmental

factors like the onset of monsoon. Even after rapid

technological advancement in some parts of the coun-

try, the agricultural sector is still largely dependent on

the goodwill of the rain gods. The lack of growth in capi-

tal formation in agriculture has stifled the growth rate

of the sector. One needs more investments, especially

in water, agri-R&D, farm mechanisation, etc. But un-

fortunately, the gross capital formation in agriculture,

which was 18.3 percent of agri-GDP in 2012-13 fell to 14.8

per cent in 2014-15. But much of this investment, more

than 80 per cent came from the private sector. Private

sector investments were on the increase when global

and domestic prices of agri-products were on the rise.

But now with falling prices, this is slowing down too,

which will hit productivity adversely.

Figure 2 captures the rain gap, defined as the percent-

age deviation from the long- period average (LPA) vis-

à-vis agriculture growth in the last decade. The year is

2009-10 was particularly bad year in terms of annual

rainfall received hence agricultural growth was anemic

at 0.8 per cent. The last two years of poor monsoons,

saw average agriculture growth decelerating sharply to

0.5 per cent as compared to robust 4.2 per cent growth

in 2013-14.

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The impact of poor monsoons on agricultural produc-tion is enormous as despite a significant increase in area under irrigation over the years, almost 55 per cent of total cultivable land is still un-irrigated.Largely sowing takes place in the early days of the monsoon, in the month of June and early July. This entails that the im-pact of a bad monsoon is immediately felt by the farm-ers which could possibly continue well into the next season.

As figure 3 shows periods of excess rainfall are direct-ly correlated with periods of rising total food grains

The cost of cultivation of various crops also rises dramat-ically with a deficient monsoon and hence a bad mon-soon impacts the profitability of agriculture and makes sowing of a larger area economically unviable. The area sown also shows a pattern closely related to the varia-tion in monsoon. When farmers have gloomy expecta-tions about monsoon due to deficient rains, they sow a lesser amount of area in order to reduce their vari-ous input costs. Figure 4 also shows that the drought year of 2009-10 saw a fall in the area sown by 1 million hectares which rebounded in 2010-11 with an increase

output in a given year. A less than normal southwest monsoon in 2014 and 2015 not only affected the kharif crop production in India but also the rabi harvest, pull-ing down the foodgrain production estimate in 2014-15 (July-June) and 2015-16 to 252 million tonnes, the lowest in the last three years as compared to healthy foodgrain production to the tune of 265.57 million tonnes record-ed in 2013-14.This shows the extent to which the food grain output of the country is dependent upon the mon-soons as majority of the farmers still don’t have access to sophisticated irrigation facilities.

of 5.33 million hectares on account of excess rains.For the year 2013-14, which experienced rainfall in excess of LPA, the area sown was 126.04 million hectares, show-ing an increase to the tune of roughly 6 million hectares over the 2012-13 figures. Similarly, in sub-normal rainfall years of 2014-15 and 2015-16, the area sown had declined by 17 per cent and 2.1 per cent respectively on year-on-year basis. A decline in area sown under crops in turn exacerbates the demand-supply mis-match, thus exert-ing upward pressure on food prices.

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Impact of Poor Monsoons on Food PricesDeficient monsoon rainfall has an adverse impact on the overall production of food, arising from those crops which are largely rain fed in India and also due to reduc-tion in area under cultivation. This in turn puts pressure on prices resulting in high food inflation. As observed in 2009-10, drought resulted in food grain production declining by 7 per cent and WPI food inflation (primary + manufacturing) concomitantly increasing by a whop-ping 14.5 per cent. Though, in the last two years, when we had witnessed sub-normal monsoons, WPI food in-flation did not increase by large magnitude (Figure 5), mainly due to the existence of large stocks of grains and falling global oil prices which further reduced input and transportation costs substantially.

Rising food inflation is a concern for India, given that an average Indian spends nearly 50 per cent of her total monthly expenditure on food. The trend growth rate of the nominal household expenditure (not adjusted for inflation) between 2000 and 2013 was highest for meat, eggs and fish (10.47 per cent), followed by pulses (10.06 per cent), fruits and vegetables (9.57 per cent) and, milk and milk products (9.52 per cent). Consumption pat-terns in India have diversified over time shifting from cereals to high value protein-rich commodities such as fruits & vegetables, milk & dairy products, meat, eggs, fish and pulses. The increase in nominal expenditure in such protein-rich food items can be attributed to the changing consumption patterns as also to rising prices, representing demand-supply mis-match.

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This fiscal, though food inflation (both in CPI and WPI) so far has remained relatively subdued, the continuance of this trend will largely depend on whether or not we are able to see a normal monsoon this year. However, it is interesting to point out that, out of all food com-modities; inflation in pulses has increased sharply in the last few years (Figure 6). In the last decade (2004-05 to 2014-15), while overall WPI inflation rate fell to 6.3 per cent, pulses inflation has been much higher at an aver-age of 9.4 per cent. Such high rate of inflation in pulses

is not desirable for a country like India where pulses are second most important part of diet after cereals and an average Indian spends nearly 5 per cent of his food expenditure on pulses. Pulses production is rain-dependent as barely 16 per cent of total pulses area is covered by irrigation, making the crop highly vulnerable to monsoon shocks. Two consecutive monsoon shocks in 2014-15 and 2015-16 affected the kharif season output, thus negatively impacting overall pulses production. Hence, the importance of a normal monsoon this year is very critical.

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2016: A year of Normal Monsoon after Two Years of Drought

The seasonal rainfall during the forthcoming monsoon is likely to be 106 per cent of the Long Period Average (LPA) with a model error of ± 5 per cent. The LPA of the seasonal rainfall over the country as a whole for the period 1951-2000 is 89 cm. Monsoon is considered normal if rain during the June to September season is 96-104 per cent of the LPA. The forecast is with model error of five per cent.

The India Meteorological Department (IMD) released the long range forecast for the 2016 southwest monsoon season rainfall on 12th April, 2016. This is good news especially after two consecutive years of drought. Several reasons underlie the IMD’s optimism. Most importantly, it hinges on a waning El Nino — a global, meteorological phenomenon that’s associated with a warming of the waters of Central Pacific and correlated with droughts in In-dia — and the historical observation that 7 out of 10 years, in the last century, that followed an El Nino saw normal or above normal monsoon rains in India. IMD has said that El Nino will be replaced by the more favourable La Nina, which will aid in the even distribution of the South West monsoon.

Private agency, Skymet Weather has also forecasted monsoon 2016 to remain above than the normal at 105 per cent (with an error margin of +/-4 per cent) of the long period average (LPA) of 887 mm for the four-month period from June to September.

The five (5) category probability forecasts for the Seasonal (June to September) rainfall over the country as a whole is given below:

In further update, IMD has said that the onset of the southwest monsoon over Kerala will be delayed by a week. In a statement, the IMD said the statistical model forecast it uses suggests that the monsoon onset over Kerala is to be delayed slightly and is likely to set over Kerala on June 7, with a model error of plus or minus four days.

India Meteorological Department will issue the update forecasts in June, 2016 as a part of the second stage fore-cast. Along with the update forecast, separate forecasts for the monthly (July and August) rainfall over the country as a whole and seasonal (June-September) rainfall over the four geographical regions of India will also be issued.

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Though over the years the dependency of Indian econo-my on monsoons has reduced, still due to lack of proper irrigation facilities across all the regions, every year, IMD’s monsoon forecast is a closely monitored event as fortunes of many Indian companies are dependent on its prognosis of normal monsoons. There is still a long way to go before dependence on monsoons is com-pletely eliminated. Some steps which will help in reach-ing that scenario are enumerated below:

• Expand irrigation cover: In India, poor irrigation cover exposes agriculture to shocks from uneven rainfall. At an all India level, irrigation covers only 47 per cent of the total cropped area, exposing the rest to monsoon shocks. The combined spend-ing of Centre and States on irrigation has been a mere 2 per cent of their total spending in the last five years. However, in the last two Union Budgets, government has laid special emphasis on improving and expanding the irrigation cover in the country. In Union Budget FY16, the government allocated Rs 50 billion to support micro-irrigation and Pradhan Mantri Krishi Sinchai Yojna (PMKSJ). Continuing on these good steps, in the Union Budget FY17 too, Finance Minister Arun Jaitley further announced a host of measures to improve the irrigation facilities in the country. An allocation of Rs 17,000 crore was made towards Accelerated Irrigation Programme Benefit (AIPB) scheme. Further, it was announced that Pradhan Mantri Krishi Sinchai Yojana will be implemented in mission mode where 28.5 lakh hec-tares will be brought under irrigation. Under it 89 ir-rigation projects, which were languishing for a long time, will be fast-tracked. More of such spending needs to be encouraged, which will go a long way in drought proofing the economy.

• Creating incentives for adoption of advanced tech-

nologies, completion of irrigation projects: To-gether with the much awaited agricultural reforms, there is a need to render agriculture more resilient and hence reduce its dependence on monsoons.

Creating the right incentives to adopt advanced technologies like drip irrigation, develop drought resistant quality of seeds, promote rainwater har-vesting will be important. About 75 per cent of the public investment in agriculture goes into medium and large irrigation projects, many of which are in-complete or under progress. These projects need to be completed to augment irrigation available for agriculture.

• Revamp cropping patterns: It is necessary to push for revamping the cropping patterns according to the agro climatic regions, as is being promoted by the National Food Security Mission, to help efficient use of natural resources and also lessen the impact of monsoon deficiency on crop production. While cereal production can move to water abundant re-gions as envisioned by the Second Green Revolu-tion in eastern India, production of pulses which are less water intensive can be promoted in drought prone areas. Further intercropping and multiple cropping need to be promoted. Such measures can prevent the absolute toll on production of certain crops in the event of failure of rainfall. In addition, adequate price incentive and procurement from those regions can rightly incentivize farmers to pro-duce such crops.

• Agriculture Research: Agriculture research is need-ed to develop drought resistant and low water re-quiring crops. It is also needed to evolve creative, cheap and practicable methods of water conserva-tion and getting ‘more crop per drop’. This will also reduce dependence on monsoon rains.

• River’s Water Linking Project: The project envis-ages transfer of water from the surplus river basins to ease the water shortages in Western and South-ern India while mitigating the impact of recurrent floods in Eastern India. The project would entail building 30 links and some 3000 storages to con-nect 37 Himalayan and Peninsular rivers to form a gigantic South Asian water grid.

How to Reduce Dependence on Monsoons: The Way Forward

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• Micro Measures Needed to Reduce Dependence: These measures are vital for better micro water management by all citizens, farmers and societies. Major methods to reduce dependence on monsoon rains are:

a. Rain water harvesting

b. Drip Irrigation

c. Sprinkler Irrigation

d. Irrigation only in hours of darkness

e. Recharging the groundwater

• Increase Government spending to improve irriga-

tion facilities: India has approved spending of 500 billion rupees ($7.9 billion) over five years to ex-pand irrigation in rural areas to boost crop produc-tivity and it also plans an online agricultural market to help farmers get better prices for their produce. A total of 53 billion rupees has been allocated for the irrigation project in the current fiscal year end-ing on March 31, 2016

ConclusionMonsoon remains crucial for the overall growth in the agricultural sector as majority of the area is still un-irrigated. In such a case the dependence of the rural economy on monsoon cannot be overstated. The pattern in area sown is completely guided by the variation in the monsoon season as a bad monsoon directly impacts the cost of cultiva-tion and makes sowing of large areas unprofitable for the farmers. Similar trends are observed in the production and yield of the kharif crops which are rain-fed in most agricultural states. The total agricultural output in the country plays the role of an important variable on the supply-side as it impacts the raw material costs for many sectors. Low rural incomes also act as a dampener to the overall growth momentum in the economy as the overall demand in the economy is reduced. Hence, the share of agriculture may have been declining in the GDP over the years yet it holds immense importance for the overall stability of the economy. This calls for an active management by the government in reducing the dependence of our economy on monsoons by sorting out issues like - lack of proper irrigation, inadequate credit and insurance facility, inefficient disposal of subsidies and the lack of growth in capital formation in agriculture, which plague the agricultural sector and make it vulnerable to the vagaries of the monsoon.

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Growth and Job Creation- Certain Revelations

Recent media reports mention that the GDP growth has not created enough jobs on the basis of the employment surveys conducted by CARE

ratings, Labour Bureau etc. Employment data in India is not available on real-term basis.

The comprehensive data sources are the Employment-Unemployment Surveys conducted by the National Sample Survey Organisation (NSSO) once in five years, the Census of India and the Economic Census, the pe-riodicity of which is decennial. Apart from these is the short-term surveys viz; the Quick Employment Survey of select eight labour-intensive sectors done every quarter and the Annual Employment-Unemployment Survey done by the Labour Bureau, Ministry of Labour & Employment. But the sample size of these Surveys is relatively small. Besides, the Ministry of Statistics & Pro-

gramme Implementation publishes the Annual Survey of Industries which provides information on employ-ment in the organized manufacturing sector. The CARE ratings study is based on information furnished by 1000 plus companies covering the industry and service sec-tors for the period from 2011-2015.

The latest available data on employment from some of the surveys mentioned above relate to the period around 2013-14. A comparative analysis of the findings of the different studies was undertaken to see for any compatibility of the results as each of the study has its limitations.

As per the Sixth Economic Census 2013-14, in the non-agricultural sector maximum employment was created in manufacturing with 30.36 million workers or 28 per cent followed by retail trade with 27.19 million workers or 25 per cent and education with 10.60 million workers or 9.8 per cent. These three sectors together account-

Ms A. SrijaDirector, NITI Aayog

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ed for 63 per cent of the total employment in the non-agriculture sector. Other sectors which showed some employment potential were accommodation and food services (5.6 per cent), transport (4.7 per cent) and hu-man health & social work activity (3.2 per cent). The IT sector as per the Economic Census was able to gener-ate only 18.56 lakh jobs in 2013-14.

The 27th Quarterly Quick Employment Survey (July–Sep-tember, 2015) conducted by the Labour Bureau covers eight sectors viz; Textiles including apparel, Leather, Metals, Automobiles, Gems & Jewellery, Transport, IT/BPO and Handloom/Powerloom. According to the lat-est Survey results for the period covering from quarter ending June 2015 to quarter ending September 2015, the increase in employment was 1.34 lakhs. The highest increase was recorded in the IT/BPO sector by 58,000 followed by 48,000 in metal, 28,000 in textiles includ-ing apparel, 3000 in automobile and 1000 in transport sector. The decline was observed in gems & jewellery, leather and handloom/powerloom sector. A reference to the earlier quick employment surveys covering the period 2013-14 shows that for the period from April 2013 to March 2014 which covers four quarterly surveys, the net increase in employment was 2.76 lakhs. [April-June

The latest available data on the Annual Survey of In-dustries is of the period 2013-14. As per the ASI data, the total number of persons engaged in the 28 sec-tors covered in the survey were 13.5 million in 2013-14, 12.9 million in 2012-13 and 13.4 million in 2011-12. Of the 13.5 million jobs that were created, the major contribu-tors were- food products (12 per cent), textiles (11 per cent), wearing apparel (7 per cent), basic metals (7 per-cent) and other non-metallic minerals (7 per cent). The ASI data does not cover the service sector. Therefore it does not capture the employment created in the IT/BPO, transport or trade sector.

2013 (0.86 lakh), June-Sep (1.43 lakh), Oct-Dec (0.83 lakh), Jan-March (-) 0.36 lakh]. A perusal of the Quick Employment Survey results from the 1st - 27th shows that except for the period 2008-2009 when there was fall of 5 lakh jobs as per the first survey and an increase of 6 lakh jobs as per the fifth survey covering the period Oct-Dec 2009, the overall increase in employment across sectors was usually in the range of 0.30 lakh to below 2 lakh. The sample size covered in each survey may also have its impact on the employment figures.

According to the Report of the Employment-Unem-ployment Survey 2013-14 Volume-I, 50.5 per cent of the workforce were self-employed, 31.1 per cent worked as casual labour, 15.4 per cent as wage/salary earners and 2.9 per cent as contract workers. The sectoral distribu-tion of the workers (Table-1) shows that agriculture sec-tor is still the major provider of employment, though its share is declining. The proportion of workforce enter-ing the secondary sector comprising of manufacturing and construction has seen an increase from 19.3 per-cent in 2011-12 to 22.4 per cent in 2013-14 and the tertiary sector comprising of the trade, transport, IT sector etc also increased from 26.9 percent to 29.3 per cent during this period.

In the survey done by CARE Ratings on Employment in Corporate Sector about 1072 companies were covered, representing manufacturing, construction and service sector. In these 1072 companies, employment increased from 4.5 million to 4.8 million between 2012 and 2015. The sector wise distribution of employment in the 1000 plus companies over the last 4 years (2011-2015) shows that the IT sector recorded maximum growth in em-ployment with a CAGR of 12.7 percent followed by finan-cial services with a CAGR of 2.3 per cent. But in terms of employment share, manufacturing sector accounted 43 per cent followed by banking (23 per cent) and IT (18 per

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cent). But in terms of employment growth these sec-tors did not record growth probably because the jobs

A look at the Gross Value Added at constant 2011-12 pric-es shows that manufacturing sector growth declined from 6 per cent in 2012-13 to 5.6 per cent in 2013-14 and to 5.5 per cent in 2014-15. This decline was notable in the case of textiles, apparel and leather products. Both these sectors are labour intensive and export oriented. Similarly, the other manufactured goods which include gems & jewellery sector also witnessed a decline from 9.9 per cent in 2012-13 to 1.9 per cent in 2013-14 and rose back to 4.4 per cent in 2014-15. The public utility sector viz; electricity, gas & water supply witnessed an

created in the sector could be contractual and there-fore not on the pay-roll of the companies. (Table-2)

increase in GVA from 2.8 per cent in 2011-12 to 8 per cent in 2014-15. Similar increase was also noticeable in the construction sector (0.6 per cent to 4.4 per cent) during this period. The overall increase in GVA from 5.4 per cent in 2012-13 to 7.1 per cent in 2014-15 can be in-terpreted as mix of sectors that recorded a growth in combination with sectors that recorded a decline. If the sectors that recorded an increase in growth were less labour-intensive it would not be reflected in the overall employment growth.

(The views are personal and not necessarily of CII)

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