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ECONOMY MATTERS Volume 01 No. 11 November-December 2013 Rejuvenating Exports Cover Story - Euro Area's Economic Recovery Falters in the Third Quarter Inside This Issue - Asian Economies: A 'Mixed Bag' as far as Growth is Concerned - Cautious Optimism on Growth and Current Account - GST is Inevitable; - But Only After Next General Elections! - Sector in Focus: Electricity

Economy Matters, November-December 2013

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Euro Area is recovering slowly, with its major member countries registering lower-than-expected growth rates in the third quarter. Major Asian economies have shown diverse growth trends in the last few quarters. We cover this in the section on Global Trends in this month’s issue of Economy Matters. In the section on Domestic Trends, we discuss the trends emanating out of the recent releases on GDP, Current Account, IIP and Inflation data during the month of December 2013. The Sectoral spotlight for this issue is on Electricity, which remains an important contributor to GDP growth. We evaluate the impact of the Electricity Act, 2003 on the sector’s performance. In the Special Article, we provide a snapshot of India’s exports sector along with analyzing the important sectors in exports such as services and tourism.

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Page 1: Economy Matters, November-December 2013

ECONOMY MATTERSVolume 01 No. 11November-December 2013

Rejuvenating ExportsCover Story

- Euro Area's Economic Recovery

Falters in the Third Quarter

Inside This Issue - Asian Economies: A 'Mixed Bag' as

far as Growth is Concerned

- Cautious Optimism on Growth and

Current Account

- GST is Inevitable; - But Only After

Next General Elections!

- Sector in Focus: Electricity

Page 2: Economy Matters, November-December 2013

Euro Area is recovering slowly, with its major member countries registering slower-

than-expected growth rates in the third quarter. Real GDP grew by 0.1 per cent in Q3

2013, moderation from the 0.3 per cent growth seen in the previous quarter. With this, in

the three quarter of this fiscal so far, Euro Area's GDP has contracted by 0.7 per cent as

against decline of 0.5 per cent in the corresponding period last year. As per the new set

of data on the PMI indices, some rebound in growth is perceptible; however, weak retail

sales data is keeping the currency bloc's growth outlook under pressure. Moving over

to the Asian continent, the major economies are growing at varied pace, with Indonesia

and Malaysia notching up impressive set of GDP numbers in the third quarter. Singapore

economy also did well in the July-September quarter, while Thailand, Hong Kong and

Japan remained the laggards. The growth outlook in these Asian economies remains

contingent on the strength of the recovery in US, Euro Area and China going forward.

Domestically, growth seems to have bottomed out. Two crucial macroeconomic

parameters were released in November 2013, which have infused some enthusiasm

amongst the economy watchers. GDP growth increased to 4.8 per cent in the second

quarter of the fiscal from 4.4 per cent in the previous quarter and current account deficit

(CAD) fell sharply to 1.2 per cent of GDP from a high of 5.0 per cent in the quarter before.

However, these set of feel-good data prints should be taken with a pinch of salt as the

GDP growth still remains below 5 per cent and more importantly, the drivers needed to

push it beyond that threshold are not visible. CAD compression also is largely due to the

artificial controls on curtailing gold imports. To make the recovery more resilient,

concerted action on the front of the policy makers is the need of the hour in terms of

speedy implementation of projects, removing of structural bottle-necks etc.

The improving global macroeconomic environment and a weaker rupee have given a

fillip to India's exports, which rose by 12.2 per cent during the second quarter of the

current fiscal. This strong growth in exports coupled with muted imports has had a

favorable impact on the CAD. In the next 12-18-months, export performance will not

only influence the CAD but will also be one of the factors supporting GDP growth

because the domestic economy and investment cycle will improve only gradually. The

services sector has been a key driver of India's improved trade performance and there is

a potential for increasing its exports further given the fact that India is a leading player in

the services trade in the world.

Chandrajit Banerjee

Director-General, CII

1

FOREWORD

NOVEMBER - DECEMBER 2013

Page 3: Economy Matters, November-December 2013

Euro Area is recovering slowly, with its major member countries registering slower-

than-expected growth rates in the third quarter. Real GDP grew by 0.1 per cent in Q3

2013, moderation from the 0.3 per cent growth seen in the previous quarter. With this, in

the three quarter of this fiscal so far, Euro Area's GDP has contracted by 0.7 per cent as

against decline of 0.5 per cent in the corresponding period last year. As per the new set

of data on the PMI indices, some rebound in growth is perceptible; however, weak retail

sales data is keeping the currency bloc's growth outlook under pressure. Moving over

to the Asian continent, the major economies are growing at varied pace, with Indonesia

and Malaysia notching up impressive set of GDP numbers in the third quarter. Singapore

economy also did well in the July-September quarter, while Thailand, Hong Kong and

Japan remained the laggards. The growth outlook in these Asian economies remains

contingent on the strength of the recovery in US, Euro Area and China going forward.

Domestically, growth seems to have bottomed out. Two crucial macroeconomic

parameters were released in November 2013, which have infused some enthusiasm

amongst the economy watchers. GDP growth increased to 4.8 per cent in the second

quarter of the fiscal from 4.4 per cent in the previous quarter and current account deficit

(CAD) fell sharply to 1.2 per cent of GDP from a high of 5.0 per cent in the quarter before.

However, these set of feel-good data prints should be taken with a pinch of salt as the

GDP growth still remains below 5 per cent and more importantly, the drivers needed to

push it beyond that threshold are not visible. CAD compression also is largely due to the

artificial controls on curtailing gold imports. To make the recovery more resilient,

concerted action on the front of the policy makers is the need of the hour in terms of

speedy implementation of projects, removing of structural bottle-necks etc.

The improving global macroeconomic environment and a weaker rupee have given a

fillip to India's exports, which rose by 12.2 per cent during the second quarter of the

current fiscal. This strong growth in exports coupled with muted imports has had a

favorable impact on the CAD. In the next 12-18-months, export performance will not

only influence the CAD but will also be one of the factors supporting GDP growth

because the domestic economy and investment cycle will improve only gradually. The

services sector has been a key driver of India's improved trade performance and there is

a potential for increasing its exports further given the fact that India is a leading player in

the services trade in the world.

Chandrajit Banerjee

Director-General, CII

1

FOREWORD

NOVEMBER - DECEMBER 2013

Page 4: Economy Matters, November-December 2013

Global Trends

Domestic Trends

The 17-nation Euro Area (EA) eked out marginal

economic growth in the third quarter of the current

year (Q3 2013), indicating that while the single currency

bloc is sustaining a very modest recovery, it's

struggling to gain momentum. Although the PMI

indices for October and November have been better

than in Q3 2013, unexpected fall in retail sales in

October continues to keep EA GDP under pressure.

Coming to the Asian continent, countries across Asia

have been hit by falling exports, dragging on growth

and pushing current account balances into the red. At

the same time, capital has flowed out of the region

amid rising U.S. interest rates as investors anticipated

an end to the U.S. Federal Reserve's massive bond-

buying program. That has compounded pressures on

Asian currencies, making it harder for the region's

central banks to loosen monetary policy to support

growth.

The data on India's current account deficit (CAD) and

GDP released over the last one month has injected a

dose of mild optimism among policymakers and

market analysts. GDP growth marginally lifted to 4.8

per cent in the April-September quarter from 4.4 per

cent in the preceding quarter and CAD fell to 1.2 per

cent of GDP from 5.0 per cent in the previous quarter.

However, industrial production number of October

2013 once again disappointed, as the headline number

slipped into the negative territory. The decline in IIP

during the month was underpinned by contraction in

many of its sub-sectors such as manufacturing, mining,

basic and consumer goods. In contrast, WPI inflation

accelerated to more than one year high of 7.5 per cent

in November 2013 as compared to 7.0 per cent in the

previous month on the back of increase in food and

fuel inflation. To be sure, consumer prices based

inflation (CPI) too quickened to 11.2 per cent in October

2013 from 10.1 per cent in the previous month.

However, citing the transitory nature of food prices

and high probability of them receding in the

subsequent months, RBI kept the policy rates

unchanged in its mid-December policy review.

Sector in Focus: Electricity

Special Article

Electricity sector is an important contributor to the

economic growth of the country. However, in the last

year, the sector's growth halved to 4.0 per cent as

compared to 8.2 in 2011-12. In order to make the sector

more efficient, promote its development and

consolidate laws relating to generation, transmission,

distribution, trading and use of electricity, government th had brought into effect the Electricity Act on 10 June

2003. With the Act now 10 years old, the sector has

come full circle - from emerging as one of the most

attractive investment destinations in the late 2000s,

private investment has since receded. An assessment

of the last 10 years of the Act reveals that while the

sector has not delivered on its objectives, this is less

because of flaws in the Act, and more due to poor

execution, unprecedented fuel price increases and

project execution bottlenecks. In fact, the Act provides

a strong platform for development if certain critical

learnings are incorporated as the sector moves

forward.

India's export performance over the last two years has

been affected by continued sluggishness in global

trade and an overvalued exchange rate for a prolonged

period. Exports began on a weak footing in the start of

this fiscal, contracting by 3.1 per cent in the first quarter;

however, its growth picked up to 12.2 per cent in the

second quarter, moderating to 9.7 per cent in October-

November 2013. Export recoveries were evident in

sectors, such as petroleum products, rice, readymade

garments, marine products and other chemicals. The

depreciation in the exchange rate, both in nominal and

real terms, appears to have helped improve India's

export competitiveness in the recent quarters.

Improvement in exports is critical for lifting the

economic growth and containing the current account

deficit. In order to take our exports performance to the

next level, further expansion of Focus Market Scheme

(FMS) and inclusion of new product in Focus Product

Scheme (FPS) is very much needed.

EXECUTIVE SUMMARY

3 NOVEMBER - DECEMBER 20132ECONOMY MATTERS

CO

NT

EN

T

Cover Story

The improving global macro-

economic environment and a

weaker rupee have given a fillip to

India's exports, which rose by 12.2

per cent during the second

quarter of the current fiscal. This

strong growth in exports coupled

with muted imports has had a

favorable impact on the Current

Account Deficit. In the Special

Article, we provide a snapshot of

India’s exports sector along with

analyzing the important sectors in

exports such as services and

tourism.

Inside This Issue

Executive Summary .................................................................03

.....................................................04Growth Outlook: 2013-14

Global Trends

05Euro Area's Economic Recovery Falters in the Third Quarter

Domestic TrendsCautious Optimism on Growth and Current Account, IIP, Inflation11

TaxationGST is Inevitable; - But Only After Next General Elections!18

Sector in FocusElectricity

20

Special ArticleRejuvenating Exports

27

Economy Monitor ................................................................... 42

Rejuvenating Exports

Page 5: Economy Matters, November-December 2013

Global Trends

Domestic Trends

The 17-nation Euro Area (EA) eked out marginal

economic growth in the third quarter of the current

year (Q3 2013), indicating that while the single currency

bloc is sustaining a very modest recovery, it's

struggling to gain momentum. Although the PMI

indices for October and November have been better

than in Q3 2013, unexpected fall in retail sales in

October continues to keep EA GDP under pressure.

Coming to the Asian continent, countries across Asia

have been hit by falling exports, dragging on growth

and pushing current account balances into the red. At

the same time, capital has flowed out of the region

amid rising U.S. interest rates as investors anticipated

an end to the U.S. Federal Reserve's massive bond-

buying program. That has compounded pressures on

Asian currencies, making it harder for the region's

central banks to loosen monetary policy to support

growth.

The data on India's current account deficit (CAD) and

GDP released over the last one month has injected a

dose of mild optimism among policymakers and

market analysts. GDP growth marginally lifted to 4.8

per cent in the April-September quarter from 4.4 per

cent in the preceding quarter and CAD fell to 1.2 per

cent of GDP from 5.0 per cent in the previous quarter.

However, industrial production number of October

2013 once again disappointed, as the headline number

slipped into the negative territory. The decline in IIP

during the month was underpinned by contraction in

many of its sub-sectors such as manufacturing, mining,

basic and consumer goods. In contrast, WPI inflation

accelerated to more than one year high of 7.5 per cent

in November 2013 as compared to 7.0 per cent in the

previous month on the back of increase in food and

fuel inflation. To be sure, consumer prices based

inflation (CPI) too quickened to 11.2 per cent in October

2013 from 10.1 per cent in the previous month.

However, citing the transitory nature of food prices

and high probability of them receding in the

subsequent months, RBI kept the policy rates

unchanged in its mid-December policy review.

Sector in Focus: Electricity

Special Article

Electricity sector is an important contributor to the

economic growth of the country. However, in the last

year, the sector's growth halved to 4.0 per cent as

compared to 8.2 in 2011-12. In order to make the sector

more efficient, promote its development and

consolidate laws relating to generation, transmission,

distribution, trading and use of electricity, government th had brought into effect the Electricity Act on 10 June

2003. With the Act now 10 years old, the sector has

come full circle - from emerging as one of the most

attractive investment destinations in the late 2000s,

private investment has since receded. An assessment

of the last 10 years of the Act reveals that while the

sector has not delivered on its objectives, this is less

because of flaws in the Act, and more due to poor

execution, unprecedented fuel price increases and

project execution bottlenecks. In fact, the Act provides

a strong platform for development if certain critical

learnings are incorporated as the sector moves

forward.

India's export performance over the last two years has

been affected by continued sluggishness in global

trade and an overvalued exchange rate for a prolonged

period. Exports began on a weak footing in the start of

this fiscal, contracting by 3.1 per cent in the first quarter;

however, its growth picked up to 12.2 per cent in the

second quarter, moderating to 9.7 per cent in October-

November 2013. Export recoveries were evident in

sectors, such as petroleum products, rice, readymade

garments, marine products and other chemicals. The

depreciation in the exchange rate, both in nominal and

real terms, appears to have helped improve India's

export competitiveness in the recent quarters.

Improvement in exports is critical for lifting the

economic growth and containing the current account

deficit. In order to take our exports performance to the

next level, further expansion of Focus Market Scheme

(FMS) and inclusion of new product in Focus Product

Scheme (FPS) is very much needed.

EXECUTIVE SUMMARY

3 NOVEMBER - DECEMBER 20132ECONOMY MATTERS

CO

NT

EN

T

Cover Story

The improving global macro-

economic environment and a

weaker rupee have given a fillip to

India's exports, which rose by 12.2

per cent during the second

quarter of the current fiscal. This

strong growth in exports coupled

with muted imports has had a

favorable impact on the Current

Account Deficit. In the Special

Article, we provide a snapshot of

India’s exports sector along with

analyzing the important sectors in

exports such as services and

tourism.

Inside This Issue

Executive Summary .................................................................03

.....................................................04Growth Outlook: 2013-14

Global Trends

05Euro Area's Economic Recovery Falters in the Third Quarter

Domestic TrendsCautious Optimism on Growth and Current Account, IIP, Inflation11

TaxationGST is Inevitable; - But Only After Next General Elections!18

Sector in FocusElectricity

20

Special ArticleRejuvenating Exports

27

Economy Monitor ................................................................... 42

Rejuvenating Exports

Page 6: Economy Matters, November-December 2013

GROWTH OUTLOOK FOR 2013-14 REVISED FURTHER DOWN

Euro Area's Economic Recovery Falters in the Third Quarter

growth seen in the second quarter that ended the

region's record-long recession was a one-time spurt,

boosted by a significant bounce in construction activity

in some countries (most notably Germany) after it had

been held back in the first quarter by particularly poor

weather. In year-on-year terms, real GDP declined by 0.4

per cent in Q3 2013 thus marking its seventh consecutive

decline. In the first week of November, European

Central Bank (ECB) had cut the headline interest rate by

25 bps to 0.25 per cent, citing underlying weak growth

momentum. The weak set of numbers for 3Q 2013 in way

vindicates ECB's decision to cut interest rates to re-

stimulate growth across the single currency area.

The 17-nation Euro Area (EA) eked out marginal

economic growth in the third quarter of the current

year (Q3 2013), indicating that while the single currency

bloc is sustaining a very modest recovery, it's struggling

to gain momentum. EA-17 real GDP grew 0.1 per cent in

Q3 2013, unchanged from the first estimates released

last month, as per the second estimates of GDP released

by Eurostat. This clearly shows that the 0.3 per cent

GLOBAL TRENDS

4ECONOMY MATTERS 5 NOVEMBER - DECEMBER 2013

GDP Growth 5.0% 4.8-5.3% We have scaled down our growth forecast to a range of

4.8-5.3 per cent for the current fiscal as compared to 5.3-

5.8 per cent forecasted earlier on the back of higher-than-

expected demand compression in the wake of global

uncertainities coupled with fragile domestic situation.

Agriculture remains the sole saviour for overall GDP this

year. Rising inflation has dimmed the possibility of

lowering of interest rates by RBI, which is not going to help

growth. Concerted policy actions by policy makers in the

form of addressing the structural bottlenecks are need of

the hour in order to lift growth out of its current abyss.

Agriculture 1.9% 4.3-4.8% Aided by a low base and normal monsoons, agriculture is

expected to grow at an above-trend rate of around 4.5 per

cent in the current fiscal. Consequently, we have scaled up

the growth forecast of agriculture GDP to a range of 4.3-

4.8 per cent from 3.0-3.5 per cent forecasted earlier.

Industry 2.1% 1.6-2.1% Industry GDP growth has been scaled down to a range of

1.6-2.1 per cent as compared to an earlier estimate of 3.5-

4.0 per cent for the current fiscal. The main reasons for this

growth downgrade is the continued poor performance of

the sector in the wake of depressed global demand,

reduced chances of RBI cutting interest rates, general risk

aversion amongst investors and mining sector de-growth

amongst other reasons. In order to lift industrial growth,

its pivotal to sort out issues related to mining, and opt for

speedy clearances of projects.

Services 7.1% 6.3-6.8% Services sector GDP growth too has been revised

downwards to a range of 6.3-6.8 per cent as compared to

an earlier estimate of 6.5-7.0 per cent for the year. The

spillovers from lower industrial growth are expected to

adversely impact services sector growth. However, the

upside to our services sector forecast emerges from the

rise in rural incomes due to better-than-expected farm

sector growth and increased government spending owing

to a pre-election year.

WPI Inflation 7.4% 6.0-6.5% We have revised our WPI inflation forecast upwards for

the current year in view of rising inflationary expectations

aggravated by rising food prices. The new forecast now

stands at 6.0-6.5 per cent, revised upwards from 5.5-6.0

per cent. However, the downside risks to headline

inflation arises from slower GDP growth, which will help in

cooling down of demand-side pressures on inflation going

forward coupled with the lagged impact of monetary

tightening purused by RBI since September 2013.

2012-13 2013-14 Rationale

Note: F- CII Forecast

-1.0

-1.2

-0.6

-0.4

-0.5

-0.2

0.3

0.1

4Q12 1Q13 2Q13 3Q13

y-o-y%

q-o-q%

Euro Area's GDP (on seasonally-adjusted basis)

Source: Eurostat

Page 7: Economy Matters, November-December 2013

GROWTH OUTLOOK FOR 2013-14 REVISED FURTHER DOWN

Euro Area's Economic Recovery Falters in the Third Quarter

growth seen in the second quarter that ended the

region's record-long recession was a one-time spurt,

boosted by a significant bounce in construction activity

in some countries (most notably Germany) after it had

been held back in the first quarter by particularly poor

weather. In year-on-year terms, real GDP declined by 0.4

per cent in Q3 2013 thus marking its seventh consecutive

decline. In the first week of November, European

Central Bank (ECB) had cut the headline interest rate by

25 bps to 0.25 per cent, citing underlying weak growth

momentum. The weak set of numbers for 3Q 2013 in way

vindicates ECB's decision to cut interest rates to re-

stimulate growth across the single currency area.

The 17-nation Euro Area (EA) eked out marginal

economic growth in the third quarter of the current

year (Q3 2013), indicating that while the single currency

bloc is sustaining a very modest recovery, it's struggling

to gain momentum. EA-17 real GDP grew 0.1 per cent in

Q3 2013, unchanged from the first estimates released

last month, as per the second estimates of GDP released

by Eurostat. This clearly shows that the 0.3 per cent

GLOBAL TRENDS

4ECONOMY MATTERS 5 NOVEMBER - DECEMBER 2013

GDP Growth 5.0% 4.8-5.3% We have scaled down our growth forecast to a range of

4.8-5.3 per cent for the current fiscal as compared to 5.3-

5.8 per cent forecasted earlier on the back of higher-than-

expected demand compression in the wake of global

uncertainities coupled with fragile domestic situation.

Agriculture remains the sole saviour for overall GDP this

year. Rising inflation has dimmed the possibility of

lowering of interest rates by RBI, which is not going to help

growth. Concerted policy actions by policy makers in the

form of addressing the structural bottlenecks are need of

the hour in order to lift growth out of its current abyss.

Agriculture 1.9% 4.3-4.8% Aided by a low base and normal monsoons, agriculture is

expected to grow at an above-trend rate of around 4.5 per

cent in the current fiscal. Consequently, we have scaled up

the growth forecast of agriculture GDP to a range of 4.3-

4.8 per cent from 3.0-3.5 per cent forecasted earlier.

Industry 2.1% 1.6-2.1% Industry GDP growth has been scaled down to a range of

1.6-2.1 per cent as compared to an earlier estimate of 3.5-

4.0 per cent for the current fiscal. The main reasons for this

growth downgrade is the continued poor performance of

the sector in the wake of depressed global demand,

reduced chances of RBI cutting interest rates, general risk

aversion amongst investors and mining sector de-growth

amongst other reasons. In order to lift industrial growth,

its pivotal to sort out issues related to mining, and opt for

speedy clearances of projects.

Services 7.1% 6.3-6.8% Services sector GDP growth too has been revised

downwards to a range of 6.3-6.8 per cent as compared to

an earlier estimate of 6.5-7.0 per cent for the year. The

spillovers from lower industrial growth are expected to

adversely impact services sector growth. However, the

upside to our services sector forecast emerges from the

rise in rural incomes due to better-than-expected farm

sector growth and increased government spending owing

to a pre-election year.

WPI Inflation 7.4% 6.0-6.5% We have revised our WPI inflation forecast upwards for

the current year in view of rising inflationary expectations

aggravated by rising food prices. The new forecast now

stands at 6.0-6.5 per cent, revised upwards from 5.5-6.0

per cent. However, the downside risks to headline

inflation arises from slower GDP growth, which will help in

cooling down of demand-side pressures on inflation going

forward coupled with the lagged impact of monetary

tightening purused by RBI since September 2013.

2012-13 2013-14 Rationale

Note: F- CII Forecast

-1.0

-1.2

-0.6

-0.4

-0.5

-0.2

0.3

0.1

4Q12 1Q13 2Q13 3Q13

y-o-y%

q-o-q%

Euro Area's GDP (on seasonally-adjusted basis)

Source: Eurostat

Page 8: Economy Matters, November-December 2013

deduction of 14 bps in the previous quarter. Thus,

excluding inventories, Euro Area's real GDP contracted

0.2 per cent on q-o-q basis in Q3 2013, as against a

growth of 0.4 per cent in the previous quarter. Besides

investments, private consumption expenditure (PCE)

grew 0.1 per cent on q-o-q basis in Q3 2013, slower than

0.2 per cent in the previous quarter. Consequently, PCE

had a neutral contribution to GDP growth, contributing

only 4 bps to GDP growth, less than half the contribution

of 9 bps in Q2 2013.

Amongst the broad GDP categories in Euro Area, total

investments (or Gross Capital Formation) grew 2.0 per

cent on q-o-q basis in Q3 2013, marking its first growth in

the past nine quarters. However, it is important to note

that majority of that growth came through inventories,

as fixed investments (or Gross Fixed Capital Formation,

GFCF) growth was only slightly higher at 0.4 per cent on

q-o-q basis in Q3 2013, as against 0.2 per cent in the

previous quarter. This clearly shows that inventories

added 27 bps to GDP growth in Q3 2013, as against a

unexpected fall in retail sales in October continues to

keep EA GDP under pressure. However, it would be safe

to say that while the region's recovery remains on track

in the fourth quarter, the upturn continues to look both

fragile and weak.

To sum up, in the first three quarters of 2013, Euro Area

real GDP contracted by 0.7 per cent on y-o-y basis, as

against decline of 0.5 per cent in the corresponding

period last year. Although the PMI indices for October

and November have been better than in Q3 2013,

have stymied economic growth in the crucial fourth

quarter. In 2014, however, the Thai economy is expected

to grow in the range of 4.0-5.0 per cent on the back of a

global economic recovery and massive state spending

on infrastructure. The economy grew by 6.5 per cent in

2012.

Indonesia expanded less than 6 per cent in the third

quarter as high interest rates weighed on consumption

and exports fell. Gross domestic product increased 5.6

per cent on a y-o-y basis in the July-September quarter as

compared to 5.8 per cent in the previous quarter. The

third quarter data print was the weakest quarterly

growth figure since 2009 when the global financial crisis

impacted the economy and clearly highlights the

vulnerability of Southeast Asia's largest economy as it

weathers a depreciated exchange rate, faster inflation

and diminished foreign capital inflows ahead of

elections in 2014. Bank Indonesia has raised its

benchmark rate by 1.5 percentage points since early

June 2013 to shore up the Rupiah and stem price gains,

while the government has acknowledged growth next

year will be slower as it reins in spending to narrow a

record current-account gap.

Malaysian economy grew 5 per cent year-on-year in the

third quarter of 2013, rising strongly from 4.4 per cent in

the previous quarter. The country registered a better

Countries across Asia have been hit by falling exports,

dragging on growth and pushing current account

balances into the red. At the same time, capital has

flowed out of the region amid rising U.S. interest rates as

investors anticipated an end to the U.S. Federal

Reserve's massive bond-buying program. That has

compounded pressures on Asian currencies, making it

harder for the region's central banks to loosen monetary

policy to support growth. In this piece, we will analyse

briefly the growth performance of the key Asian

economies in the last few quarters.

Amongst the ASEAN economies, Thailand's economy

grew at a lower-than-expected pace of 2.7 per cent on y-

o-y basis in July-September quarter, weaker than the

adjusted 2.9 per cent in April-June. It was the third

straight quarter of slowing growth in the kingdom, and

came on the back of a drop-off in consumer spending,

although the economy did benefit from a surge in tourist

arrivals and increased state spending. In view of the

lower GDP growth in the first three quarters of the year

so far due to strengthening Thai Baht, slower than

expected recovery in key export markets and reduced

private consumption spending, government recently

slashed its full year growth estimates. On a year-on-year

basis, Thailand's 2013 GDP or gross domestic product is

now officially forecast to come in at less than three per

cent in view of the ongoing anti-government rallies that

6 7 NOVEMBER - DECEMBER 2013

Austria, which accounts for 3.2 per cent of total Euro

Zone GDP, grew by 0.2 per cent, the Czech Republic

contracted by 0.5 per cent but Hungary beat

expectations with growth of 0.8 per cent from the

second quarter. GDP in Netherlands, accounting for 6.3

per cent, rose by 0.1 per cent from the second quarter.

Italy, which has faced prolonged period of political

instability, was also mired in economic gloom after a 0.1

per cent decline in GDP in the third quarter extending

the country's recession from the summer of 2011 to nine

quarters.

Among member states for which data are available for

the third quarter of 2013, economic activity in Germany

grew by 0.3 per cent in Q3 2013, a slowdown from the

prior quarter, and in France it fell by 0.1 per cent,

indicating that the Euro Zone's (used interchangeably

with Euro Area) nascent recovery faltered in the

summer. Between them, they account for almost half of

total Euro Zone output. In France, a slump in exports

and business investment failed to offset strong

consumer spending, thus pulling down the GDP.

2.0

1.0

0.0

-1.0

-2.0

-3.0

1Q13

2Q13

3Q13

1Q13

2Q13

3Q13

1Q13

2Q13

3Q13

1Q13

2Q13

3Q13

1Q13

2Q13

3Q13

Germany France Italy Netherlands Hungary

y-o-y%

q-o-q%

Real GDP Growth in Selected Euro Area Countries

Source: Eurostat

GDP Components (q-o-q%) 1Q13 2Q13 3Q13

Household and Final Consumption Expenditure -0.1 0.2 0.1

Government Final Consumption Expenditure 0.3 0.0 0.2

Gross Fixed Capital Formation -1.9 0.2 0.4

Exports -1.0 2.1 0.2

Imports -1.2 1.6 1.0

Source: Eurostat

GDP by Components (from Demand-Side)

Asian Economies: A 'Mix-Bag' as far as Growth is Concerned

ECONOMY MATTERS

Page 9: Economy Matters, November-December 2013

deduction of 14 bps in the previous quarter. Thus,

excluding inventories, Euro Area's real GDP contracted

0.2 per cent on q-o-q basis in Q3 2013, as against a

growth of 0.4 per cent in the previous quarter. Besides

investments, private consumption expenditure (PCE)

grew 0.1 per cent on q-o-q basis in Q3 2013, slower than

0.2 per cent in the previous quarter. Consequently, PCE

had a neutral contribution to GDP growth, contributing

only 4 bps to GDP growth, less than half the contribution

of 9 bps in Q2 2013.

Amongst the broad GDP categories in Euro Area, total

investments (or Gross Capital Formation) grew 2.0 per

cent on q-o-q basis in Q3 2013, marking its first growth in

the past nine quarters. However, it is important to note

that majority of that growth came through inventories,

as fixed investments (or Gross Fixed Capital Formation,

GFCF) growth was only slightly higher at 0.4 per cent on

q-o-q basis in Q3 2013, as against 0.2 per cent in the

previous quarter. This clearly shows that inventories

added 27 bps to GDP growth in Q3 2013, as against a

unexpected fall in retail sales in October continues to

keep EA GDP under pressure. However, it would be safe

to say that while the region's recovery remains on track

in the fourth quarter, the upturn continues to look both

fragile and weak.

To sum up, in the first three quarters of 2013, Euro Area

real GDP contracted by 0.7 per cent on y-o-y basis, as

against decline of 0.5 per cent in the corresponding

period last year. Although the PMI indices for October

and November have been better than in Q3 2013,

have stymied economic growth in the crucial fourth

quarter. In 2014, however, the Thai economy is expected

to grow in the range of 4.0-5.0 per cent on the back of a

global economic recovery and massive state spending

on infrastructure. The economy grew by 6.5 per cent in

2012.

Indonesia expanded less than 6 per cent in the third

quarter as high interest rates weighed on consumption

and exports fell. Gross domestic product increased 5.6

per cent on a y-o-y basis in the July-September quarter as

compared to 5.8 per cent in the previous quarter. The

third quarter data print was the weakest quarterly

growth figure since 2009 when the global financial crisis

impacted the economy and clearly highlights the

vulnerability of Southeast Asia's largest economy as it

weathers a depreciated exchange rate, faster inflation

and diminished foreign capital inflows ahead of

elections in 2014. Bank Indonesia has raised its

benchmark rate by 1.5 percentage points since early

June 2013 to shore up the Rupiah and stem price gains,

while the government has acknowledged growth next

year will be slower as it reins in spending to narrow a

record current-account gap.

Malaysian economy grew 5 per cent year-on-year in the

third quarter of 2013, rising strongly from 4.4 per cent in

the previous quarter. The country registered a better

Countries across Asia have been hit by falling exports,

dragging on growth and pushing current account

balances into the red. At the same time, capital has

flowed out of the region amid rising U.S. interest rates as

investors anticipated an end to the U.S. Federal

Reserve's massive bond-buying program. That has

compounded pressures on Asian currencies, making it

harder for the region's central banks to loosen monetary

policy to support growth. In this piece, we will analyse

briefly the growth performance of the key Asian

economies in the last few quarters.

Amongst the ASEAN economies, Thailand's economy

grew at a lower-than-expected pace of 2.7 per cent on y-

o-y basis in July-September quarter, weaker than the

adjusted 2.9 per cent in April-June. It was the third

straight quarter of slowing growth in the kingdom, and

came on the back of a drop-off in consumer spending,

although the economy did benefit from a surge in tourist

arrivals and increased state spending. In view of the

lower GDP growth in the first three quarters of the year

so far due to strengthening Thai Baht, slower than

expected recovery in key export markets and reduced

private consumption spending, government recently

slashed its full year growth estimates. On a year-on-year

basis, Thailand's 2013 GDP or gross domestic product is

now officially forecast to come in at less than three per

cent in view of the ongoing anti-government rallies that

6 7 NOVEMBER - DECEMBER 2013

Austria, which accounts for 3.2 per cent of total Euro

Zone GDP, grew by 0.2 per cent, the Czech Republic

contracted by 0.5 per cent but Hungary beat

expectations with growth of 0.8 per cent from the

second quarter. GDP in Netherlands, accounting for 6.3

per cent, rose by 0.1 per cent from the second quarter.

Italy, which has faced prolonged period of political

instability, was also mired in economic gloom after a 0.1

per cent decline in GDP in the third quarter extending

the country's recession from the summer of 2011 to nine

quarters.

Among member states for which data are available for

the third quarter of 2013, economic activity in Germany

grew by 0.3 per cent in Q3 2013, a slowdown from the

prior quarter, and in France it fell by 0.1 per cent,

indicating that the Euro Zone's (used interchangeably

with Euro Area) nascent recovery faltered in the

summer. Between them, they account for almost half of

total Euro Zone output. In France, a slump in exports

and business investment failed to offset strong

consumer spending, thus pulling down the GDP.

2.0

1.0

0.0

-1.0

-2.0

-3.0

1Q13

2Q13

3Q13

1Q13

2Q13

3Q13

1Q13

2Q13

3Q13

1Q13

2Q13

3Q13

1Q13

2Q13

3Q13

Germany France Italy Netherlands Hungary

y-o-y%

q-o-q%

Real GDP Growth in Selected Euro Area Countries

Source: Eurostat

GDP Components (q-o-q%) 1Q13 2Q13 3Q13

Household and Final Consumption Expenditure -0.1 0.2 0.1

Government Final Consumption Expenditure 0.3 0.0 0.2

Gross Fixed Capital Formation -1.9 0.2 0.4

Exports -1.0 2.1 0.2

Imports -1.2 1.6 1.0

Source: Eurostat

GDP by Components (from Demand-Side)

Asian Economies: A 'Mix-Bag' as far as Growth is Concerned

ECONOMY MATTERS

Page 10: Economy Matters, November-December 2013

rebounded by 1.7 per cent. Malaysia's economic growth

has panned out on expected lines in the first three

quarters of the year so far (average growth of 4.5 per

cent) and has prompted the Malaysian Central bank to

maintain its outlook for the current year GDP growth at

between 4.5 to 5.0 per cent.

economic performance during the third quarter due to

improved external demand and continued strength in

domestic demand that supported the overall growth.

Private consumption expanded by 8.2 per cent in 3Q

2013, supported by a higher wage growth in both export

and domestic-oriented industries, while exports

8ECONOMY MATTERS 9 NOVEMBER - DECEMBER 2013

5.46.0

4.1

2.9

5.8

4.4

2.7

5.65.0

Thailand Indonesia Malaysia

ASEAN-3 Real GDP Growth (y-o-y%)

1Q13 2Q13 3Q13

Source: Trading Economics

healthy 5.8 per cent in the third quarter of 2013 as

compared to 4.4 per cent in the previous quarter. This

higher-than-expected growth in the 3Q 2013 prompted

the government to raise its growth forecast to 3.5 per

cent to 4.0 per cent in 2013 from earlier forecast of 2.5 to

3.5 per cent and project as much as 4 per cent growth

next year. Sectors that have been performing well

include manufacturing, wholesale and retail trade, as

well as transportation and storage, and they will

continue to perform well towards the year-end in line

with the slight pick-up in the global economy.

Singapore's neighbouring economy, Hong Kong, on the

other hand, registered a deceleration in growth at 2.9

per cent in 3Q 2013 as compared to 3.2 per cent growth

in the previous month. Domestic demand, a key factor in

Hong Kong's economy, expanded for the period, helped

by rising incomes and a low unemployment rate of 3.3

per cent. The government has predicted three per cent

growth for the year, saying that moderate growth is

"likely attainable" for the fourth quarter.

Among the Newly Industrialised Economies (NIEs),

South Korea's economy maintained a robust pace of

growth in the third quarter as private consumption and

investment picked up the slack from a fall in exports.

Gross domestic product expanded by 3.3 per cent in the

third quarter, accelerating from the second quarter's

2.3 per cent gain. The slightly stronger-than-expected

rate of expansion has bolstered hopes that Asia's

fourth-largest economy will remain on a recovery track

and will be able to reach Bank of Korea's growth

forecast of 2.8 per cent for the year, despite slowing

global demand. South Korea's export-reliant economy

has been hit by shrinking global demand. Exports fell 1.3

per cent last year, the first decline in three years, as

growth weakened in China, the country's largest export

destination. In order to counter this, early this year, the

government put forth a 17.3 trillion won ($15.5 billion)

extra budget, its first fiscal stimulus in four years, to

boost the economy.

The Southeast Asian city-state of Singapore grew at a

1.5

0.3

2.9

2.3

4.4

3.23.3

5.8

2.9

South Korea Singapore Hong Kong

1Q13 2Q13 3Q13

NIE's Real GDP Growth (y-o-y%)

Source: Trading Economics

working to jolt the world's third largest economy out of

stagnation. His ambitious turnaround plan, known as

Abenomics, aims to end years of deflation, leading to

more robust growth. Going forward, the weakness in

Yen coupled with the announcement of a government

stimulus (in order to negate the impact of rise in sales

tax to be announced in April next year) is expected to

support growth.

Gross domestic product in Japan expanded by only 1.1

per cent (on an annualised basis) in the third quarter of

the current year, a slower rate than 3.8 per cent in the

previous quarter. The sharp deceleration raises

questions about the strength of recovery in Japan,

which enjoyed rapid growth of almost 4 per cent in the

first quarter. Prime Minister Shinzo Abe has been

4.3

3.8

1.1

1Q13 2Q13 3Q13

Japan's Real GDP Growth (Annualised basis, %)

Source: Trading Economics

quantitative program by the US Federal Reserve. The

Euro Zone remains susceptible to a flare-up of the

sovereign debt crisis. These are the crucial triggers for

the Asian economies as they step into 2014.

In sum, the global economic outlook is expected to

continue to improve modestly in 2014, supported by a

slow recovery in the U.S. and Euro Zone. Uncertainties

remain over how markets will react to the tapering of

Page 11: Economy Matters, November-December 2013

rebounded by 1.7 per cent. Malaysia's economic growth

has panned out on expected lines in the first three

quarters of the year so far (average growth of 4.5 per

cent) and has prompted the Malaysian Central bank to

maintain its outlook for the current year GDP growth at

between 4.5 to 5.0 per cent.

economic performance during the third quarter due to

improved external demand and continued strength in

domestic demand that supported the overall growth.

Private consumption expanded by 8.2 per cent in 3Q

2013, supported by a higher wage growth in both export

and domestic-oriented industries, while exports

8ECONOMY MATTERS 9 NOVEMBER - DECEMBER 2013

5.46.0

4.1

2.9

5.8

4.4

2.7

5.65.0

Thailand Indonesia Malaysia

ASEAN-3 Real GDP Growth (y-o-y%)

1Q13 2Q13 3Q13

Source: Trading Economics

healthy 5.8 per cent in the third quarter of 2013 as

compared to 4.4 per cent in the previous quarter. This

higher-than-expected growth in the 3Q 2013 prompted

the government to raise its growth forecast to 3.5 per

cent to 4.0 per cent in 2013 from earlier forecast of 2.5 to

3.5 per cent and project as much as 4 per cent growth

next year. Sectors that have been performing well

include manufacturing, wholesale and retail trade, as

well as transportation and storage, and they will

continue to perform well towards the year-end in line

with the slight pick-up in the global economy.

Singapore's neighbouring economy, Hong Kong, on the

other hand, registered a deceleration in growth at 2.9

per cent in 3Q 2013 as compared to 3.2 per cent growth

in the previous month. Domestic demand, a key factor in

Hong Kong's economy, expanded for the period, helped

by rising incomes and a low unemployment rate of 3.3

per cent. The government has predicted three per cent

growth for the year, saying that moderate growth is

"likely attainable" for the fourth quarter.

Among the Newly Industrialised Economies (NIEs),

South Korea's economy maintained a robust pace of

growth in the third quarter as private consumption and

investment picked up the slack from a fall in exports.

Gross domestic product expanded by 3.3 per cent in the

third quarter, accelerating from the second quarter's

2.3 per cent gain. The slightly stronger-than-expected

rate of expansion has bolstered hopes that Asia's

fourth-largest economy will remain on a recovery track

and will be able to reach Bank of Korea's growth

forecast of 2.8 per cent for the year, despite slowing

global demand. South Korea's export-reliant economy

has been hit by shrinking global demand. Exports fell 1.3

per cent last year, the first decline in three years, as

growth weakened in China, the country's largest export

destination. In order to counter this, early this year, the

government put forth a 17.3 trillion won ($15.5 billion)

extra budget, its first fiscal stimulus in four years, to

boost the economy.

The Southeast Asian city-state of Singapore grew at a

1.5

0.3

2.9

2.3

4.4

3.23.3

5.8

2.9

South Korea Singapore Hong Kong

1Q13 2Q13 3Q13

NIE's Real GDP Growth (y-o-y%)

Source: Trading Economics

working to jolt the world's third largest economy out of

stagnation. His ambitious turnaround plan, known as

Abenomics, aims to end years of deflation, leading to

more robust growth. Going forward, the weakness in

Yen coupled with the announcement of a government

stimulus (in order to negate the impact of rise in sales

tax to be announced in April next year) is expected to

support growth.

Gross domestic product in Japan expanded by only 1.1

per cent (on an annualised basis) in the third quarter of

the current year, a slower rate than 3.8 per cent in the

previous quarter. The sharp deceleration raises

questions about the strength of recovery in Japan,

which enjoyed rapid growth of almost 4 per cent in the

first quarter. Prime Minister Shinzo Abe has been

4.3

3.8

1.1

1Q13 2Q13 3Q13

Japan's Real GDP Growth (Annualised basis, %)

Source: Trading Economics

quantitative program by the US Federal Reserve. The

Euro Zone remains susceptible to a flare-up of the

sovereign debt crisis. These are the crucial triggers for

the Asian economies as they step into 2014.

In sum, the global economic outlook is expected to

continue to improve modestly in 2014, supported by a

slow recovery in the U.S. and Euro Zone. Uncertainties

remain over how markets will react to the tapering of

Page 12: Economy Matters, November-December 2013

Cautious Optimism on Growth and Current Account

analysts. GDP growth marginally lifted to 4.8 per cent in

the April-September quarter from 4.4 per cent in the

preceding quarter and CAD fell to 1.2 per cent of GDP

from 5.0 per cent in the previous quarter. The good news

is that the economy seems to be bottoming out and

current account concerns too have retreated. The not-

so-good news is that GDP will only see a mild bounce

from the trough as drivers to crank up GDP growth

beyond 5 per cent in this fiscal year are absent. And, even

the reduction in CAD is largely due to artificial controls

on gold imports and the slowing economy. Let me

elaborate.The data on India's current account deficit (CAD) and

GDP released over the last one month has injected a

dose of mild optimism among policymakers and market

10ECONOMY MATTERS

Other Global Developments During the Month

v

v

v

v

The Fed surprised the market, announcing that it would reduce its bond buying program from US$ 85

billion/month to US$75billion/month. As per the announcement, Fed would trim its purchases of long-term

Treasury bonds to US$40 billion/month (from US$45 billion previously), and cut its purchases of mortgage-

backed securities (MBS) to US$35 billion/month (from US$40 billion previously).

Non-farm payrolls (NFP) in US increased by 203K in November 2013, much higher than market expectations of

an increase of 185K. Total job additions for September and October were revised to 163K and 200K respectively,

taking the 2013 monthly average to 187K as compared to 182K in 2012.

The unemployment rate in the UK fell to 7.4 per cent in the three months ending October 2013, as against 7.6 per

cent in the previous rolling quarter (ending September 2013). Notably, the number of unemployed people

declined 78,000 m-o-m (99,000 q-o-q) in October 2013, marking the highest monthly decline in more than the

past four decades, beating its previous highest fall of 71,000 in the quarter ending September 1997.

UK inflation fell to its 4-year lowest level in November 2013. The Consumer price Index (CPI) grew 2.1 per cent on

y-o-y basis last month, as against 2.2 per cent in October and 2.6 per cent a year ago. The largest negative

contributions came from 'food', wherein inflation eased from 4.3 per cent in October to 3.0 per cent in

November.

DOMESTIC TRENDS

11 NOVEMBER - DECEMBER 2013

Mr Dharmakirti JoshiMember, CII Economic Policy Council and

Chief Economist, CRISIL

Current Account Deficit SnapshotReal GDP Growth (y-o-y%)

6.56.0

5.3 5.55.3

4.7 4.84.4

4.8

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

Source: CSO & RBI

22.6

32.6

18.121.8

5.2

5.4

6.7

3.6

4.9

1.2

8

6

4

2

0

35

30

25

20

15

10

5

0

2QFY13 3QFY13 4QFY13 1QFY14 2QFY14

CAD (US$ billion) CAD (as a % of GDP) RHS

Page 13: Economy Matters, November-December 2013

Cautious Optimism on Growth and Current Account

analysts. GDP growth marginally lifted to 4.8 per cent in

the April-September quarter from 4.4 per cent in the

preceding quarter and CAD fell to 1.2 per cent of GDP

from 5.0 per cent in the previous quarter. The good news

is that the economy seems to be bottoming out and

current account concerns too have retreated. The not-

so-good news is that GDP will only see a mild bounce

from the trough as drivers to crank up GDP growth

beyond 5 per cent in this fiscal year are absent. And, even

the reduction in CAD is largely due to artificial controls

on gold imports and the slowing economy. Let me

elaborate.The data on India's current account deficit (CAD) and

GDP released over the last one month has injected a

dose of mild optimism among policymakers and market

10ECONOMY MATTERS

Other Global Developments During the Month

v

v

v

v

The Fed surprised the market, announcing that it would reduce its bond buying program from US$ 85

billion/month to US$75billion/month. As per the announcement, Fed would trim its purchases of long-term

Treasury bonds to US$40 billion/month (from US$45 billion previously), and cut its purchases of mortgage-

backed securities (MBS) to US$35 billion/month (from US$40 billion previously).

Non-farm payrolls (NFP) in US increased by 203K in November 2013, much higher than market expectations of

an increase of 185K. Total job additions for September and October were revised to 163K and 200K respectively,

taking the 2013 monthly average to 187K as compared to 182K in 2012.

The unemployment rate in the UK fell to 7.4 per cent in the three months ending October 2013, as against 7.6 per

cent in the previous rolling quarter (ending September 2013). Notably, the number of unemployed people

declined 78,000 m-o-m (99,000 q-o-q) in October 2013, marking the highest monthly decline in more than the

past four decades, beating its previous highest fall of 71,000 in the quarter ending September 1997.

UK inflation fell to its 4-year lowest level in November 2013. The Consumer price Index (CPI) grew 2.1 per cent on

y-o-y basis last month, as against 2.2 per cent in October and 2.6 per cent a year ago. The largest negative

contributions came from 'food', wherein inflation eased from 4.3 per cent in October to 3.0 per cent in

November.

DOMESTIC TRENDS

11 NOVEMBER - DECEMBER 2013

Mr Dharmakirti JoshiMember, CII Economic Policy Council and

Chief Economist, CRISIL

Current Account Deficit SnapshotReal GDP Growth (y-o-y%)

6.56.0

5.3 5.55.3

4.7 4.84.4

4.8

2QFY

12

3QFY

12

4QFY

12

1QFY

13

2QFY

13

3QFY

13

4QFY

13

1QFY

14

2QFY

14

Source: CSO & RBI

22.6

32.6

18.121.8

5.2

5.4

6.7

3.6

4.9

1.2

8

6

4

2

0

35

30

25

20

15

10

5

0

2QFY13 3QFY13 4QFY13 1QFY14 2QFY14

CAD (US$ billion) CAD (as a % of GDP) RHS

Page 14: Economy Matters, November-December 2013

have been the culprit. The contraction in industrial

output however did not come as a surprise as it was

preceded by a decline in the core sector output (which

constitutes close to 38 per cent of the total index) by 0.6

per cent during the reporting month and a high base of

last year. The decline in output of eight core sector

industries - coal, crude oil, natural gas, refinery

products, fertilisers, steel, cement, electricity -- follows

Industrial output declined by 1.8 per cent in October

2013 as compared to 2.0 per cent growth in the previous

month and 8.4 per cent growth in the same period last

year. The decline in IIP during the month was

underpinned by contraction in many of its sub-sectors

such as manufacturing, mining, basic and consumer

goods. While high interest rates continue to impinge on

these sectoral growth rates, policy bottlenecks too

growth. Industrial growth picked up to 2.4 per cent in

Q2FY14 from a mere 0.2 per cent in the previous quarter.

But a large part of the industry, particularly linked to

investment and discretionary consumer spending

(automobiles, white goods etc) remains weak and will

grow at a slower pace than last year. Services growth,

too, remained weak at 5.9 per cent in the second

quarter.

The 4.8 per cent growth in GDP in Q2FY14 was propelled

by a mild upturn in industry and a sharp pick-up in

agriculture. Agriculture benefitted from a normal, well-

distributed monsoon (rains have been 6 per cent above

normal this year) and some sectors with rural exposure

such as tractors and two-wheelers gained from this. The

pick-up in exports in a few sectors such as textiles and

pharmaceuticals is providing a cushion to industrial

Supply-Side Components of GDP

Source : CSO

(y-o-y%) 1QFY13 2QFY13 Q1FY14 Q2FY14

GDP at factor cost 5.4 5.2 4.4 4.8

Agriculture 5.4 5.2 2.7 4.6

Industry 1.8 1.3 0.2 2.4

Services 7.7 7.6 6.6 5.9

Mining & quarrying 0.4 1.7 -2.8 -0.4

Manufacturing -1.0 0.1 -1.2 1.0

Construction 7.0 3.1 2.8 4.3

Electricity, gas & water supply 6.2 3.2 3.7 7.7

Trade, hotels, transport & communication 6.1 6.8 3.9 4.0

Financing, insurance, real estate & 9.3 8.3 8.9 10.0business services

Community, social & personal services 8.9 8.4 9.4 4.2

private corporate investment and manufacturing sector

are both revived, a material and sustainable lift in India's

GDP growth is unlikely.

The sharp drop in CAD was due to a variety of factors,

but not all of them can be treated as positive. The

improvement in CAD was due to: (i) curbs on gold

imports, ii) sharp slowdown in domestic demand, which

pulled down imports of consumption and investment

goods, and (iii) a weak rupee, which benefitted exports.

The steep fall in gold imports, due to duty hikes and

restrictions on imports, has been the dominant factor

behind the drop in CAD. This may not be sustainable and

curbs on gold imports will have to be eventually

withdrawn. As and when that happens, gold import

demand will once again escalate. It is, therefore, critical

to come out with attractive investment options that

provide a hedge against inflation. Successfully

launching an inflation indexed bond is one such option.

One positive spillover of slowing demand has been

reduced imports of both consumption and investment

Despite the recent pick-up, overall GDP growth will

remain sub-par at 4.8 per cent in 2013-14; GDP growth

will be marginally better in the second half (5.0 per cent)

compared with the first half (4.6 per cent).

In the short run, policymakers do not have instruments

to fire up growth; high deficits do not permit increase in

government spending to create demand and high

inflation precludes interest-rate cuts. The Reserve Bank

of India (RBI) recently raised interest rates to tame

inflation, which continues to stay above its tolerance

level. In addition, the private investment climate

continues to be weak due to tardy project clearances,

high interest rates and the added uncertainty of

impending general election results.

Not only has short-term growth come down, India's

medium-term potential too has been dented. With the

growth in the first two years of the 12th five year plan

(2012-2017) at 5 per cent per year, the growth for the

entire plan period is likely to be around 6 per cent per

year compared to 8 per cent in the previous plan. Unless

source their inputs domestically such as IT-ITES and

pharmaceuticals also benefited from a weak currency.

Consequently, exports grew by 11.9 per cent whereas

imports fell by 4.8 per cent in the second quarter of 2013-

14. The net result was a sharp contraction in India's trade

deficit. This together with a pick-up in remittances

narrowed the CAD to 1.2 per cent of GDP.

goods. This together with the sharp depreciation of the

rupee against the US dollar not only boosted exports but

also made imports less attractive. Textile exports got a

short in the arm from the weak rupee. The appreciation

of the Bangladesh Taka against the US dollar also

improved the relative competitiveness of India's textile

exports. Similarly, other export-oriented sectors that

12ECONOMY MATTERS 13 NOVEMBER - DECEMBER 2013

-4.6

-8.8

4.05.7

-1.5

11.9

-3.9-3.0

10.4

-1.0

4.7

-4.8

1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14

Exports Imports

Growth in Merchandise Exports & Imports (y-o-y%)

Source: RBI

by entering into currency swap agreements (notable

being the US$50 billion agreement with Japan). These

developments have helped stabilise the rupee, which

has been extremely volatile in recent months and

touched a low of over 68/US$ in August.

This is, however, a short term fix. India should use this

opportunity to fix its innards in the external sector -

make exports competitive and come out with viable

alternatives to gold investments. Unless that happens,

CAD worries could come to haunt us again when the

curbs on gold imports are lifted and the domestic

economy begins to look up.

A low CAD implies reduced dependence on foreign

inflows, which vary with global risk appetite and

liquidity. The global environment still remains fragile

with US Fed tapering a key risk to both global risk

appetite as well as liquidity. The postponement of the

taper provided India a window of opportunity to trim its

CAD and also improve its financing.

From a short-term crisis management perspective, we

have done well on both counts. We reduced our external

vulnerability by cutting CAD while improving capital

inflows through innovative schemes for attracting NRI

deposits and building a cushion against external shocks

Industrial Growth Disappoints in October 2013

Page 15: Economy Matters, November-December 2013

have been the culprit. The contraction in industrial

output however did not come as a surprise as it was

preceded by a decline in the core sector output (which

constitutes close to 38 per cent of the total index) by 0.6

per cent during the reporting month and a high base of

last year. The decline in output of eight core sector

industries - coal, crude oil, natural gas, refinery

products, fertilisers, steel, cement, electricity -- follows

Industrial output declined by 1.8 per cent in October

2013 as compared to 2.0 per cent growth in the previous

month and 8.4 per cent growth in the same period last

year. The decline in IIP during the month was

underpinned by contraction in many of its sub-sectors

such as manufacturing, mining, basic and consumer

goods. While high interest rates continue to impinge on

these sectoral growth rates, policy bottlenecks too

growth. Industrial growth picked up to 2.4 per cent in

Q2FY14 from a mere 0.2 per cent in the previous quarter.

But a large part of the industry, particularly linked to

investment and discretionary consumer spending

(automobiles, white goods etc) remains weak and will

grow at a slower pace than last year. Services growth,

too, remained weak at 5.9 per cent in the second

quarter.

The 4.8 per cent growth in GDP in Q2FY14 was propelled

by a mild upturn in industry and a sharp pick-up in

agriculture. Agriculture benefitted from a normal, well-

distributed monsoon (rains have been 6 per cent above

normal this year) and some sectors with rural exposure

such as tractors and two-wheelers gained from this. The

pick-up in exports in a few sectors such as textiles and

pharmaceuticals is providing a cushion to industrial

Supply-Side Components of GDP

Source : CSO

(y-o-y%) 1QFY13 2QFY13 Q1FY14 Q2FY14

GDP at factor cost 5.4 5.2 4.4 4.8

Agriculture 5.4 5.2 2.7 4.6

Industry 1.8 1.3 0.2 2.4

Services 7.7 7.6 6.6 5.9

Mining & quarrying 0.4 1.7 -2.8 -0.4

Manufacturing -1.0 0.1 -1.2 1.0

Construction 7.0 3.1 2.8 4.3

Electricity, gas & water supply 6.2 3.2 3.7 7.7

Trade, hotels, transport & communication 6.1 6.8 3.9 4.0

Financing, insurance, real estate & 9.3 8.3 8.9 10.0business services

Community, social & personal services 8.9 8.4 9.4 4.2

private corporate investment and manufacturing sector

are both revived, a material and sustainable lift in India's

GDP growth is unlikely.

The sharp drop in CAD was due to a variety of factors,

but not all of them can be treated as positive. The

improvement in CAD was due to: (i) curbs on gold

imports, ii) sharp slowdown in domestic demand, which

pulled down imports of consumption and investment

goods, and (iii) a weak rupee, which benefitted exports.

The steep fall in gold imports, due to duty hikes and

restrictions on imports, has been the dominant factor

behind the drop in CAD. This may not be sustainable and

curbs on gold imports will have to be eventually

withdrawn. As and when that happens, gold import

demand will once again escalate. It is, therefore, critical

to come out with attractive investment options that

provide a hedge against inflation. Successfully

launching an inflation indexed bond is one such option.

One positive spillover of slowing demand has been

reduced imports of both consumption and investment

Despite the recent pick-up, overall GDP growth will

remain sub-par at 4.8 per cent in 2013-14; GDP growth

will be marginally better in the second half (5.0 per cent)

compared with the first half (4.6 per cent).

In the short run, policymakers do not have instruments

to fire up growth; high deficits do not permit increase in

government spending to create demand and high

inflation precludes interest-rate cuts. The Reserve Bank

of India (RBI) recently raised interest rates to tame

inflation, which continues to stay above its tolerance

level. In addition, the private investment climate

continues to be weak due to tardy project clearances,

high interest rates and the added uncertainty of

impending general election results.

Not only has short-term growth come down, India's

medium-term potential too has been dented. With the

growth in the first two years of the 12th five year plan

(2012-2017) at 5 per cent per year, the growth for the

entire plan period is likely to be around 6 per cent per

year compared to 8 per cent in the previous plan. Unless

source their inputs domestically such as IT-ITES and

pharmaceuticals also benefited from a weak currency.

Consequently, exports grew by 11.9 per cent whereas

imports fell by 4.8 per cent in the second quarter of 2013-

14. The net result was a sharp contraction in India's trade

deficit. This together with a pick-up in remittances

narrowed the CAD to 1.2 per cent of GDP.

goods. This together with the sharp depreciation of the

rupee against the US dollar not only boosted exports but

also made imports less attractive. Textile exports got a

short in the arm from the weak rupee. The appreciation

of the Bangladesh Taka against the US dollar also

improved the relative competitiveness of India's textile

exports. Similarly, other export-oriented sectors that

12ECONOMY MATTERS 13 NOVEMBER - DECEMBER 2013

-4.6

-8.8

4.05.7

-1.5

11.9

-3.9-3.0

10.4

-1.0

4.7

-4.8

1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14

Exports Imports

Growth in Merchandise Exports & Imports (y-o-y%)

Source: RBI

by entering into currency swap agreements (notable

being the US$50 billion agreement with Japan). These

developments have helped stabilise the rupee, which

has been extremely volatile in recent months and

touched a low of over 68/US$ in August.

This is, however, a short term fix. India should use this

opportunity to fix its innards in the external sector -

make exports competitive and come out with viable

alternatives to gold investments. Unless that happens,

CAD worries could come to haunt us again when the

curbs on gold imports are lifted and the domestic

economy begins to look up.

A low CAD implies reduced dependence on foreign

inflows, which vary with global risk appetite and

liquidity. The global environment still remains fragile

with US Fed tapering a key risk to both global risk

appetite as well as liquidity. The postponement of the

taper provided India a window of opportunity to trim its

CAD and also improve its financing.

From a short-term crisis management perspective, we

have done well on both counts. We reduced our external

vulnerability by cutting CAD while improving capital

inflows through innovative schemes for attracting NRI

deposits and building a cushion against external shocks

Industrial Growth Disappoints in October 2013

Page 16: Economy Matters, November-December 2013

OutlookThe negative growth in industrial performance evidenced at the threshold of the third quarter is disappointing. No

doubt, the high base effect of last year could have been partly responsible for the slowdown in growth. But this

does not dispel the impression that the growth impulses continue to remain weak. CII fully appreciates RBI's

compulsions to keep inflation under check, however, it is also important that the RBI takes cognizance of the steep

slide of industrial production and revert to the accommodative monetary policy to revive demand. However,

easing monetary policy alone is not sufficient. Efforts should be made to ensure that the structural bottlenecks and

other hurdles which constrain investment even after the project has been approved by CCI is checked so that the

actual impact of project clearance is seen on the ground.

territory in October 2013. On a cumulative basis, for the

first seven months of the fiscal, IIP growth remained flat.

a robust 8 per cent growth in September 2013. The

sequential momentum declined too as the seasonally-

adjusted month-on-month series slid into the negative

compared to decline of 6.7 per cent in the previous

month, despite an adverse base effect. This actually

helped to prop up the headline number to some extent

as IIP excluding capital goods would have contracted by

2.4 per cent. Consumer goods remains a drag primarily

led by the continuing weakness in the durables sector,

which was on expected lines as lead indicators such as

passenger car sales had shown a contraction in October

2013 despite festive season demand. During the month,

consumer goods sector showed de-growth to the tune

of 5.1 per cent in October 2013 as compared to positive

growth of 0.7 per cent in the previous month. The

continued poor performance by consumer durables

since last the last three quarters, wherein it remained in

the negative territory, is a matter of concern as it is

widely regarded as a proxy for consumption growth.

Non-durables, on the other hand, remained in the

positive territory, albeit showing a sharp moderation in

output in October 2013 as compared to the previous

month. Going ahead, we expect recovery in this

component as high growth in agricultural GDP this year

will support rural demand, which will prop up non-

durables even if urban demand remains weak.

On the sectoral front, manufacturing sector production

declined by 2.0 per cent in October 2013 as compared to

0.6 per cent growth in the previous month. This is the

fourth negative data print so far in this fiscal and has

elevated the upside risks to growth. In terms of

industries, ten (10) out of the twenty two (22) industry

groups (as per 2-digit NIC-2004) in the manufacturing

sector have shown negative growth during the month of

October 2013. It's pivotal for the policy makers to

announce measures to revive this ailing sector as its

rebound is critical for aiding the pickup in overall

industrial growth. Meanwhile, regulatory and

environmental issues continued to plague the mining

sector, as it contracted by 3.5 per cent in October 2013

and proved that the lone positive growth data print in

September 2013 was a mere aberration. Electricity

sector growth, which has remained on a strong footing

since last couple of months, witnessed a downward

momentum in October 2013 as its growth decelerated to

1.3 per cent as compared to a healthy 8.4 per cent

average growth from July-September 2013.

On the use-based front, the consistently volatile capital

goods segment surprised by coming in at 2.3 per cent as

-2.0 -1.8

10

5

0

-5

Jun/

12

Aug

/12

Oct

/12

Dec

/12

Feb

/13

Apr

/13

Jun/

13

Aug

/13

Oct

/13

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

IIP Contracts in October 2013

Source: CSO & CII calculations

Sectoral Growth (y-o-y, %)

Source : CSO

General 1000.0 8.4 0.4 2.0 -1.8 1.2 0.0

Manufacturing 755.3 9.9 -0.2 0.6 -2.0 1.1 -0.3

Mining 141.6 -0.2 -1.0 3.3 -3.5 -1.0 -2.7

Electricity 103.2 5.5 7.2 12.9 1.3 4.7 5.3

Use-Based

Basic 456.8 4.3 1.1 5.3 -1.6 2.9 0.7

Capital 88.3 7.0 -2.0 -6.7 2.3 -11.6 -0.2

Intermediates 156.9 9.6 3.7 4.2 1.8 2.3 2.5

Consumer Goods 298.1 13.8 -0.9 0.7 -5.1 4.2 -1.8

-Durables 84.6 16.7 -7.7 -10.8 -12.0 5.7 -11.2

-Non durables 213.5 11.2 4.8 11.6 1.8 2.8 6.7

Apr-Oct

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

14 15 NOVEMBER - DECEMBER 2013

worrying development, the September inflation

reading was revised up to 7.1 per cent versus provisional

print of 6.5 per cent. To be sure, consumer prices based

inflation (CPI) too quickened to 11.2 per cent in October

2013 from 10.1 per cent in the previous month. Rising

food prices have continued to remain the key driver

behind the jump in both WPI and CPI inflation in the last

few months. Additionally, the continued pass-through

from the weakening of the exchange rate has also

contributed towards pushing the headline inflation

number higher.

WPI inflation accelerated to more than one year high of

7.5 per cent in November 2013 as compared to 7.0 per

cent in the previous month on the back of increase in

food and fuel inflation. Amongst the food prices,

vegetable prices were the main driver which rose to a

record high of 95.3 per cent during the month. This is the

sixth straight month that wholesale inflation has

remained above the Reserve Bank of India's comfort

zone of 5 per cent and in the last four months has even

inched to 7 per cent. Indicating the upward sequential

momentum, the seasonally-adjusted month-on-month

series climbed to 1.0 per cent during the month. In a

Inflation Rises to 14-month High in October 2013

ECONOMY MATTERS

Page 17: Economy Matters, November-December 2013

OutlookThe negative growth in industrial performance evidenced at the threshold of the third quarter is disappointing. No

doubt, the high base effect of last year could have been partly responsible for the slowdown in growth. But this

does not dispel the impression that the growth impulses continue to remain weak. CII fully appreciates RBI's

compulsions to keep inflation under check, however, it is also important that the RBI takes cognizance of the steep

slide of industrial production and revert to the accommodative monetary policy to revive demand. However,

easing monetary policy alone is not sufficient. Efforts should be made to ensure that the structural bottlenecks and

other hurdles which constrain investment even after the project has been approved by CCI is checked so that the

actual impact of project clearance is seen on the ground.

territory in October 2013. On a cumulative basis, for the

first seven months of the fiscal, IIP growth remained flat.

a robust 8 per cent growth in September 2013. The

sequential momentum declined too as the seasonally-

adjusted month-on-month series slid into the negative

compared to decline of 6.7 per cent in the previous

month, despite an adverse base effect. This actually

helped to prop up the headline number to some extent

as IIP excluding capital goods would have contracted by

2.4 per cent. Consumer goods remains a drag primarily

led by the continuing weakness in the durables sector,

which was on expected lines as lead indicators such as

passenger car sales had shown a contraction in October

2013 despite festive season demand. During the month,

consumer goods sector showed de-growth to the tune

of 5.1 per cent in October 2013 as compared to positive

growth of 0.7 per cent in the previous month. The

continued poor performance by consumer durables

since last the last three quarters, wherein it remained in

the negative territory, is a matter of concern as it is

widely regarded as a proxy for consumption growth.

Non-durables, on the other hand, remained in the

positive territory, albeit showing a sharp moderation in

output in October 2013 as compared to the previous

month. Going ahead, we expect recovery in this

component as high growth in agricultural GDP this year

will support rural demand, which will prop up non-

durables even if urban demand remains weak.

On the sectoral front, manufacturing sector production

declined by 2.0 per cent in October 2013 as compared to

0.6 per cent growth in the previous month. This is the

fourth negative data print so far in this fiscal and has

elevated the upside risks to growth. In terms of

industries, ten (10) out of the twenty two (22) industry

groups (as per 2-digit NIC-2004) in the manufacturing

sector have shown negative growth during the month of

October 2013. It's pivotal for the policy makers to

announce measures to revive this ailing sector as its

rebound is critical for aiding the pickup in overall

industrial growth. Meanwhile, regulatory and

environmental issues continued to plague the mining

sector, as it contracted by 3.5 per cent in October 2013

and proved that the lone positive growth data print in

September 2013 was a mere aberration. Electricity

sector growth, which has remained on a strong footing

since last couple of months, witnessed a downward

momentum in October 2013 as its growth decelerated to

1.3 per cent as compared to a healthy 8.4 per cent

average growth from July-September 2013.

On the use-based front, the consistently volatile capital

goods segment surprised by coming in at 2.3 per cent as

-2.0 -1.8

10

5

0

-5

Jun/

12

Aug

/12

Oct

/12

Dec

/12

Feb

/13

Apr

/13

Jun/

13

Aug

/13

Oct

/13

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

IIP Contracts in October 2013

Source: CSO & CII calculations

Sectoral Growth (y-o-y, %)

Source : CSO

General 1000.0 8.4 0.4 2.0 -1.8 1.2 0.0

Manufacturing 755.3 9.9 -0.2 0.6 -2.0 1.1 -0.3

Mining 141.6 -0.2 -1.0 3.3 -3.5 -1.0 -2.7

Electricity 103.2 5.5 7.2 12.9 1.3 4.7 5.3

Use-Based

Basic 456.8 4.3 1.1 5.3 -1.6 2.9 0.7

Capital 88.3 7.0 -2.0 -6.7 2.3 -11.6 -0.2

Intermediates 156.9 9.6 3.7 4.2 1.8 2.3 2.5

Consumer Goods 298.1 13.8 -0.9 0.7 -5.1 4.2 -1.8

-Durables 84.6 16.7 -7.7 -10.8 -12.0 5.7 -11.2

-Non durables 213.5 11.2 4.8 11.6 1.8 2.8 6.7

Apr-Oct

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

14 15 NOVEMBER - DECEMBER 2013

worrying development, the September inflation

reading was revised up to 7.1 per cent versus provisional

print of 6.5 per cent. To be sure, consumer prices based

inflation (CPI) too quickened to 11.2 per cent in October

2013 from 10.1 per cent in the previous month. Rising

food prices have continued to remain the key driver

behind the jump in both WPI and CPI inflation in the last

few months. Additionally, the continued pass-through

from the weakening of the exchange rate has also

contributed towards pushing the headline inflation

number higher.

WPI inflation accelerated to more than one year high of

7.5 per cent in November 2013 as compared to 7.0 per

cent in the previous month on the back of increase in

food and fuel inflation. Amongst the food prices,

vegetable prices were the main driver which rose to a

record high of 95.3 per cent during the month. This is the

sixth straight month that wholesale inflation has

remained above the Reserve Bank of India's comfort

zone of 5 per cent and in the last four months has even

inched to 7 per cent. Indicating the upward sequential

momentum, the seasonally-adjusted month-on-month

series climbed to 1.0 per cent during the month. In a

Inflation Rises to 14-month High in October 2013

ECONOMY MATTERS

Page 18: Economy Matters, November-December 2013

7.7

7.5

9.4

11.212

10

8

6

4

2

Mar

-12

May

-12

Jul-1

2

Sep

-12

Nov

-12

Jan-

13

Mar

-13

May

-13

Jul-1

3

Sep

-13

Nov

-13

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

Both WPI & CPI Inflation Remain High

Source: Office of Economic Advisor

month. High-speed diesel inflation rose to 15.7 per cent

with in October 2013 as compared to 14.7 per cent in the

previous month. Going forward, we expect fuel inflation

to moderate due to stabilisation witnessed in global

crude prices and the recent strengthening of the Rupee.

Manufacturing inflation marginally increased to 2.6 per

cent in October 2013 as compared to 2.5 per cent in the

last month. Non-food manufacturing, which is widely

regarded as the proxy for demand-side pressures in the

economy, too increased marginally to 2.7 per cent

during the reporting month as compared to 2.6 per cent

last month. The persistent rise in primary food inflation

in this fiscal is now leading to a pass-through effect on

manufactured food products where the food prices rose

by 2.5 per cent in October 2013 as compared to 1.9 per

cent in the previous month. Mirroring the increasing

trend in primary and manufacturing food inflation, total

food inflation (primary and manufacturing) too rose to

13.8 per cent from 12.4 per cent in the previous month.

Primary inflation jumped sharply to 15.9 per cent in

November 2013 (highest value since February 2011) as

compared to 14.7 per cent in the previous month. This

was mainly attributable to the spike in food inflation to a

high of 19.9 per cent as against 18.2 per cent in October

2013. The major increase in the food inflation came on

account of a rise in inflation in vegetables, which rose

due to supply-side inefficiencies in the vegetable

market. Going forward, vegetable prices are expected

to come down due to off-load of fresh vegetable supply

in the market in December 2013. Non-food inflation too

increased to 7.6 per cent as against 6.8 per cent in the

previous month. In contrast, inflation in minerals

decelerated to 6.1 per cent as compared to 7.0 per cent

in the previous month.

Fuel inflation increased to 11.1 per cent in October 2013 as

against 10.3 per cent in the previous month, driven by

rise in administered fuel components like diesel prices

and LPG prices. An adverse base effect was also partly

responsible in pushing fuel prices higher during the

Sectoral Components of Inflation

Source: Office of Economic Advisor

OutlookThe continued rise in both WPI and CPI inflation has raised red flags in the economy. Persistence of high food prices

has lent an upward bias to the inflation trajectory. Notwithstanding the expected moderation in food prices going

forward due to the fresh stock of vegetable supply hitting the market, the food shock prevalent since last many

months has started to become increasingly generalised, which in all probability will keep headline number elevated

for the next few months. However, the lagged effects of effective monetary tightening since September 2013,

should also exert an opposite force on inflation.

RBI Keeps Policy Rate Unchanged RBI chose to keep the key interest rates unchanged in its mid-quarter monetary policy review held on December

18th, 2013. The repo rate was maintained at 7.75 per cent, and accordingly reverse repo and marginal standing

facility (MSF) remain unchanged at 6.75 and 8.75 per cent, respectively. Though the market participants were

expecting the RBI to hike the key repo rate by atleast 25 bps, RBI chose to maintain a 'status-quo', citing

expectations of tapering of inflation going forward along with weak state of the economy. CII welcomes this RBI's

move. However, RBI clearly admitted in its policy statement that its decision was a close one as it would prefer

waiting for more data points to reduce uncertainty. In the same vein, it also added that there are obvious risks to

waiting for more data, including the possibility that tapering of quantitative easing by the US Fed may disrupt

external markets and that it may be perceived to be soft on inflation. The Central Bank also made it amply clear that

if the next round of data releases does not go on expected lines and throws up some surprises, it will act including on

off-policy dates if warranted, so that inflation expectations stabilise and an environment conducive to sustainable

growth takes hold.

Know Your Facts: Shadow Banking*Shadow banking refers to a "bank-like" activity outside the banking system. The Financial Stability Board (FSB),

which coordinates among financial authorities at the international level, defines shadow banking as "credit

intermediation involving entities and activities outside the regular banking system". Globally, the size of shadow

baking has grown significantly in the recent years. According to FSB, its global size went up from the level of $26

trillion in 2002 to $62 trillion in 2007. The activity suffered a bit during the financial crisis, but reached a level of $67

trillion in 2011, which is 111 per cent of the global gross domestic products (GDP). The term shadow banking itself is

relatively new and gained currency just before the financial crisis. Institutions outside the banking system in the

developed world, especially in the US, were leveraging themselves to accumulate assets and were, to a large

extent, responsible for the meltdown in 2008. There are different ways and different reasons for the rise of shadow

banking. In an economy where banking system is not adequately spread, something will come in to fill the vacuum.

In India, as per RBI data, the assets of the shadow banking system (in India) accounted for 21 per cent of GDP

compared with bank assets which were 86 per cent of GDP. However, a variety of institutions, such as non-banking

financial institutions, that are part of the shadow banking system is regulated in India.

General 100.0 7.2 7.0 7.0 7.5 7.6 6.1

Primary 20.1 9.6 14.0 14.7 15.9 9.7 11.0

- Food 14.3 8.8 18.7 18.2 19.9 9.4 14.2

- Non-Food 4.3 14.0 4.9 6.8 7.6 10.0 5.8

- Minerals 1.5 6.9 2.3 7.0 6.1 11.3 0.9

Fuel 14.9 10.0 11.7 10.3 11.1 10.8 10.1

- Petrol 1.1 1.5 9.6 5.3 4.4 8.0 1.9

- High Speed Diesel 4.7 14.6 20.2 14.7 15.7 8.0 21.0

Manufacturing 65.0 5.4 2.4 2.5 2.6 5.7 2.8

- Food 10.0 9.2 1.6 1.9 2.5 8.0 4.1

- Non-food 55.0 4.6 2.5 2.6 2.7 5.3 2.5

April-Nov

Weight Nov-12 Sept-13 Oct-13 Nov-13 FY13 Fy14

*Adapted from Mint, dated June 20, 2013

17 NOVEMBER - DECEMBER 201316ECONOMY MATTERS

Page 19: Economy Matters, November-December 2013

7.7

7.5

9.4

11.212

10

8

6

4

2

Mar

-12

May

-12

Jul-1

2

Sep

-12

Nov

-12

Jan-

13

Mar

-13

May

-13

Jul-1

3

Sep

-13

Nov

-13

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

Both WPI & CPI Inflation Remain High

Source: Office of Economic Advisor

month. High-speed diesel inflation rose to 15.7 per cent

with in October 2013 as compared to 14.7 per cent in the

previous month. Going forward, we expect fuel inflation

to moderate due to stabilisation witnessed in global

crude prices and the recent strengthening of the Rupee.

Manufacturing inflation marginally increased to 2.6 per

cent in October 2013 as compared to 2.5 per cent in the

last month. Non-food manufacturing, which is widely

regarded as the proxy for demand-side pressures in the

economy, too increased marginally to 2.7 per cent

during the reporting month as compared to 2.6 per cent

last month. The persistent rise in primary food inflation

in this fiscal is now leading to a pass-through effect on

manufactured food products where the food prices rose

by 2.5 per cent in October 2013 as compared to 1.9 per

cent in the previous month. Mirroring the increasing

trend in primary and manufacturing food inflation, total

food inflation (primary and manufacturing) too rose to

13.8 per cent from 12.4 per cent in the previous month.

Primary inflation jumped sharply to 15.9 per cent in

November 2013 (highest value since February 2011) as

compared to 14.7 per cent in the previous month. This

was mainly attributable to the spike in food inflation to a

high of 19.9 per cent as against 18.2 per cent in October

2013. The major increase in the food inflation came on

account of a rise in inflation in vegetables, which rose

due to supply-side inefficiencies in the vegetable

market. Going forward, vegetable prices are expected

to come down due to off-load of fresh vegetable supply

in the market in December 2013. Non-food inflation too

increased to 7.6 per cent as against 6.8 per cent in the

previous month. In contrast, inflation in minerals

decelerated to 6.1 per cent as compared to 7.0 per cent

in the previous month.

Fuel inflation increased to 11.1 per cent in October 2013 as

against 10.3 per cent in the previous month, driven by

rise in administered fuel components like diesel prices

and LPG prices. An adverse base effect was also partly

responsible in pushing fuel prices higher during the

Sectoral Components of Inflation

Source: Office of Economic Advisor

OutlookThe continued rise in both WPI and CPI inflation has raised red flags in the economy. Persistence of high food prices

has lent an upward bias to the inflation trajectory. Notwithstanding the expected moderation in food prices going

forward due to the fresh stock of vegetable supply hitting the market, the food shock prevalent since last many

months has started to become increasingly generalised, which in all probability will keep headline number elevated

for the next few months. However, the lagged effects of effective monetary tightening since September 2013,

should also exert an opposite force on inflation.

RBI Keeps Policy Rate Unchanged RBI chose to keep the key interest rates unchanged in its mid-quarter monetary policy review held on December

18th, 2013. The repo rate was maintained at 7.75 per cent, and accordingly reverse repo and marginal standing

facility (MSF) remain unchanged at 6.75 and 8.75 per cent, respectively. Though the market participants were

expecting the RBI to hike the key repo rate by atleast 25 bps, RBI chose to maintain a 'status-quo', citing

expectations of tapering of inflation going forward along with weak state of the economy. CII welcomes this RBI's

move. However, RBI clearly admitted in its policy statement that its decision was a close one as it would prefer

waiting for more data points to reduce uncertainty. In the same vein, it also added that there are obvious risks to

waiting for more data, including the possibility that tapering of quantitative easing by the US Fed may disrupt

external markets and that it may be perceived to be soft on inflation. The Central Bank also made it amply clear that

if the next round of data releases does not go on expected lines and throws up some surprises, it will act including on

off-policy dates if warranted, so that inflation expectations stabilise and an environment conducive to sustainable

growth takes hold.

Know Your Facts: Shadow Banking*Shadow banking refers to a "bank-like" activity outside the banking system. The Financial Stability Board (FSB),

which coordinates among financial authorities at the international level, defines shadow banking as "credit

intermediation involving entities and activities outside the regular banking system". Globally, the size of shadow

baking has grown significantly in the recent years. According to FSB, its global size went up from the level of $26

trillion in 2002 to $62 trillion in 2007. The activity suffered a bit during the financial crisis, but reached a level of $67

trillion in 2011, which is 111 per cent of the global gross domestic products (GDP). The term shadow banking itself is

relatively new and gained currency just before the financial crisis. Institutions outside the banking system in the

developed world, especially in the US, were leveraging themselves to accumulate assets and were, to a large

extent, responsible for the meltdown in 2008. There are different ways and different reasons for the rise of shadow

banking. In an economy where banking system is not adequately spread, something will come in to fill the vacuum.

In India, as per RBI data, the assets of the shadow banking system (in India) accounted for 21 per cent of GDP

compared with bank assets which were 86 per cent of GDP. However, a variety of institutions, such as non-banking

financial institutions, that are part of the shadow banking system is regulated in India.

General 100.0 7.2 7.0 7.0 7.5 7.6 6.1

Primary 20.1 9.6 14.0 14.7 15.9 9.7 11.0

- Food 14.3 8.8 18.7 18.2 19.9 9.4 14.2

- Non-Food 4.3 14.0 4.9 6.8 7.6 10.0 5.8

- Minerals 1.5 6.9 2.3 7.0 6.1 11.3 0.9

Fuel 14.9 10.0 11.7 10.3 11.1 10.8 10.1

- Petrol 1.1 1.5 9.6 5.3 4.4 8.0 1.9

- High Speed Diesel 4.7 14.6 20.2 14.7 15.7 8.0 21.0

Manufacturing 65.0 5.4 2.4 2.5 2.6 5.7 2.8

- Food 10.0 9.2 1.6 1.9 2.5 8.0 4.1

- Non-food 55.0 4.6 2.5 2.6 2.7 5.3 2.5

April-Nov

Weight Nov-12 Sept-13 Oct-13 Nov-13 FY13 Fy14

*Adapted from Mint, dated June 20, 2013

17 NOVEMBER - DECEMBER 201316ECONOMY MATTERS

Page 20: Economy Matters, November-December 2013

identifying the exemptions and determination of RNR.

An important pending issue is finalisation of the rules

relating to 'Place and Time of Supply of Goods &

Services'. On the issue of Dual GST, the States have

sought to administer and collect on Centre's behalf

CGST as well, for Small Business with a threshold of

annual turn-over of Rs 1.5 crore. While opposing this

move, the Centre pointed out that a slew of measures

including use of robust technology would mitigate the

apprehensions of the Small Business on dual control.

The issue of collection of SGST in inter-state transactions

by Centre was closed in the First Discussion Paper itself

when the Integrated GST (IGST) model was chosen. But

some States have desired to administer SGST on inter-

state transactions as well. Final decision on these

important technical issues are critical for designing the

GST-Net, a special purpose vehicle that would provide

the IT support for GST business processes.

Thus, besides the issue of Constitutional amendment,

lot of grounds will have to be covered on technical

issues as well before a decent dual GST can be

introduced. In the light of the seemingly endless

negotiations on these critical issues, a question

therefore arises whether the Centre should seriously

consider introducing its own Central GST by bringing all

Central indirect taxes within its ambit. This would not

require any Constitutional amendment. In fact, Sijbren

Cnossen, an international VAT expert, has recently

suggested precisely this. He has inter alia suggested that

the Centre should proceed to introduce its own GST on

as broad a base as possible and apply a single, uniform

low rate. It would then be upto the States to introduce a

similar GST. He felt that it would be 'easier with an

overarching modern GST at the Central level'. This is a

pragmatic idea, which deserves careful consideration.

The bottom-line, however, is that any further critical

decision with respect to GST will have to wait until the

next General Elections in 2014.

norms are not violated. The Parliamentary Standing

Committee on Finance chaired by Yashwant Sinha

submitted its report on the Bill in July 2013. It made an

unequivocal endorsement of the Dual GST structure.

While making recommendations on various provisions

of the Bill, the all-party Committee also allayed the fears

of some of the States about loss of fiscal autonomy.

The Centre accepted most of the Committee's

recommendations and sent a revised Bill for

endorsement by the States. Some of the features of the

Revised Bill were as follows. The stipulation regarding

'consensus' before every decision of the GST Council

was replaced by 'voting'. The provision regarding GST

Dispute Settlement Authority was dropped, and instead

GST Council was to deal with the disputes. Certain critical

items like Petroleum and Petroleum products, Alcohol

etc were not to be excluded from the ambit of GST in the

Constitutional provision itself. The 'entry tax' including

'Octroi' was to be subsumed in the GST. In deference to

the Committee's observations, the Centre also suitably

modified the provisions regarding 'Declared Goods' by

bringing the GST Council in the loop.

The States, however, in the November meeting of the EC

opposed most of the views of the Centre. They insisted

on retaining the exclusion clause relating to Petroleum,

Alcohol etc in the Constitution itself. They opposed

subsuming of 'entry tax'. They even opposed the

existing Constitutional authority of the Centre with

regard to 'Declared Goods'. They also reiterated the

demand for a formal Constitutional mechanism for

compensating the States for possible revenue loss after

introduction of GST. Against this backdrop, one will now

have to wait for the new Lok Sabha to deal with a new

Amendment Bill after the general elections.

Among the technical issues, agreement has been

reached on 'threshold' which would be an annual

turnover of Rs. 25 lakhs. Exercise is continuing on

GST is Inevitable; - But Only After Next General Elections!

the Empowered Committee of State Finance Ministers

(EC) was tasked to steer the introduction of GST as well.

In November 2009, the EC came out with the First

Discussion Paper on GST which outlined its broad

structures and flagged the issues to be sorted out

between Centre and the States. Some such issues were

determination of 'Threshold' above which GST would be

applicable, items and taxes that would remain outside

its ambit, identification of exemptions, determination of

Revenue Neutral Rates (RNR) and GST rates, and

designing a mechanism of administering Dual Control by

Centre and the States. On taxation of inter-state

transaction of goods and services, it endorsed the

scheme of Integrated GST (IGST) proposed by the

Centre, in terms of which the IGST on inter-state

transactions would be levied and collected by Centre

and distributed to the destination States.

The other important issue was the need for amendment

of the Constitution. The Centre had placed a

Constitution Amendment Bill (the Bill) before

Parliament in March 2011. Besides empowering both

Centre and the States for collecting GST, the Bill

proposed creation of a 'GST Council' and a Dispute

Settlement Authority (DSA) so as to ensure that the GST

Goods and Service Tax (GST) is designed to facilitate

seamless flow of goods and services throughout

the country. With its introduction, there will be minimal

cascading effect of taxing the taxes because of input tax

credit at each taxation point, and optimum contact

between taxpayers and taxmen since its administering

would be technology driven. There will be two streams

of GST - the Central GST and the States GST. The two tax

administrations will have commonality of law,

procedure and dispute resolution mechanisms. Due to

substantially higher tax base, the GST rate is expected to

be low, and that would bring down the price of the

goods and services.

With the success of Value Added Tax (VAT) in the States,

TAXATIONGuest Article

(Views are personal)

18ECONOMY MATTERS 19 NOVEMBER - DECEMBER 2013

Mr Sumit Dutt Mazumdar

Indirect Tax Ombudsman andFormer Chairman, CBEC

Page 21: Economy Matters, November-December 2013

identifying the exemptions and determination of RNR.

An important pending issue is finalisation of the rules

relating to 'Place and Time of Supply of Goods &

Services'. On the issue of Dual GST, the States have

sought to administer and collect on Centre's behalf

CGST as well, for Small Business with a threshold of

annual turn-over of Rs 1.5 crore. While opposing this

move, the Centre pointed out that a slew of measures

including use of robust technology would mitigate the

apprehensions of the Small Business on dual control.

The issue of collection of SGST in inter-state transactions

by Centre was closed in the First Discussion Paper itself

when the Integrated GST (IGST) model was chosen. But

some States have desired to administer SGST on inter-

state transactions as well. Final decision on these

important technical issues are critical for designing the

GST-Net, a special purpose vehicle that would provide

the IT support for GST business processes.

Thus, besides the issue of Constitutional amendment,

lot of grounds will have to be covered on technical

issues as well before a decent dual GST can be

introduced. In the light of the seemingly endless

negotiations on these critical issues, a question

therefore arises whether the Centre should seriously

consider introducing its own Central GST by bringing all

Central indirect taxes within its ambit. This would not

require any Constitutional amendment. In fact, Sijbren

Cnossen, an international VAT expert, has recently

suggested precisely this. He has inter alia suggested that

the Centre should proceed to introduce its own GST on

as broad a base as possible and apply a single, uniform

low rate. It would then be upto the States to introduce a

similar GST. He felt that it would be 'easier with an

overarching modern GST at the Central level'. This is a

pragmatic idea, which deserves careful consideration.

The bottom-line, however, is that any further critical

decision with respect to GST will have to wait until the

next General Elections in 2014.

norms are not violated. The Parliamentary Standing

Committee on Finance chaired by Yashwant Sinha

submitted its report on the Bill in July 2013. It made an

unequivocal endorsement of the Dual GST structure.

While making recommendations on various provisions

of the Bill, the all-party Committee also allayed the fears

of some of the States about loss of fiscal autonomy.

The Centre accepted most of the Committee's

recommendations and sent a revised Bill for

endorsement by the States. Some of the features of the

Revised Bill were as follows. The stipulation regarding

'consensus' before every decision of the GST Council

was replaced by 'voting'. The provision regarding GST

Dispute Settlement Authority was dropped, and instead

GST Council was to deal with the disputes. Certain critical

items like Petroleum and Petroleum products, Alcohol

etc were not to be excluded from the ambit of GST in the

Constitutional provision itself. The 'entry tax' including

'Octroi' was to be subsumed in the GST. In deference to

the Committee's observations, the Centre also suitably

modified the provisions regarding 'Declared Goods' by

bringing the GST Council in the loop.

The States, however, in the November meeting of the EC

opposed most of the views of the Centre. They insisted

on retaining the exclusion clause relating to Petroleum,

Alcohol etc in the Constitution itself. They opposed

subsuming of 'entry tax'. They even opposed the

existing Constitutional authority of the Centre with

regard to 'Declared Goods'. They also reiterated the

demand for a formal Constitutional mechanism for

compensating the States for possible revenue loss after

introduction of GST. Against this backdrop, one will now

have to wait for the new Lok Sabha to deal with a new

Amendment Bill after the general elections.

Among the technical issues, agreement has been

reached on 'threshold' which would be an annual

turnover of Rs. 25 lakhs. Exercise is continuing on

GST is Inevitable; - But Only After Next General Elections!

the Empowered Committee of State Finance Ministers

(EC) was tasked to steer the introduction of GST as well.

In November 2009, the EC came out with the First

Discussion Paper on GST which outlined its broad

structures and flagged the issues to be sorted out

between Centre and the States. Some such issues were

determination of 'Threshold' above which GST would be

applicable, items and taxes that would remain outside

its ambit, identification of exemptions, determination of

Revenue Neutral Rates (RNR) and GST rates, and

designing a mechanism of administering Dual Control by

Centre and the States. On taxation of inter-state

transaction of goods and services, it endorsed the

scheme of Integrated GST (IGST) proposed by the

Centre, in terms of which the IGST on inter-state

transactions would be levied and collected by Centre

and distributed to the destination States.

The other important issue was the need for amendment

of the Constitution. The Centre had placed a

Constitution Amendment Bill (the Bill) before

Parliament in March 2011. Besides empowering both

Centre and the States for collecting GST, the Bill

proposed creation of a 'GST Council' and a Dispute

Settlement Authority (DSA) so as to ensure that the GST

Goods and Service Tax (GST) is designed to facilitate

seamless flow of goods and services throughout

the country. With its introduction, there will be minimal

cascading effect of taxing the taxes because of input tax

credit at each taxation point, and optimum contact

between taxpayers and taxmen since its administering

would be technology driven. There will be two streams

of GST - the Central GST and the States GST. The two tax

administrations will have commonality of law,

procedure and dispute resolution mechanisms. Due to

substantially higher tax base, the GST rate is expected to

be low, and that would bring down the price of the

goods and services.

With the success of Value Added Tax (VAT) in the States,

TAXATIONGuest Article

(Views are personal)

18ECONOMY MATTERS 19 NOVEMBER - DECEMBER 2013

Mr Sumit Dutt Mazumdar

Indirect Tax Ombudsman andFormer Chairman, CBEC

Page 22: Economy Matters, November-December 2013

Electricity

cent. In order to make the sector more efficient,

promote its development and consolidate laws relating

to generation, transmission, distribution, trading and

use of electricity, government had brought into effect

the Electricity Act on 10th June 2003. The six key

elements of the reform agenda were:

- Introducing competition

- Enhancing accountability and transparency

- Improving cost recovery and commercial viability

- Increasing access to electricity, particularly in rural

areas

- Improving customer service and affordability

- Enhancing accountability and transparency

Electricity sector is an important contributor to the

economic growth of the country. However, in the

last year, the sector's growth halved to 4.0 per cent as

compared to 8.2 in 2011-12. In the current year, the first-

half growth remained tepid at 5.9 per cent, however, in

September 2013, growth stood at a fiscal year high of

12.9 per cent. In October 2013, the momentum in the

sector slowed down as growth came in at a paltry 1.3 per

Source: CSO

Electricity Sector Growth (as per IIP), y-o-y%

6.5

1.3

16

12

8

4

0

-4

Apr

-10

Jul-1

0

Oct

-10

Jan-

11

Apr

-11

Jul-1

1

Oct

-11

Jan-

12

Apr

-12

Jul-1

2

Oct

-12

Jan-

13

Apr

-13

Jul-1

3

Oct

-13

1. Competition in generation, leading to capacity

addition and better price discovery: The Act

created initial positive momentum and the rate

of capacity addition increased three times from

an average of 3.5 GW per year from 1993-2002

(VIIth and IXth plan periods) to 10.5+ GW per

year during 2003-2013. The progress in

renewables has been equally impressive, with

India adding approximately 26 GW during 2003

to 2013, against an installed base of just 3.5 GW in

2002. However, this momentum was then lost

due to falling returns and increasing risks to

developers and is amply clear from the fact that

India still suffers from a peak deficit of around 10

per cent. Moreover, at a time when capacity

addition should continue to keep pace, the

industry is hit by declining investments, as

evident from BHEL's order inflow. Decreasing

investment, and thus the reduced rate of

capacity addition, does not augur well for the

energy sector. Based on the current trajectory,

India could expect a continued power deficit

situation, and could face a peak deficit of 13 per

cent by 2017.

As the Act completes its 10 years, it will be pertinent to

evaluate the post Act era, especially the key successes

of the Act, the important learnings and enumerate the

next steps for the Indian power sector.

I. Overarching Objectives Not Met

The Electricity Act 2003 was intended to pave the way

for an India that provided "power for all". It aimed to

develop the power markets (competition in generation,

development of merchant markets), improve the

viability of distribution companies (discoms) and make

the sector more consumer oriented (supply in all areas,

choice). This was to be enabled by the establishment of

independent regulators. However, the sector has not

achieved its main objectives. Only 75 per cent of villages

were electrified by 2012, as per the World Energy

Outlook. Progress in creating peaking power capacity is

crucial for India, given that it has over 50 per cent share

of service in GDP and also it continues to urbanise

rapidly.

The Act focused on aforesaid six areas to drive

development. Progress was achieved in two areas,

which subsequently lost momentum, and little to no

progress was made in the rest. Here is an evaluation:

Order Inflow for BHEL (Rs Crores) Power Deficit is Likely to Continue

Source: BHEL Annual Reports, Planning Commission, CEA & McKinsey Analysis

59678 59037 60507

22096 22500

FY09 FY10 FY11 FY12 FY13

135 123

199176

Peakdemand

Peak supply

Peakdemand

Peaksupply

2012 2017 (E)

launched under National Electricity policy to

ensure electrification of all villages by 2010, and

the deadline was later shifted to 2012. However,

the scheme failed to achieve electrification of all

villages. The Ministry of Power's definition of

electrification (a village is considered electrified

if power is available to public places and to 10 per

2. Supply of electricity to all areas, through T&D

network build-up, and introduction of open

access: The Rural Electrification policy was

launched in 2006, in order to comply with the

2003 Act, and aimed to provide electricity to all

households. The Rajiv Gandhi Grammen

Vidhyutikaran Yojana (RGGVY programme) was

20ECONOMY MATTERS 21 NOVEMBER - DECEMBER 2013

SECTOR IN FOCUS

Page 23: Economy Matters, November-December 2013

Electricity

cent. In order to make the sector more efficient,

promote its development and consolidate laws relating

to generation, transmission, distribution, trading and

use of electricity, government had brought into effect

the Electricity Act on 10th June 2003. The six key

elements of the reform agenda were:

- Introducing competition

- Enhancing accountability and transparency

- Improving cost recovery and commercial viability

- Increasing access to electricity, particularly in rural

areas

- Improving customer service and affordability

- Enhancing accountability and transparency

Electricity sector is an important contributor to the

economic growth of the country. However, in the

last year, the sector's growth halved to 4.0 per cent as

compared to 8.2 in 2011-12. In the current year, the first-

half growth remained tepid at 5.9 per cent, however, in

September 2013, growth stood at a fiscal year high of

12.9 per cent. In October 2013, the momentum in the

sector slowed down as growth came in at a paltry 1.3 per

Source: CSO

Electricity Sector Growth (as per IIP), y-o-y%

6.5

1.3

16

12

8

4

0

-4

Apr

-10

Jul-1

0

Oct

-10

Jan-

11

Apr

-11

Jul-1

1

Oct

-11

Jan-

12

Apr

-12

Jul-1

2

Oct

-12

Jan-

13

Apr

-13

Jul-1

3

Oct

-13

1. Competition in generation, leading to capacity

addition and better price discovery: The Act

created initial positive momentum and the rate

of capacity addition increased three times from

an average of 3.5 GW per year from 1993-2002

(VIIth and IXth plan periods) to 10.5+ GW per

year during 2003-2013. The progress in

renewables has been equally impressive, with

India adding approximately 26 GW during 2003

to 2013, against an installed base of just 3.5 GW in

2002. However, this momentum was then lost

due to falling returns and increasing risks to

developers and is amply clear from the fact that

India still suffers from a peak deficit of around 10

per cent. Moreover, at a time when capacity

addition should continue to keep pace, the

industry is hit by declining investments, as

evident from BHEL's order inflow. Decreasing

investment, and thus the reduced rate of

capacity addition, does not augur well for the

energy sector. Based on the current trajectory,

India could expect a continued power deficit

situation, and could face a peak deficit of 13 per

cent by 2017.

As the Act completes its 10 years, it will be pertinent to

evaluate the post Act era, especially the key successes

of the Act, the important learnings and enumerate the

next steps for the Indian power sector.

I. Overarching Objectives Not Met

The Electricity Act 2003 was intended to pave the way

for an India that provided "power for all". It aimed to

develop the power markets (competition in generation,

development of merchant markets), improve the

viability of distribution companies (discoms) and make

the sector more consumer oriented (supply in all areas,

choice). This was to be enabled by the establishment of

independent regulators. However, the sector has not

achieved its main objectives. Only 75 per cent of villages

were electrified by 2012, as per the World Energy

Outlook. Progress in creating peaking power capacity is

crucial for India, given that it has over 50 per cent share

of service in GDP and also it continues to urbanise

rapidly.

The Act focused on aforesaid six areas to drive

development. Progress was achieved in two areas,

which subsequently lost momentum, and little to no

progress was made in the rest. Here is an evaluation:

Order Inflow for BHEL (Rs Crores) Power Deficit is Likely to Continue

Source: BHEL Annual Reports, Planning Commission, CEA & McKinsey Analysis

59678 59037 60507

22096 22500

FY09 FY10 FY11 FY12 FY13

135 123

199176

Peakdemand

Peak supply

Peakdemand

Peaksupply

2012 2017 (E)

launched under National Electricity policy to

ensure electrification of all villages by 2010, and

the deadline was later shifted to 2012. However,

the scheme failed to achieve electrification of all

villages. The Ministry of Power's definition of

electrification (a village is considered electrified

if power is available to public places and to 10 per

2. Supply of electricity to all areas, through T&D

network build-up, and introduction of open

access: The Rural Electrification policy was

launched in 2006, in order to comply with the

2003 Act, and aimed to provide electricity to all

households. The Rajiv Gandhi Grammen

Vidhyutikaran Yojana (RGGVY programme) was

20ECONOMY MATTERS 21 NOVEMBER - DECEMBER 2013

SECTOR IN FOCUS

Page 24: Economy Matters, November-December 2013

cent of that remained unsold, despite an energy

deficit of 8.5 per cent, and significant amount of

power was being generated from diesel sets at

over Rs 25 per unit. This was largely driven by

discoms resorting to load shedding to prevent

further financial losses, and partly due to

unavailability of evacuation infrastructure.

cent of the village's households), 90 per cent of

electrification has been achieved so far.

However, this is still way off the Act's stated

objective of 100 per cent electrification.

3. Trading and merchant market development:

Power available at the exchange doubled in the

last 3 years to 18 TWh. However, almost 20 per

Demand Supply Position (in TWh) Demand Supply Imbalance in Power Exchange (in TWh)

746.6

788.4

830.6

861.6

2009 2010

18.3

14.9

2009 2010

9.8 9.4

Source: IEX & CEA

most states, and the creation of independent

regulators. Moreover, there has been a steady progress

in capacity addition since the implementation of the Act

in 2003. 117 GW of generation capacity was added in the

last decade, an average of approximately 11 GW per

year. Of the total, 75 GW was added in the last 4 years.

This is a significant improvement compared to the 36

GW added between 1999 and 2002 (3.6 GW per year).

Some of its successes have been enumerated below:

a. Mobilised massive private sector interest and

investment: Past attempts to mobilise private

sector investments in electricity were not

successful. However, the Act prompted massive

private sector and even international interest in

investing in the power sector. Of the 111 GW of

generation capacity installed in the last decade,

the private sector contributed more than 50 per

cent (57 GW). This has increased their overall

contribution in generation capacity from a mere

11 per cent in 2004 to 31 per cent in 2013.

4. Discom viability through improved aggregate

t e c h n i c a l a n d c o m m e r c i a l ( A T & C )

performance, unbundling and cost reflective

tariffs: Though AT&C losses were reduced from

over 35 per cent in 2003 to 25 per cent in 2012 and

discoms were unbundled and recapitalised, the

accumulated losses in 2013 far exceed the pre-

recapitalisation losses.

5. Consumer benefit through choice (open

access), improved service and affordability:

This has remained a non-starter.

II. Good Act, Derailed By Poor Execution

And Externalities

Even though many of the objectives of the Act remained

unmet, it did lay a sound foundation for the electricity

sector in India. The many successes of the Act include:

the creation of generation capacity across conventional

and renewable technologies, operations improvements

across most discoms, unbundling of electricity across

22ECONOMY MATTERS

e. Conducive for the growth of renewables: The

Electricity Act has also been conducive for the

growth of renewables. The installed renewables

capacity has grown from an insignificant 3.5 GW

to more than 29 GW by 2013 - a phenomenal 8x

increase. Wind power has been the main driver

of growth in the last decade. The next decade

has been termed the "decade of solar" with

ambitious targets and incentives for growth

being set.

Importantly, similar Acts have succeeded in other

countries, e.g., United Kingdom. Further, the principles

of these acts are seen as the template of power sector

reforms in countries considering reforms. However,

despite the aforesaid benefits of the Act, poor

execution and externalities have marred its

performance. This is discussed in the next section.

III. Poor Execution and Externalities Have

Marred Performance

Despite the significant AT&C loss reduction reported in

the last few years, discoms continue to bleed financially.

Their accumulated losses have grown six times in the

last 7 years, to a staggering Rs 250,000 crore. This has

severely constrained their ability to secure long-term

and short-term power, and many discoms prefer to

resort to load shedding. This has mainly been driven by

their inability to pass on increases in power sourcing

costs (due to fuel inflation) to consumers. At the same

b. Very competitive tariffs underpinned by

innovation on capex and opex: The early rounds

of competitive bidding in generation led to very

competitive tariffs - among the lowest in the

world. While some of this was driven by

exuberance, there is also ample evidence to

show that the boundaries of efficiency,

technology, capital efficiency and plant

availability have been pushed through

innovative practices.

c. Spectacular operational performance

improvement in a few Discoms: High AT&C

losses have been the bane of the sector for

many decades and many believed it was

impossible to reduce them. However, average

AT&C losses have come down in the last 10 years

f r o m a p p r o x i m a t e l y 3 5 p e r c e n t t o

approximately 25 per cent. What is more

impressive is that a few discoms have reduced

losses from over 40 per cent to less than 20 per

cent in 5 to 6 years, and that 31 out of 35 discoms

have an improving trajectory here.

d. Unbundling and establishment of independent

regulators: There is legitimate frustration on the

difficulty of making any progress in the power

sector due to it being a state subject. However,

the silver lining is that most states aligned with

Electricity Act 2003, undertook the unbundling,

and established independent regulators.

Source: CEA, Planning Commission & Infraline

Increasing Share of Private Sector in Generation (in GW)

12 13 14 15 18 2027 31

88 87 86 85 82 80 73 69

2006 2007 2008 2009 2010 2011 2012 2013

Government Private

23 NOVEMBER - DECEMBER 2013

Supply Demand Supply Demand

Page 25: Economy Matters, November-December 2013

cent of that remained unsold, despite an energy

deficit of 8.5 per cent, and significant amount of

power was being generated from diesel sets at

over Rs 25 per unit. This was largely driven by

discoms resorting to load shedding to prevent

further financial losses, and partly due to

unavailability of evacuation infrastructure.

cent of the village's households), 90 per cent of

electrification has been achieved so far.

However, this is still way off the Act's stated

objective of 100 per cent electrification.

3. Trading and merchant market development:

Power available at the exchange doubled in the

last 3 years to 18 TWh. However, almost 20 per

Demand Supply Position (in TWh) Demand Supply Imbalance in Power Exchange (in TWh)

746.6

788.4

830.6

861.6

2009 2010

18.3

14.9

2009 2010

9.8 9.4

Source: IEX & CEA

most states, and the creation of independent

regulators. Moreover, there has been a steady progress

in capacity addition since the implementation of the Act

in 2003. 117 GW of generation capacity was added in the

last decade, an average of approximately 11 GW per

year. Of the total, 75 GW was added in the last 4 years.

This is a significant improvement compared to the 36

GW added between 1999 and 2002 (3.6 GW per year).

Some of its successes have been enumerated below:

a. Mobilised massive private sector interest and

investment: Past attempts to mobilise private

sector investments in electricity were not

successful. However, the Act prompted massive

private sector and even international interest in

investing in the power sector. Of the 111 GW of

generation capacity installed in the last decade,

the private sector contributed more than 50 per

cent (57 GW). This has increased their overall

contribution in generation capacity from a mere

11 per cent in 2004 to 31 per cent in 2013.

4. Discom viability through improved aggregate

t e c h n i c a l a n d c o m m e r c i a l ( A T & C )

performance, unbundling and cost reflective

tariffs: Though AT&C losses were reduced from

over 35 per cent in 2003 to 25 per cent in 2012 and

discoms were unbundled and recapitalised, the

accumulated losses in 2013 far exceed the pre-

recapitalisation losses.

5. Consumer benefit through choice (open

access), improved service and affordability:

This has remained a non-starter.

II. Good Act, Derailed By Poor Execution

And Externalities

Even though many of the objectives of the Act remained

unmet, it did lay a sound foundation for the electricity

sector in India. The many successes of the Act include:

the creation of generation capacity across conventional

and renewable technologies, operations improvements

across most discoms, unbundling of electricity across

22ECONOMY MATTERS

e. Conducive for the growth of renewables: The

Electricity Act has also been conducive for the

growth of renewables. The installed renewables

capacity has grown from an insignificant 3.5 GW

to more than 29 GW by 2013 - a phenomenal 8x

increase. Wind power has been the main driver

of growth in the last decade. The next decade

has been termed the "decade of solar" with

ambitious targets and incentives for growth

being set.

Importantly, similar Acts have succeeded in other

countries, e.g., United Kingdom. Further, the principles

of these acts are seen as the template of power sector

reforms in countries considering reforms. However,

despite the aforesaid benefits of the Act, poor

execution and externalities have marred its

performance. This is discussed in the next section.

III. Poor Execution and Externalities Have

Marred Performance

Despite the significant AT&C loss reduction reported in

the last few years, discoms continue to bleed financially.

Their accumulated losses have grown six times in the

last 7 years, to a staggering Rs 250,000 crore. This has

severely constrained their ability to secure long-term

and short-term power, and many discoms prefer to

resort to load shedding. This has mainly been driven by

their inability to pass on increases in power sourcing

costs (due to fuel inflation) to consumers. At the same

b. Very competitive tariffs underpinned by

innovation on capex and opex: The early rounds

of competitive bidding in generation led to very

competitive tariffs - among the lowest in the

world. While some of this was driven by

exuberance, there is also ample evidence to

show that the boundaries of efficiency,

technology, capital efficiency and plant

availability have been pushed through

innovative practices.

c. Spectacular operational performance

improvement in a few Discoms: High AT&C

losses have been the bane of the sector for

many decades and many believed it was

impossible to reduce them. However, average

AT&C losses have come down in the last 10 years

f r o m a p p r o x i m a t e l y 3 5 p e r c e n t t o

approximately 25 per cent. What is more

impressive is that a few discoms have reduced

losses from over 40 per cent to less than 20 per

cent in 5 to 6 years, and that 31 out of 35 discoms

have an improving trajectory here.

d. Unbundling and establishment of independent

regulators: There is legitimate frustration on the

difficulty of making any progress in the power

sector due to it being a state subject. However,

the silver lining is that most states aligned with

Electricity Act 2003, undertook the unbundling,

and established independent regulators.

Source: CEA, Planning Commission & Infraline

Increasing Share of Private Sector in Generation (in GW)

12 13 14 15 18 2027 31

88 87 86 85 82 80 73 69

2006 2007 2008 2009 2010 2011 2012 2013

Government Private

23 NOVEMBER - DECEMBER 2013

Supply Demand Supply Demand

Page 26: Economy Matters, November-December 2013

own. It is no surprise that the sentiment has

turned negative.

3. Gaining privileged access to low cost fuel is

necessary: Fuel prices will continue to escalate.

Recent analysis suggests that the price of

seaborne thermal coal could cross US$130 per

ton by 2015. In such an escalating, volatile

environment, leaving a significant part of India's

generation capacity exposed will make the task

of creating a viable distribution sector even

tougher than it is now. Therefore, it is critical

that India fully monetises its domestic fuel

resources and use its scale to gain privileged

access to international fuel resources.

Needless to say, these learnings are very difficult to

operationalise. Though many solutions have been

discussed by various stakeholders, following are the

few solutions, which have worked in small pockets and

can be scaled up, and new ideas which are becoming

feasible due to recent technologies.

- Ensure cost reflective tariffs. This is the single

biggest lever to ensure the viability of the

distribution sector, though politically this

remains the most difficult. While the usual

options (e.g., linking payment to performance,

open access) should continue to be pursued,

leveraging Aadhaar to pay subsidies directly to

economically weak families is a promising area

to explore.

- Pay subsidy directly to economically weak

households. The biggest obstacle against cost

reflective tariffs is the need to provide

affordable power to users in the agricultural

sector and low income households, which is

provided through low tariffs for these

categories. However, as with other subsidies,

most of these lower tariffs get misdirected.

Aadhaar now allows for subsidies to be directly

paid to the economically weaker segments,

removing the need to keep tariffs artificially low.

The direct payout amount is likely to be a much

lesser, compared to the annual discom losses -

our analysis suggests subsidy for residential

customers would reduce by approximately 40

per cent. More importantly, it will pave the way

for making distribution viable and will help

unlock the development of the sector.

time, consumers use significantly higher cost, diesel

based power, pointing to a massive market failure.

Massive externalities like fuel security and project

execution delays have further hurt the sector.

Challenges at each stage of mining (e.g., exploration,

clearances and development) have severely impacted

domestic coal production. This has led to heavy reliance

on expensive imported coal for power generation,

causing significant value erosion in the sector - with

distribution companies resorting to load shedding and

suffering from unviability; and consumers paying over

Rs 25 per unit; while generating stations lie idle.

IV. Repowering the Indian Electricity Sector

India needs to add 450 to 600 GW of power generation

capacity over the next 20 years to meet the demands of

the economy. This means a staggering 20 to 30 GW per

year that requires US$1 to 1.5 trillion in investments (at

today's real value). Meeting these challenging goals

requires mobilising significant public and private sector

participation across the value chain. Building on the

strong foundation of the Electricity Act 2003 and

incorporating learnings from the last 10 years, it will be

possible to drive the development of the electric power

sector in India and increase its contribution to India's

economic and social progress.

As we look ahead, it is critical that we fully learn from the

experiences of the past decade.

1. The power sector can't develop if distribution is

not fixed: Distribution generates the cash flows

to fund the full power sector value chain, and

unless it becomes viable, sustainable

development in the power sector is not

possible. At the same time, politically, this is the

most difficult to achieve and will require

significant ingenuity.

2. A balanced risk-return profile is critical to

attract investment and drive innovation:

Investment will only flow into the sector if the

opportunities offer balanced risk and returns.

Over the last seven years, the return on invested

capital in the sector (based on an analysis of

listed companies) has fallen from approximately

11 per cent to 5 per cent. At the same time,

developers are bearing risks (e.g., fuel price and

availability, project execution, counter party

risks), many of which they cannot legitimately

24 25 NOVEMBER - DECEMBER 2013

Residential Power Consumption

Domesticelectricityconsumption

Source: Census India; National Sample Survey Data; CEA

1 Lowest income 40% households consume 22.1 Twh of energy(13% of household consumption). At cost to serve of INR 6.5 per unit,it translates to a direct payout of INR 14,000 crore, even at full subsidy

Subsidy/Under - Recovery Burden (Rs Crore)

14.000

25.000

1Direct payout Current residentialunder - recovery

40%

40%

20%

13%

100% = 16.58 cr households 100% = 170 Twh

Electrifiedhouseholds

34%

53%

approximately 12 per cent, are significantly

lower than the average losses of public sector

discoms, which are 27 per cent. Even the top 10

public sector discoms have AT&C losses of 19 per

cent.

- Drive private sector participation in

distribution. There is strong evidence that the

private sector is more effective in driving

operational performance - the average AT&C

losses of the private sector discoms, at

Private Sector has Performed Significantly Better (Per cent, AT&C losses)

Source: Powerline Magazine, CEA & Company Websites

34.8

12.4

19.1

Private sector performance average

Top 10 public DISCOM average

Other public sector average

Note: Simple average of per cent AT&C loss value of DISCOMs has been taken Private DISCOMs include Torrent, Reliance Infra, NDPL, CESC, BYPL

ECONOMY MATTERS

Page 27: Economy Matters, November-December 2013

own. It is no surprise that the sentiment has

turned negative.

3. Gaining privileged access to low cost fuel is

necessary: Fuel prices will continue to escalate.

Recent analysis suggests that the price of

seaborne thermal coal could cross US$130 per

ton by 2015. In such an escalating, volatile

environment, leaving a significant part of India's

generation capacity exposed will make the task

of creating a viable distribution sector even

tougher than it is now. Therefore, it is critical

that India fully monetises its domestic fuel

resources and use its scale to gain privileged

access to international fuel resources.

Needless to say, these learnings are very difficult to

operationalise. Though many solutions have been

discussed by various stakeholders, following are the

few solutions, which have worked in small pockets and

can be scaled up, and new ideas which are becoming

feasible due to recent technologies.

- Ensure cost reflective tariffs. This is the single

biggest lever to ensure the viability of the

distribution sector, though politically this

remains the most difficult. While the usual

options (e.g., linking payment to performance,

open access) should continue to be pursued,

leveraging Aadhaar to pay subsidies directly to

economically weak families is a promising area

to explore.

- Pay subsidy directly to economically weak

households. The biggest obstacle against cost

reflective tariffs is the need to provide

affordable power to users in the agricultural

sector and low income households, which is

provided through low tariffs for these

categories. However, as with other subsidies,

most of these lower tariffs get misdirected.

Aadhaar now allows for subsidies to be directly

paid to the economically weaker segments,

removing the need to keep tariffs artificially low.

The direct payout amount is likely to be a much

lesser, compared to the annual discom losses -

our analysis suggests subsidy for residential

customers would reduce by approximately 40

per cent. More importantly, it will pave the way

for making distribution viable and will help

unlock the development of the sector.

time, consumers use significantly higher cost, diesel

based power, pointing to a massive market failure.

Massive externalities like fuel security and project

execution delays have further hurt the sector.

Challenges at each stage of mining (e.g., exploration,

clearances and development) have severely impacted

domestic coal production. This has led to heavy reliance

on expensive imported coal for power generation,

causing significant value erosion in the sector - with

distribution companies resorting to load shedding and

suffering from unviability; and consumers paying over

Rs 25 per unit; while generating stations lie idle.

IV. Repowering the Indian Electricity Sector

India needs to add 450 to 600 GW of power generation

capacity over the next 20 years to meet the demands of

the economy. This means a staggering 20 to 30 GW per

year that requires US$1 to 1.5 trillion in investments (at

today's real value). Meeting these challenging goals

requires mobilising significant public and private sector

participation across the value chain. Building on the

strong foundation of the Electricity Act 2003 and

incorporating learnings from the last 10 years, it will be

possible to drive the development of the electric power

sector in India and increase its contribution to India's

economic and social progress.

As we look ahead, it is critical that we fully learn from the

experiences of the past decade.

1. The power sector can't develop if distribution is

not fixed: Distribution generates the cash flows

to fund the full power sector value chain, and

unless it becomes viable, sustainable

development in the power sector is not

possible. At the same time, politically, this is the

most difficult to achieve and will require

significant ingenuity.

2. A balanced risk-return profile is critical to

attract investment and drive innovation:

Investment will only flow into the sector if the

opportunities offer balanced risk and returns.

Over the last seven years, the return on invested

capital in the sector (based on an analysis of

listed companies) has fallen from approximately

11 per cent to 5 per cent. At the same time,

developers are bearing risks (e.g., fuel price and

availability, project execution, counter party

risks), many of which they cannot legitimately

24 25 NOVEMBER - DECEMBER 2013

Residential Power Consumption

Domesticelectricityconsumption

Source: Census India; National Sample Survey Data; CEA

1 Lowest income 40% households consume 22.1 Twh of energy(13% of household consumption). At cost to serve of INR 6.5 per unit,it translates to a direct payout of INR 14,000 crore, even at full subsidy

Subsidy/Under - Recovery Burden (Rs Crore)

14.000

25.000

1Direct payout Current residentialunder - recovery

40%

40%

20%

13%

100% = 16.58 cr households 100% = 170 Twh

Electrifiedhouseholds

34%

53%

approximately 12 per cent, are significantly

lower than the average losses of public sector

discoms, which are 27 per cent. Even the top 10

public sector discoms have AT&C losses of 19 per

cent.

- Drive private sector participation in

distribution. There is strong evidence that the

private sector is more effective in driving

operational performance - the average AT&C

losses of the private sector discoms, at

Private Sector has Performed Significantly Better (Per cent, AT&C losses)

Source: Powerline Magazine, CEA & Company Websites

34.8

12.4

19.1

Private sector performance average

Top 10 public DISCOM average

Other public sector average

Note: Simple average of per cent AT&C loss value of DISCOMs has been taken Private DISCOMs include Torrent, Reliance Infra, NDPL, CESC, BYPL

ECONOMY MATTERS

Page 28: Economy Matters, November-December 2013

Rejuvenating Exports

India's export performance over the last two years has

been affected by continued sluggishness in global

trade and an overvalued exchange rate for a prolonged

period. Exports began on a weak footing in the start of

this fiscal, contracting by 3.1 per cent in the first quarter;

however, its growth picked up to 12.2 per cent in the

second quarter, moderating to 9.7 per cent in October-

November 2013 so far. Export recoveries were evident in

sectors, such as petroleum products, rice, readymade

garments, marine products and other chemicals. The

depreciation in the exchange rate, both in nominal and

real terms, appears to have helped improve India's

export competitiveness in the recent quarters.

Improvement in exports is critical for lifting the

economic growth and containing the current account

deficit.

Judging by the trends so far, global trade volumes in

2013 are expected to expand at roughly the same rate as

last year, which was the slowest pace in the last 12 years,

except for the contraction in 2009 in the wake of the

global Financial crisis. However, the recent optimistic

set of data sets coming out of the major advanced

economies in last few months is expected to continue

cushioning India's exports growth going forward.

In this article, we provide a snapshot of India's exports

sector along with analyzing the upcoming sectors in

exports such as services and tourism, listing out

suggestions in order to accelerate their exports growth.

Based Incentive in Wind). Additionally, a

sovereign fund could be created to bolster R&D

in these areas. Finally, and most importantly,

set-up future project bidding and award

processes that allow for above threshold

returns, and have the potential for upside (e.g.,

ownership of assets). Private capital has many

opportunities for deployment, and will seek out

the best returns over time.

- Accelerate development of CIL reserves

through a process similar to NELP (which, in

effect, reassigned blocks not being developed

by ONGC). Identify reserves where no or little

development has taken place (based on

milestones, e.g., exploration license received)

and auction these reserves to public and private

entities using NELP or a similar model. This

should increase investments in the sector and

introduce competition. It is anticipated that

power tariffs will provide a natural cap to

auction prices for these blocks.

- For new projects, which will need to rely on

imported coal, create a 100 MTPA imported

channel into the country. The Government of

India, through a consortium of companies, could

float an international competitive bidding for

this volume of coal over a 20 year period. While

the exact numbers can be worked out, the

volume and duration of the contract must be

such that it incentivises global producers to

develop new tier 2 coal reserves over the next 10

years and bring them to market. The contracted

coal, if secured at attractive prices, can be

offered to power generation developers in

India, who would bid for projects based on the

lowest development cost, with coal being a free

issue material.

Conclusion

Given the importance of electricity sector to the overall

growth schema of the country, it's pivotal that

government in liaison with relevant stakeholders tries

to remove the existing lacunae from the Electricity Act

2003 through suitable amendments and also

implements all its recommendations in its entirety for

the sector to benefit. CII through its National

Committee on Power has been at the forefront of this

dialogue with the government and will continue to do

so in the future too.

- Scale-up separation of agricultural feeders. This

has proven to be very successful in creating

transparency and driving performance

improvement, and should be scaled-up.

- Link FRP payout to financial and operational

performance, including discoms setting cost

reflective tariffs. Through CERC, set a minimum

floor level for tariffs for all states (across

categories).

- Evaluate separation of content and carriage.

Many countries have implemented this to

provide more choice, and by definition, better

service to customers. It also allows for

competition in electricity retail, which could

drive down power tariffs and allow consumers

to buy expensive peaking power (vs. running

diesel gensets), if power retailers are able to

supply. The opinion of various stakeholders was

split on whether India is ready for the separation

of content and carriage. Regulators, in

collaboration with industry participants, should

evaluate this in detail.

- Allow for automatic index-linked revision of

the fuel component of tariffs. Consider an oil

product style linkage of tariffs to the national

coal basket.

- Accelerate the implementation of multi-year

time-of-day tariffs to give consumers access to

peaking power - either through discoms or using

open access.

- Leverage de-centralised distributed generation

(DDG) to drive rural electrification. With India

significantly behind its rural electrification

targets, the cost of grid extension already very

high (Rs 15 to 20 per unit depending on distance

from existing grid and population density of

villages), and declining solar and bio-mass costs,

the DDG policy could drive significant rural

electrification. India should aim to light-up an

additional 50,000 villages through DDG in the

next 5 to 10 years.

- C r e a t e d i s p r o p o r t i o n a t e r e t u r n s f o r

innovation. Encourage investments in relatively

newer and efficient technologies (e.g., ultra

super critical plants, low speed wind, energy

storage, AT&C loss reduction). One possible

route could be to provide an incentive to bump-

up developer IRRs (e.g., similar to Generation

26

This article is based on the Report Repowering India's Electricity Sector, published by CII in November 2013

27 NOVEMBER - DECEMBER 2013

SPECIAL ARTICLE

ECONOMY MATTERS

Page 29: Economy Matters, November-December 2013

Rejuvenating Exports

India's export performance over the last two years has

been affected by continued sluggishness in global

trade and an overvalued exchange rate for a prolonged

period. Exports began on a weak footing in the start of

this fiscal, contracting by 3.1 per cent in the first quarter;

however, its growth picked up to 12.2 per cent in the

second quarter, moderating to 9.7 per cent in October-

November 2013 so far. Export recoveries were evident in

sectors, such as petroleum products, rice, readymade

garments, marine products and other chemicals. The

depreciation in the exchange rate, both in nominal and

real terms, appears to have helped improve India's

export competitiveness in the recent quarters.

Improvement in exports is critical for lifting the

economic growth and containing the current account

deficit.

Judging by the trends so far, global trade volumes in

2013 are expected to expand at roughly the same rate as

last year, which was the slowest pace in the last 12 years,

except for the contraction in 2009 in the wake of the

global Financial crisis. However, the recent optimistic

set of data sets coming out of the major advanced

economies in last few months is expected to continue

cushioning India's exports growth going forward.

In this article, we provide a snapshot of India's exports

sector along with analyzing the upcoming sectors in

exports such as services and tourism, listing out

suggestions in order to accelerate their exports growth.

Based Incentive in Wind). Additionally, a

sovereign fund could be created to bolster R&D

in these areas. Finally, and most importantly,

set-up future project bidding and award

processes that allow for above threshold

returns, and have the potential for upside (e.g.,

ownership of assets). Private capital has many

opportunities for deployment, and will seek out

the best returns over time.

- Accelerate development of CIL reserves

through a process similar to NELP (which, in

effect, reassigned blocks not being developed

by ONGC). Identify reserves where no or little

development has taken place (based on

milestones, e.g., exploration license received)

and auction these reserves to public and private

entities using NELP or a similar model. This

should increase investments in the sector and

introduce competition. It is anticipated that

power tariffs will provide a natural cap to

auction prices for these blocks.

- For new projects, which will need to rely on

imported coal, create a 100 MTPA imported

channel into the country. The Government of

India, through a consortium of companies, could

float an international competitive bidding for

this volume of coal over a 20 year period. While

the exact numbers can be worked out, the

volume and duration of the contract must be

such that it incentivises global producers to

develop new tier 2 coal reserves over the next 10

years and bring them to market. The contracted

coal, if secured at attractive prices, can be

offered to power generation developers in

India, who would bid for projects based on the

lowest development cost, with coal being a free

issue material.

Conclusion

Given the importance of electricity sector to the overall

growth schema of the country, it's pivotal that

government in liaison with relevant stakeholders tries

to remove the existing lacunae from the Electricity Act

2003 through suitable amendments and also

implements all its recommendations in its entirety for

the sector to benefit. CII through its National

Committee on Power has been at the forefront of this

dialogue with the government and will continue to do

so in the future too.

- Scale-up separation of agricultural feeders. This

has proven to be very successful in creating

transparency and driving performance

improvement, and should be scaled-up.

- Link FRP payout to financial and operational

performance, including discoms setting cost

reflective tariffs. Through CERC, set a minimum

floor level for tariffs for all states (across

categories).

- Evaluate separation of content and carriage.

Many countries have implemented this to

provide more choice, and by definition, better

service to customers. It also allows for

competition in electricity retail, which could

drive down power tariffs and allow consumers

to buy expensive peaking power (vs. running

diesel gensets), if power retailers are able to

supply. The opinion of various stakeholders was

split on whether India is ready for the separation

of content and carriage. Regulators, in

collaboration with industry participants, should

evaluate this in detail.

- Allow for automatic index-linked revision of

the fuel component of tariffs. Consider an oil

product style linkage of tariffs to the national

coal basket.

- Accelerate the implementation of multi-year

time-of-day tariffs to give consumers access to

peaking power - either through discoms or using

open access.

- Leverage de-centralised distributed generation

(DDG) to drive rural electrification. With India

significantly behind its rural electrification

targets, the cost of grid extension already very

high (Rs 15 to 20 per unit depending on distance

from existing grid and population density of

villages), and declining solar and bio-mass costs,

the DDG policy could drive significant rural

electrification. India should aim to light-up an

additional 50,000 villages through DDG in the

next 5 to 10 years.

- C r e a t e d i s p r o p o r t i o n a t e r e t u r n s f o r

innovation. Encourage investments in relatively

newer and efficient technologies (e.g., ultra

super critical plants, low speed wind, energy

storage, AT&C loss reduction). One possible

route could be to provide an incentive to bump-

up developer IRRs (e.g., similar to Generation

26

This article is based on the Report Repowering India's Electricity Sector, published by CII in November 2013

27 NOVEMBER - DECEMBER 2013

SPECIAL ARTICLE

ECONOMY MATTERS

Page 30: Economy Matters, November-December 2013

28ECONOMY MATTERS

04.Although, the pace of exports growth was

punctuated twice by sharp slowdown in the world

economy during 2008-09 and during the last two fiscal

years, India's trade prospects have continued to grow

over time. India's exports were worth US$64.0 billion in

2003-04, which more than quadrupled to US$300.5

billion in 2012-13.

Background

India saw its foreign trade expand remarkably in the past

decade. India's total trade with the world touched

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

annual growth rate of 18.7 per cent since 2003-

Mr Sanjay BudhiaChairman, CII Export Committee and

Managing Director, Patton Group

India's Export Scenario

CII VIEW POINT

Source: DGCI&S

The value of manufacturing goods exports has more

than quadrupled to US$186.8 billion over the decade.

Exports of primary products, with their share remaining

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

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

In the merchandise trade, manufacturing goods still

constitute the lion share of total merchandise exports.

They constituted over 60 per cent of total exports in

2012-13, a fraction that has remained mostly unchanged

over the decade, although dipped marginally last year.

29 NOVEMBER - DECEMBER 2013

has shrunk from 23 per cent in 2000-01 to 13 per cent in

2012-13. In contrast to this, share of developing markets

of Latin America, Africa, and ASEAN have witnessed a

significant increase. This trend has helped India weather

the global crisis emanating from Europe and America.

India has made major strides in its diversification of

export markets, as its dependence on the EU and the US

has reduced to a large extent (see figure below). Europe

currently occupies 19.5 per cent share in India's exports,

in contrast to 26 per cent in 200-01. Similarly, share of US

Source: DGCI&S

India's Exports, Imports & Trade Deficit

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

ten years. Importantly, petroleum and its products have

brought in substantial revenues that soared from US$2.6

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

too has increased four times in the decade to a little

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

attributable to soaring agricultural, mineral and metal

commodity prices.

Over a period of time from the year 2000 onwards, there

has been change in composition of India's export basket

as shown in graph below, indicating that India is

gradually moving towards high-value added product

exports especially in engineering goods. Nevertheless, a

lot needs to be done to not only diversify the export

basket but also have a perceptible share in the top items

of world trade.

0

100

200

300

400

500

In $

Bil

lio

n

Exports Imports Trade Deficit

2003-04

2004

-05

2005-06

2006-07

2007-08

2008-09

2009-2010

2010-2011

2011-2012

2012-2013

Change in India's Export Composition

2.64.4

16.8

24.3

10.7

18.920.3

8.8

14.012.9

2.54.3

1.92.8

8.8

13.8

1.6

14.4

0

5

10

15

20

25

30

2000-01

2012-13

Sh

are

in %

Agri & Allie

d Products

Ores & M

inerals

Leather & Products

Gems & Je

wellery

Chemicals

Engineering G

oods

Electronics

Textil

es

Petroleum products

Page 31: Economy Matters, November-December 2013

28ECONOMY MATTERS

04.Although, the pace of exports growth was

punctuated twice by sharp slowdown in the world

economy during 2008-09 and during the last two fiscal

years, India's trade prospects have continued to grow

over time. India's exports were worth US$64.0 billion in

2003-04, which more than quadrupled to US$300.5

billion in 2012-13.

Background

India saw its foreign trade expand remarkably in the past

decade. India's total trade with the world touched

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

annual growth rate of 18.7 per cent since 2003-

Mr Sanjay BudhiaChairman, CII Export Committee and

Managing Director, Patton Group

India's Export Scenario

CII VIEW POINT

Source: DGCI&S

The value of manufacturing goods exports has more

than quadrupled to US$186.8 billion over the decade.

Exports of primary products, with their share remaining

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

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

In the merchandise trade, manufacturing goods still

constitute the lion share of total merchandise exports.

They constituted over 60 per cent of total exports in

2012-13, a fraction that has remained mostly unchanged

over the decade, although dipped marginally last year.

29 NOVEMBER - DECEMBER 2013

has shrunk from 23 per cent in 2000-01 to 13 per cent in

2012-13. In contrast to this, share of developing markets

of Latin America, Africa, and ASEAN have witnessed a

significant increase. This trend has helped India weather

the global crisis emanating from Europe and America.

India has made major strides in its diversification of

export markets, as its dependence on the EU and the US

has reduced to a large extent (see figure below). Europe

currently occupies 19.5 per cent share in India's exports,

in contrast to 26 per cent in 200-01. Similarly, share of US

Source: DGCI&S

India's Exports, Imports & Trade Deficit

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

ten years. Importantly, petroleum and its products have

brought in substantial revenues that soared from US$2.6

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

too has increased four times in the decade to a little

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

attributable to soaring agricultural, mineral and metal

commodity prices.

Over a period of time from the year 2000 onwards, there

has been change in composition of India's export basket

as shown in graph below, indicating that India is

gradually moving towards high-value added product

exports especially in engineering goods. Nevertheless, a

lot needs to be done to not only diversify the export

basket but also have a perceptible share in the top items

of world trade.

0

100

200

300

400

500

In $

Bil

lio

n

Exports Imports Trade Deficit

2003-04

2004

-05

2005-06

2006-07

2007-08

2008-09

2009-2010

2010-2011

2011-2012

2012-2013

Change in India's Export Composition

2.64.4

16.8

24.3

10.7

18.920.3

8.8

14.012.9

2.54.3

1.92.8

8.8

13.8

1.6

14.4

0

5

10

15

20

25

30

2000-01

2012-13

Sh

are

in %

Agri & Allie

d Products

Ores & M

inerals

Leather & Products

Gems & Je

wellery

Chemicals

Engineering G

oods

Electronics

Textil

es

Petroleum products

Page 32: Economy Matters, November-December 2013

30ECONOMY MATTERS

Positive Developments in India's

Trade Pattern

Evidence suggests there has been a structural shift in

both commodity composition as well as product and

market diversification in India's merchandise exports.

The revealed comparative advantage for India is higher

in chemicals, agricultural products, mining products,

iron and steel and textiles.

The robust performance of India's international trade

over the two decades reflects India's increasing

integration with the global economy. Marked increase in

adaptability of Indian exporters to meet the changing

patterns of global demand can be testified by the

change in India's export composition over the last two

decades. The dynamics of inter-sectoral composition

within manufactured exports reveal increasing

contribution of technology-intensive goods in India's

exports. For instance, the combined share of

technology-intensive products like engineering goods,

petroleum products, chemicals and related products

The strong growth in India's merchandise exports has

been accompanied by an increase in the share of India in

the global export market reflecting, among others,

emergence of newer markets, increased adaptability of

Indian exporting companies to meet the changing

patterns of global demand, and the availability of

financing structures for such activities. According to the

World Trade Organisation (WTO), India's share in global

exports and imports, which stood at 0.5 percent and 0.7

per cent in 1990, more than trebled to 1.6 per cent and

2.6 per cent, respectively, in 2012, resulting in a

significant improvement of India's standing in the global

trade. By 2012, India became the 10th largest importer in

the world, as against 28th in 1990; and 19th largest

exporter globally as against 33rd in 1990.

At the same time, India's direction of trade increasingly

shifted towards emerging markets. The combined share

of developing Asia, Africa and Latin America and

Caribbean increased from less than one-fourth of India's

total exports in 1992-93 to more than half of India's total

exports in 2012-13.

31 NOVEMBER - DECEMBER 2013

adopted involving measures such as Procedural

rationalization; Enhanced market access; Diversification

of export markets; Improvement in export

infrastructure specially transportation & ports

infrastructure; Provision of refund of all indirect taxes;

and Providing marketing support. Also there is a need to

re-look at the duty drawback rates, further expansion of

Focus Market Scheme (FMS) and inclusion of new

product in Focus Product Scheme (FPS).

Reducing high transaction costs in India is a crucial

aspect of achieving export competitiveness. Currently,

transaction costs add upto 10-12 per cent extra cost, and

taking this into account, Second Task Force on

Transaction Cost in Exports has been constituted by the

Ministry of Commerce & Industry, which is reviewing the

current situation and will come out with a

comprehensive report. This report will suggest

guidelines for removal of procedural complexities

drawing from the global best practices and will also

suggest steps to move towards transparent and

increasingly paperless processing through digital

platform.

Another issue which needs to be addressed is of high

cost of export credit prevailing in India. This is currently

in the range of 11 per cent and 12 per cent, which is much

higher in comparison to competing countries in South

East Asia, where it is in around 5-6 per cent. This needs

to be lowered so that it becomes affordable to

exporters.

If we are able to work on our capability and capacity and

by timely intervention by policy makers, we will be able

to increase our share in the global exports and achieve

our export target of USD 325 billion.

and electronic goods in India's total exports which was

25.5 percent in 1992-93, more than doubled in 2012-13 to

55.8 percent.

India is expected to open up further in the coming years

as indicated in its recent trade policies. Continued

market diversification towards developing countries

based on the changing dynamics of growth in the world

economy is the key to ensure sustained and accelerated

growth of India's exports.

The root cause of vulnerability is an unsustainable

current account deficit emanating from a large trade

deficit backed by inelastic oil imports. Though, there has

been an improvement in India's net barter terms of trade

(export price index as ratio to import price index) due to

diversification of India's exports from low value to high-

value services and manufacturing exports, this has not

improved the trade balance (currently -10 per cent of

GDP) because the volume of imports has been rising

faster than the volume of exports.

Besides, depreciation of the real effective exchange rate

has not helped because of the low elasticity of demand

for exports and even lower elasticity of demand for

imports. A true indicator of export competitiveness in

these commodity groups is, therefore, a high value of

exports combined with a high volume.

Also, solution to trade deficit lies in enhancing

competitiveness in terms of expansion of the country's

goods and non-software services exports on a sustained

basis. Besides, a multi-pronged strategy should be

Enhancing Export

Competitiveness

Region- wise Share of India's Export Destinations(in 2000-01 & 2012-13)

Source: DGCI & S

Others

CIS & Baltics

South Asia

ASEAN

Latin America

Africa

Europe

2012-13

2000-01

U.S

23%

26%

5%

31%37%

19%

1%

11%

13%2%

7%

4%2%

10%

5%4%

Europe Africa U.S Latin America ASEAN

South Asia CIS & Baltics Others

Page 33: Economy Matters, November-December 2013

30ECONOMY MATTERS

Positive Developments in India's

Trade Pattern

Evidence suggests there has been a structural shift in

both commodity composition as well as product and

market diversification in India's merchandise exports.

The revealed comparative advantage for India is higher

in chemicals, agricultural products, mining products,

iron and steel and textiles.

The robust performance of India's international trade

over the two decades reflects India's increasing

integration with the global economy. Marked increase in

adaptability of Indian exporters to meet the changing

patterns of global demand can be testified by the

change in India's export composition over the last two

decades. The dynamics of inter-sectoral composition

within manufactured exports reveal increasing

contribution of technology-intensive goods in India's

exports. For instance, the combined share of

technology-intensive products like engineering goods,

petroleum products, chemicals and related products

The strong growth in India's merchandise exports has

been accompanied by an increase in the share of India in

the global export market reflecting, among others,

emergence of newer markets, increased adaptability of

Indian exporting companies to meet the changing

patterns of global demand, and the availability of

financing structures for such activities. According to the

World Trade Organisation (WTO), India's share in global

exports and imports, which stood at 0.5 percent and 0.7

per cent in 1990, more than trebled to 1.6 per cent and

2.6 per cent, respectively, in 2012, resulting in a

significant improvement of India's standing in the global

trade. By 2012, India became the 10th largest importer in

the world, as against 28th in 1990; and 19th largest

exporter globally as against 33rd in 1990.

At the same time, India's direction of trade increasingly

shifted towards emerging markets. The combined share

of developing Asia, Africa and Latin America and

Caribbean increased from less than one-fourth of India's

total exports in 1992-93 to more than half of India's total

exports in 2012-13.

31 NOVEMBER - DECEMBER 2013

adopted involving measures such as Procedural

rationalization; Enhanced market access; Diversification

of export markets; Improvement in export

infrastructure specially transportation & ports

infrastructure; Provision of refund of all indirect taxes;

and Providing marketing support. Also there is a need to

re-look at the duty drawback rates, further expansion of

Focus Market Scheme (FMS) and inclusion of new

product in Focus Product Scheme (FPS).

Reducing high transaction costs in India is a crucial

aspect of achieving export competitiveness. Currently,

transaction costs add upto 10-12 per cent extra cost, and

taking this into account, Second Task Force on

Transaction Cost in Exports has been constituted by the

Ministry of Commerce & Industry, which is reviewing the

current situation and will come out with a

comprehensive report. This report will suggest

guidelines for removal of procedural complexities

drawing from the global best practices and will also

suggest steps to move towards transparent and

increasingly paperless processing through digital

platform.

Another issue which needs to be addressed is of high

cost of export credit prevailing in India. This is currently

in the range of 11 per cent and 12 per cent, which is much

higher in comparison to competing countries in South

East Asia, where it is in around 5-6 per cent. This needs

to be lowered so that it becomes affordable to

exporters.

If we are able to work on our capability and capacity and

by timely intervention by policy makers, we will be able

to increase our share in the global exports and achieve

our export target of USD 325 billion.

and electronic goods in India's total exports which was

25.5 percent in 1992-93, more than doubled in 2012-13 to

55.8 percent.

India is expected to open up further in the coming years

as indicated in its recent trade policies. Continued

market diversification towards developing countries

based on the changing dynamics of growth in the world

economy is the key to ensure sustained and accelerated

growth of India's exports.

The root cause of vulnerability is an unsustainable

current account deficit emanating from a large trade

deficit backed by inelastic oil imports. Though, there has

been an improvement in India's net barter terms of trade

(export price index as ratio to import price index) due to

diversification of India's exports from low value to high-

value services and manufacturing exports, this has not

improved the trade balance (currently -10 per cent of

GDP) because the volume of imports has been rising

faster than the volume of exports.

Besides, depreciation of the real effective exchange rate

has not helped because of the low elasticity of demand

for exports and even lower elasticity of demand for

imports. A true indicator of export competitiveness in

these commodity groups is, therefore, a high value of

exports combined with a high volume.

Also, solution to trade deficit lies in enhancing

competitiveness in terms of expansion of the country's

goods and non-software services exports on a sustained

basis. Besides, a multi-pronged strategy should be

Enhancing Export

Competitiveness

Region- wise Share of India's Export Destinations(in 2000-01 & 2012-13)

Source: DGCI & S

Others

CIS & Baltics

South Asia

ASEAN

Latin America

Africa

Europe

2012-13

2000-01

U.S

23%

26%

5%

31%37%

19%

1%

11%

13%2%

7%

4%2%

10%

5%4%

Europe Africa U.S Latin America ASEAN

South Asia CIS & Baltics Others

Page 34: Economy Matters, November-December 2013

33 NOVEMBER - DECEMBER 2013

between 2002-03 and 2007-08 but have slowed down to

a growth rate of 10 per cent in the 5 years since then.

As seen in the graph above, Services exports are about

half the level of merchandise exports in India in 2012-13.

Also Services exports grew at a CAGR of 34 per cent

Service Sector - Exports

Source: RBI

350.0

300.0

250.0

200.0

150.0

100.0

50.0

0.0

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

US

$ B

illio

n

Service Exports

26.9

43.2

57.7

73.8

90.3

66.3

85.2

105.

2

128.

9

166.

2

106.

018

9.0

96.0

182.

4

124.

625

6.2

142.

330

9.8

145.

730

6.6

Merchandise Exports

Service Sector - Exports by Categories

Source: WTO

45.2

42.4

19.5

19.7

12.4

12.4

4.9

5.8

3.4

3.14.2

1.2

11.910.8

1.6 1.5

Travel

Software Services

Communication Services

Transportation

Business Services

Others

Insurance

Financial Services

32ECONOMY MATTERS

the size of its Services GDP. Its CAGR in Services for the

period 2001-11 was 9.2 per cent, second only to China.

Services growth has consistently outperformed growth

on other sectors of the economy and the economy as a

whole. The fact that emerges is that services are clearly

an important part of the India growth story and will

continue to be so.

Services sector in India contributes close to 65 per cent

of the GDP (including construction) and provides

employment to millions. A comparison of the services

performance of the top 15 countries for the 11 year

period from 2001 to 2011 shows that the increase in share

of services in GDP is the highest for India with 8.1

percentage points. In 2011, India ranked 10th in terms of

Mr Malvinder M SinghChair, CII Services Council and

Executive Chairman, Fortis Healthcare

Services Sector Exports in Indian Economy

Source: World Development Indicators, 2012

Malaysia, Thailand, China and Indonesia in terms of

Service sector contribution to GDP

An interesting fact is that India is unique among

emerging Asian economies in being a service led

economy. Also data for 2010 shows that India is ahead of

79.0% 78.0%71.0% 70.0%

67.0%61.0%

55.0% 54.0%49.0%

43.0% 43.0%38.0%

US

A

UK

Japa

n

Mau

ritiu

s

Bra

zil

Rus

sia

Phi

lippi

nes

Indi

a

Mal

aysi

a

Tha

iland

Chi

na

Indo

nesi

a

Service Sector Share in GDP (2012)

Page 35: Economy Matters, November-December 2013

33 NOVEMBER - DECEMBER 2013

between 2002-03 and 2007-08 but have slowed down to

a growth rate of 10 per cent in the 5 years since then.

As seen in the graph above, Services exports are about

half the level of merchandise exports in India in 2012-13.

Also Services exports grew at a CAGR of 34 per cent

Service Sector - Exports

Source: RBI

350.0

300.0

250.0

200.0

150.0

100.0

50.0

0.0

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

US

$ B

illio

nService Exports

26.9

43.2

57.7

73.8

90.3

66.3

85.2

105.

2

128.

9

166.

2

106.

018

9.0

96.0

182.

4

124.

625

6.2

142.

330

9.8

145.

730

6.6

Merchandise Exports

Service Sector - Exports by Categories

Source: WTO

45.2

42.4

19.5

19.7

12.4

12.4

4.9

5.8

3.4

3.14.2

1.2

11.910.8

1.6 1.5

Travel

Software Services

Communication Services

Transportation

Business Services

Others

Insurance

Financial Services

32ECONOMY MATTERS

the size of its Services GDP. Its CAGR in Services for the

period 2001-11 was 9.2 per cent, second only to China.

Services growth has consistently outperformed growth

on other sectors of the economy and the economy as a

whole. The fact that emerges is that services are clearly

an important part of the India growth story and will

continue to be so.

Services sector in India contributes close to 65 per cent

of the GDP (including construction) and provides

employment to millions. A comparison of the services

performance of the top 15 countries for the 11 year

period from 2001 to 2011 shows that the increase in share

of services in GDP is the highest for India with 8.1

percentage points. In 2011, India ranked 10th in terms of

Mr Malvinder M SinghChair, CII Services Council and

Executive Chairman, Fortis Healthcare

Services Sector Exports in Indian Economy

Source: World Development Indicators, 2012

Malaysia, Thailand, China and Indonesia in terms of

Service sector contribution to GDP

An interesting fact is that India is unique among

emerging Asian economies in being a service led

economy. Also data for 2010 shows that India is ahead of

79.0% 78.0%71.0% 70.0%

67.0%61.0%

55.0% 54.0%49.0%

43.0% 43.0%38.0%

US

A

UK

Japa

n

Mau

ritiu

s

Bra

zil

Rus

sia

Phi

lippi

nes

Indi

a

Mal

aysi

a

Tha

iland

Chi

na

Indo

nesi

a

Service Sector Share in GDP (2012)

Page 36: Economy Matters, November-December 2013

Trends in World Exports and Indian Exports of Goods and Services in current USD (Index=100 in 1990)

Source: WTO

There can be four distinct approaches to be adopted

to unleash the export potential of the service sector in

India.

One is scouting for other unorthodox segments that can

be significantly boosted. Medical Tourism accountancy,

legal services, animation, management services, R&D,

architectural services, audio-visual post-production,

creation of content and intellectual property, animation

and gaming fall in this category. The strategy should be

to provide integrated end-to end services and also move

up the value chain with time.

Secondly, developing services sectors in India like

hospitals, hotels etc. so that they get approvals and

certifications from the international standards

organizations in terms of the quality of their services,

infrastructure etc. to attract more high budget visitors

from abroad.

Thirdly, developing a dedicated band of trained

professionals in India in various avocations like doctors,

nurses, paramedics, accountants, animators etc who

can move from the country to other destinations will

also help.

Fourthly, the role of regulators should be redefined to

include periodic consultations with the stakeholders to

address the problems and prospects. Also we need to

give thrust to employment-intensive growth in services.

Between 2005 and 2011, some of these countries have

registered annual average growth of computer services

in the range of 27 to 69 per cent, though the absolute

figures of growth may be far less than that of India.

According to NASSCOM, in the last few years India's

market share in computer services exports has eroded

by 10 per cent on account of the competition from these

countries.

Among the other services that are yet to be given their

due importance but hold enormous potential,

Healthcare and Medical Tourism offer tremendous

promise because of the availability of a skilled talent

pool, competencies at the cutting edge of modern

medicine and proficiency in the conduct of complex

medical procedures. All these are achievable in India at a

huge cost advantage. Studies show that the current cost

advantage may result in savings for the patient as high as

10 times the cost of an identical procedure in the West.

Notwithstanding is the fact that the value of each

procedure can be quite substantial resulting in

significant monetary and goodwill gains. Also, medical

tourism once developed is less prone to react to the

exigencies of economic cycles making it a stable and

sustainable income source for the country. India

currently gets only 2 per cent of the US$79 billion global

medical tourist flow showing the enormous headroom

that is available for growth.

3000

2500

2000

1500

1000

500

0

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

India (Good Exports) World (Good Exports)

India (Services Exports) World (Services Exports)

35 NOVEMBER - DECEMBER 2013

* Other business services would include business and management consulting, accounting, legal and related services

registering a growth rate of 11 per cent. Over half of

India's net FDI inflows are in services and services also

constitute an increasing part of outward investment by

Indian companies. Also the huge contribution of

remittances to India's Balance of Payments,

underscores the significance of services to India's

macroeconomic and external stability.

Services sector is also a powerful tool for permeating

inclusive growth. According to the National Sample

Survey Organization's (NSSO) Report, for every 1000

persons employed in rural area, 241 are employed in the

services sector. In the urban area, this figure is as high as

683. It is often said that business processes exports have

sprung up on their own because of the inherent natural

advantages that India has, such as proficiency in the

English language, a large pool of skilled manpower etc.

That could be true.

But there are certain weaknesses and issues that need

to be addressed if India is to have a globally competitive

services sector. The future growth of the services

exports needs careful policy tooling on account of the

heightened competition that might be coming from

countries like Philippines, Brazil, Israel, Sri Lanka, China

and on account of protectionist overtones in the policy

framework of some of the developed countries.

Similarly, the services sector has been a key driver of

India's improved trade and FDI performance. There are

also sizeable exports from the services sector, which is

rather lop-sided and driven mostly by business

processes exports, which include computer-related

services and IT-BPO services and to a lesser extent by

other business and professional services like R&D,

accounting services and legal services. Hence India's

competitiveness in world services market is

concentrated in a few areas only. Although the services

trade balance is positive at the sub sectoral level, it is

significantly positive only in the computer and related

services and is in deficit in most other segments. There is

also lack of diversification of markets and at present

there is a narrow mix of markets .The IT-ITeS services

constitute around 50 per cent of the basket, and most of

it is exported to the US and the UK.

The potential for increasing the services exports from

India is immense given the fact that India is a leading

player in the services trade in the world. India's share in

the world in the export of services has risen from a

nominal 0.6 per cent in 1990 to an impressive 3.3 per cent

in 2011. Significantly, it has been increasing faster than

that of merchandize exports from the country. In 2011,

world's services exports reached US$4.17 trillion,

Global exports of commercial services

Source: WTO

25.7 25.6

20.6

7.5

6.0

2.52.4

2.11.3

6.4

Travel

Transportation Services

Financial Services

Royalties and License Fees

Computer and Information Services

Communication Services

Construction

Insurance Services

Personal, Cultural and Recreational Services

Other Business Services*

34ECONOMY MATTERS

Page 37: Economy Matters, November-December 2013

Trends in World Exports and Indian Exports of Goods and Services in current USD (Index=100 in 1990)

Source: WTO

There can be four distinct approaches to be adopted

to unleash the export potential of the service sector in

India.

One is scouting for other unorthodox segments that can

be significantly boosted. Medical Tourism accountancy,

legal services, animation, management services, R&D,

architectural services, audio-visual post-production,

creation of content and intellectual property, animation

and gaming fall in this category. The strategy should be

to provide integrated end-to end services and also move

up the value chain with time.

Secondly, developing services sectors in India like

hospitals, hotels etc. so that they get approvals and

certifications from the international standards

organizations in terms of the quality of their services,

infrastructure etc. to attract more high budget visitors

from abroad.

Thirdly, developing a dedicated band of trained

professionals in India in various avocations like doctors,

nurses, paramedics, accountants, animators etc who

can move from the country to other destinations will

also help.

Fourthly, the role of regulators should be redefined to

include periodic consultations with the stakeholders to

address the problems and prospects. Also we need to

give thrust to employment-intensive growth in services.

Between 2005 and 2011, some of these countries have

registered annual average growth of computer services

in the range of 27 to 69 per cent, though the absolute

figures of growth may be far less than that of India.

According to NASSCOM, in the last few years India's

market share in computer services exports has eroded

by 10 per cent on account of the competition from these

countries.

Among the other services that are yet to be given their

due importance but hold enormous potential,

Healthcare and Medical Tourism offer tremendous

promise because of the availability of a skilled talent

pool, competencies at the cutting edge of modern

medicine and proficiency in the conduct of complex

medical procedures. All these are achievable in India at a

huge cost advantage. Studies show that the current cost

advantage may result in savings for the patient as high as

10 times the cost of an identical procedure in the West.

Notwithstanding is the fact that the value of each

procedure can be quite substantial resulting in

significant monetary and goodwill gains. Also, medical

tourism once developed is less prone to react to the

exigencies of economic cycles making it a stable and

sustainable income source for the country. India

currently gets only 2 per cent of the US$79 billion global

medical tourist flow showing the enormous headroom

that is available for growth.

3000

2500

2000

1500

1000

500

0

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

India (Good Exports) World (Good Exports)

India (Services Exports) World (Services Exports)

35 NOVEMBER - DECEMBER 2013

* Other business services would include business and management consulting, accounting, legal and related services

registering a growth rate of 11 per cent. Over half of

India's net FDI inflows are in services and services also

constitute an increasing part of outward investment by

Indian companies. Also the huge contribution of

remittances to India's Balance of Payments,

underscores the significance of services to India's

macroeconomic and external stability.

Services sector is also a powerful tool for permeating

inclusive growth. According to the National Sample

Survey Organization's (NSSO) Report, for every 1000

persons employed in rural area, 241 are employed in the

services sector. In the urban area, this figure is as high as

683. It is often said that business processes exports have

sprung up on their own because of the inherent natural

advantages that India has, such as proficiency in the

English language, a large pool of skilled manpower etc.

That could be true.

But there are certain weaknesses and issues that need

to be addressed if India is to have a globally competitive

services sector. The future growth of the services

exports needs careful policy tooling on account of the

heightened competition that might be coming from

countries like Philippines, Brazil, Israel, Sri Lanka, China

and on account of protectionist overtones in the policy

framework of some of the developed countries.

Similarly, the services sector has been a key driver of

India's improved trade and FDI performance. There are

also sizeable exports from the services sector, which is

rather lop-sided and driven mostly by business

processes exports, which include computer-related

services and IT-BPO services and to a lesser extent by

other business and professional services like R&D,

accounting services and legal services. Hence India's

competitiveness in world services market is

concentrated in a few areas only. Although the services

trade balance is positive at the sub sectoral level, it is

significantly positive only in the computer and related

services and is in deficit in most other segments. There is

also lack of diversification of markets and at present

there is a narrow mix of markets .The IT-ITeS services

constitute around 50 per cent of the basket, and most of

it is exported to the US and the UK.

The potential for increasing the services exports from

India is immense given the fact that India is a leading

player in the services trade in the world. India's share in

the world in the export of services has risen from a

nominal 0.6 per cent in 1990 to an impressive 3.3 per cent

in 2011. Significantly, it has been increasing faster than

that of merchandize exports from the country. In 2011,

world's services exports reached US$4.17 trillion,

Global exports of commercial services

Source: WTO

25.7 25.6

20.6

7.5

6.0

2.52.4

2.11.3

6.4

Travel

Transportation Services

Financial Services

Royalties and License Fees

Computer and Information Services

Communication Services

Construction

Insurance Services

Personal, Cultural and Recreational Services

Other Business Services*

34ECONOMY MATTERS

Page 38: Economy Matters, November-December 2013

Tourism Inflows—Single Largest Way to Narrow CAD

Mr Arjun Sharma Le-Passage to India

37 NOVEMBER - DECEMBER 2013

6.58 million- an increase of 4.3 per cent over the year

2011. Arrivals to India have steadily grown since 2002

when there were 2.38 million tourists visiting India.

Tourism in India has registered significant growth in the

recent years and India has tremendous potential to

become a major global tourist destination. As shown in

graph below, in 2012, tourist arrivals to India grew to

the USA led with 15.8 per cent share in total FTA arrivals,

followed by UK (11.9 per cent), Bangladesh (7.4 per

cent), Sri Lanka (4.5 per cent), and Canada (4.1 per cent)

thThe 12 Five Year Plan envisages tourist arrivals to reach

11.24 million by the end of 2017. The breakup of source

country for FTA (Foreign Tourist Arrivals) indicate that

Source: Ministry of Tourism, India

Foreign Tourist Arrivals in India 1997-2012

Source: Bureau of Immigration, India

Year

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

7

6

5

4

3

2

1

0

FTA

s (in

mill

ion)

in in

dia

Percentage share of Top 10 Countries for FTAs in India in 2012

USA15.81%

Others39.47%

Malaysia2.98% Australia

3.07%Japan3.34%

France3.66% Germany

3.88%

Canada3.89%

Sri Lanka4.52%

Bangladesh7.40%

UK11.98%

periodically reviewing the curricula of these disciplines

for their relevance among the best in the world.

One pre-requisite for tapping the services sector

exports is skilling the people in the right trades. The

government of India through various agencies has

embarked on a mission to impart the right skills to 500

million people in the foreseeable future so that the

demand from various sectors including the services

sector can be met. These people will be trained in ITI's

and similar organizations. India's track record of

industry training has been inadequate. There are more

than 100 trades that figure in the curricula of ITI's in

India. Of that, only a handful of trades are relevant to

industry. It is time to recast the curricula with the inputs

from the user industry.

There are well conceived industry -government

partnership models developed elsewhere, particularly

in Germany, which India can adapt. These can give a leg

up to the services sector, particularly exports of services

and trained manpower.

Medical tourism, which falls under mode 2 of the WTO

General Agreement on Trade in Services (GATS) is a case

in point. The sector continues to have many bottlenecks.

There are three ministries involved in medical tourism,

these are the ministries of health, tourism and

commerce and industry. Seamless coordination among

these ministries could vastly facilitate the international

arrival of medical tourists and improve the packaging

and delivery of service. The complexity of rules and

delays surrounding the issuance of medical visas and in

getting international accreditation to hospitals are

bottlenecks that can be resolved to accelerate growth.

Similarly, there are improvements needed in the

administrative and legislative framework governing the

professions like chartered accountants, company

secretaries, cost accountants, lawyers etc. It is time to

take a call on whether the age-old restrictions placed on

these professions should be continued, such as

restrictions imposed on foreign affiliate firms to operate

in India, ban on advertisement etc. Equally important is

that the regulators should give more attention to

36ECONOMY MATTERS

Page 39: Economy Matters, November-December 2013

Tourism Inflows—Single Largest Way to Narrow CAD

Mr Arjun Sharma Le-Passage to India

37 NOVEMBER - DECEMBER 2013

6.58 million- an increase of 4.3 per cent over the year

2011. Arrivals to India have steadily grown since 2002

when there were 2.38 million tourists visiting India.

Tourism in India has registered significant growth in the

recent years and India has tremendous potential to

become a major global tourist destination. As shown in

graph below, in 2012, tourist arrivals to India grew to

the USA led with 15.8 per cent share in total FTA arrivals,

followed by UK (11.9 per cent), Bangladesh (7.4 per

cent), Sri Lanka (4.5 per cent), and Canada (4.1 per cent)

thThe 12 Five Year Plan envisages tourist arrivals to reach

11.24 million by the end of 2017. The breakup of source

country for FTA (Foreign Tourist Arrivals) indicate that

Source: Ministry of Tourism, India

Foreign Tourist Arrivals in India 1997-2012

Source: Bureau of Immigration, India

Year

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

7

6

5

4

3

2

1

0

FTA

s (in

mill

ion)

in in

dia

Percentage share of Top 10 Countries for FTAs in India in 2012

USA15.81%

Others39.47%

Malaysia2.98% Australia

3.07%Japan3.34%

France3.66% Germany

3.88%

Canada3.89%

Sri Lanka4.52%

Bangladesh7.40%

UK11.98%

periodically reviewing the curricula of these disciplines

for their relevance among the best in the world.

One pre-requisite for tapping the services sector

exports is skilling the people in the right trades. The

government of India through various agencies has

embarked on a mission to impart the right skills to 500

million people in the foreseeable future so that the

demand from various sectors including the services

sector can be met. These people will be trained in ITI's

and similar organizations. India's track record of

industry training has been inadequate. There are more

than 100 trades that figure in the curricula of ITI's in

India. Of that, only a handful of trades are relevant to

industry. It is time to recast the curricula with the inputs

from the user industry.

There are well conceived industry -government

partnership models developed elsewhere, particularly

in Germany, which India can adapt. These can give a leg

up to the services sector, particularly exports of services

and trained manpower.

Medical tourism, which falls under mode 2 of the WTO

General Agreement on Trade in Services (GATS) is a case

in point. The sector continues to have many bottlenecks.

There are three ministries involved in medical tourism,

these are the ministries of health, tourism and

commerce and industry. Seamless coordination among

these ministries could vastly facilitate the international

arrival of medical tourists and improve the packaging

and delivery of service. The complexity of rules and

delays surrounding the issuance of medical visas and in

getting international accreditation to hospitals are

bottlenecks that can be resolved to accelerate growth.

Similarly, there are improvements needed in the

administrative and legislative framework governing the

professions like chartered accountants, company

secretaries, cost accountants, lawyers etc. It is time to

take a call on whether the age-old restrictions placed on

these professions should be continued, such as

restrictions imposed on foreign affiliate firms to operate

in India, ban on advertisement etc. Equally important is

that the regulators should give more attention to

36ECONOMY MATTERS

Page 40: Economy Matters, November-December 2013

hotels from the liquidity crunch due to the prolonged

economic slowdown. Infrastructure status will allow

large capital-intensive hotel projects to avail loans with

longer repayment tenures of 15 years at lower rates of

interest and higher debt-to-equity ratio of up to 4:1. It

will also enable hoteliers to access more funds through

relatively low-cost external commercial borrowings and

become eligible for financial assistance including

takeout financing from specialised agencies like IDFC

Ltd, India Infrastructure Finance Co. Ltd and the newly

set up Infrastructure Debt Funds (IDF).

Some of the bottlenecks hindering the tourism industry

to realise its full potential are in Taxation, Visa, Aviation,

Environment, HR and marketing.

On Taxation front, rationalisation of tax structure on air

fares/airport charges and ATF charges and reduction of

multiplicity of taxes on aviation sector is needed. Luxury

tax on hotel rooms should be limited to make India's

accommodation globally competitive. Also the foreign

exchange earned by hotels and inbound tour operators

may be considered as 'deemed' exports and full service

tax exemption be provided to them at par with other

exporters. Also rationalisation of taxes would provide a

better fiscal operating environment for the tourism

sector to thrive.

Secondly, roll out of Visa on Arrival at Goa, Agra, Bodh

Gaya, Varanasi, Jaipur etc with requisite personnel and

proper infrastructure will be a good boost. The process

for application of visas should move to online. Also as

there are some countries that find it difficult to

comprehend the contents of the application form in

english especially in France and Germany. Thus multiple

language options are a necessity if India wants a sizeable

share of international traffic. There is an urgent need to

simplify visa procedures. While our neighbouring

countries have made entry procedures extremely user

friendly as well as price friendly.

Thirdly for the aviation sector there is a need for

upgrading air connectivity at key tourist destinations

and rationalisation of ATF charges and User

Development Fees. Also air taxi operation with small

aircrafts (20 seaters) should be permitted to a

consortium of hoteliers, tour operators to lesser

connected tourist destinations. This could be funded

under the Large Revenue Generating Scheme (LRG) of

the Ministry of Tourism under a Public Private

Partnership (PPP) Mode.

Fourthly, are the environmental issues. Tourism industry

Furthermore, investment into this sector has risen over

the years. In the year 2012, the industry is expected to

have attracted a capital investment of Rs.1761 billion

which is expected to grow by 6.5 per cent (per annum)

over the next ten years.

WTTC report on the impact of tourism to the Indian

economy states that tourism contributes approximately

6.4 per cent to the country's GDP, which is a larger share

than the education and the mining sector and at par with

the telecom sector. In terms of employment, the Indian

tourism industry in 2011 created 39.3 million direct or

indirect jobs in the country. This is 7.9 per cent of the

total employment in India and ahead of the telecom,

mining and automotive sectors. Over the next ten years,

jobs the tourism industry creates will rise steadily by 2

per cent per annum reaching 48 million by 2022- 8 per

cent of the total employment in India.

In India, tourism industry holds special position as it not

only have potential to grow at a high rate, but also

stimulate other economic sectors through its backward

and forward linkages and cross-sectional synergies with

s e c t o r s l i k e m a n u f a c t u r i n g , c o n s t r u c t i o n ,

communications, agriculture, horticulture, textiles, arts

and handicrafts, transport, etc and most importantly it

enhances and increases social outreach. That is, it can

provide impetus to other industries in the country and

generate enough wealth to help pay off the

international debt. It is the third largest net earner of

foreign exchange for the country. The travel and tourism

sector contributes to the national integration; preserves

natural and cultural environments; as well as enriches

social and cultural lives of the people.

Some positive developments so far have been Visa on

Arrival from 40 countries, to senior citizens from all the

countries and easing of visa issuance for conference

traffic should ease tourist inflow.

The inclusion of hotels with project cost in excess of

Rs.200 crore and convention centres with project cost of

more than Rs.300 crore in the Harmonised List of

Infrastructure and also to include such hotels and

convention centres of any star rating and located

anywhere in the country.

This is in addition to including three-star or higher

category hotels outside cities but in places with

populations of more than one million people in the

Reserve Bank of India's Infrastructure Lending List late

last year. The hotel industry has been demanding

infrastructure status for some years now to bail out

39 NOVEMBER - DECEMBER 2013

earnings. According to the World Travel & Tourism

Council (WTTC), a global forum for the business leaders

of the tourism industry, India is the 12th largest travel

and tourism economies of the world and a significant

contributor to the country's economy.

exports from agriculture, mining, automotive

manufacturing, financial services, construction, and

education. In 2012, India's share in international tourist

arrivals was 0.65 per cent of world travellers and its

share in international tourism receipts was relatively

higher at 1.61 per cent in 2012. The rising FTA flows is

clearly a function of the stellar performance of Indian

economy.

Correspondingly foreign exchange earnings too have

shown an increase- US$3103 million in 2002 to US$17,737

million in 2012 (see graph below). In 2013, till the month

of June, the country has received 3.31 million visitors and

has earned US$9201 million in terms of foreign exchange

The tourism industry constitutes a significant source of

export earnings. In 2011, visitor exports totalled US$17.2

billion. This was 12.0 per cent of all service exports and

3.9 per cent of all exports (including goods and services).

In 2012, this grew to Rs.1004.6 billion which is 4.2 per

cent of the total exports. This is forecast to grow by 8.7

per cent in 2013. The average growth rate per annum

from 2013-23 is slated at 5.7 per cent. In terms of

rankings, tourism sector earnings exceed earnings from

38ECONOMY MATTERS

Foreign Exchange Earnings from Tourism in India 1997-2012

Source: Ministry of Tourism, India

Percentage Share of India in InternationalTourist Arrivals in World

0.70

0.60

0.50

0.40

0.30

0.20

0.10

0.00

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Year

Ind

ia’s

Sh

are

(%)

Percentage Share of India in International TourismReceipts in World

1.8

1.6

1.4

1.2

1

0.8

0.6

0.4

0.2

0

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Year

Ind

ia’s

Sh

are

(%)

Source: Ministry of Tourism, India

20000

18000

16000

14000

12000

10000

8000

6000

4000

0

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Year

FE

E (

in U

S $

Mill

ion

)

Page 41: Economy Matters, November-December 2013

hotels from the liquidity crunch due to the prolonged

economic slowdown. Infrastructure status will allow

large capital-intensive hotel projects to avail loans with

longer repayment tenures of 15 years at lower rates of

interest and higher debt-to-equity ratio of up to 4:1. It

will also enable hoteliers to access more funds through

relatively low-cost external commercial borrowings and

become eligible for financial assistance including

takeout financing from specialised agencies like IDFC

Ltd, India Infrastructure Finance Co. Ltd and the newly

set up Infrastructure Debt Funds (IDF).

Some of the bottlenecks hindering the tourism industry

to realise its full potential are in Taxation, Visa, Aviation,

Environment, HR and marketing.

On Taxation front, rationalisation of tax structure on air

fares/airport charges and ATF charges and reduction of

multiplicity of taxes on aviation sector is needed. Luxury

tax on hotel rooms should be limited to make India's

accommodation globally competitive. Also the foreign

exchange earned by hotels and inbound tour operators

may be considered as 'deemed' exports and full service

tax exemption be provided to them at par with other

exporters. Also rationalisation of taxes would provide a

better fiscal operating environment for the tourism

sector to thrive.

Secondly, roll out of Visa on Arrival at Goa, Agra, Bodh

Gaya, Varanasi, Jaipur etc with requisite personnel and

proper infrastructure will be a good boost. The process

for application of visas should move to online. Also as

there are some countries that find it difficult to

comprehend the contents of the application form in

english especially in France and Germany. Thus multiple

language options are a necessity if India wants a sizeable

share of international traffic. There is an urgent need to

simplify visa procedures. While our neighbouring

countries have made entry procedures extremely user

friendly as well as price friendly.

Thirdly for the aviation sector there is a need for

upgrading air connectivity at key tourist destinations

and rationalisation of ATF charges and User

Development Fees. Also air taxi operation with small

aircrafts (20 seaters) should be permitted to a

consortium of hoteliers, tour operators to lesser

connected tourist destinations. This could be funded

under the Large Revenue Generating Scheme (LRG) of

the Ministry of Tourism under a Public Private

Partnership (PPP) Mode.

Fourthly, are the environmental issues. Tourism industry

Furthermore, investment into this sector has risen over

the years. In the year 2012, the industry is expected to

have attracted a capital investment of Rs.1761 billion

which is expected to grow by 6.5 per cent (per annum)

over the next ten years.

WTTC report on the impact of tourism to the Indian

economy states that tourism contributes approximately

6.4 per cent to the country's GDP, which is a larger share

than the education and the mining sector and at par with

the telecom sector. In terms of employment, the Indian

tourism industry in 2011 created 39.3 million direct or

indirect jobs in the country. This is 7.9 per cent of the

total employment in India and ahead of the telecom,

mining and automotive sectors. Over the next ten years,

jobs the tourism industry creates will rise steadily by 2

per cent per annum reaching 48 million by 2022- 8 per

cent of the total employment in India.

In India, tourism industry holds special position as it not

only have potential to grow at a high rate, but also

stimulate other economic sectors through its backward

and forward linkages and cross-sectional synergies with

s e c t o r s l i k e m a n u f a c t u r i n g , c o n s t r u c t i o n ,

communications, agriculture, horticulture, textiles, arts

and handicrafts, transport, etc and most importantly it

enhances and increases social outreach. That is, it can

provide impetus to other industries in the country and

generate enough wealth to help pay off the

international debt. It is the third largest net earner of

foreign exchange for the country. The travel and tourism

sector contributes to the national integration; preserves

natural and cultural environments; as well as enriches

social and cultural lives of the people.

Some positive developments so far have been Visa on

Arrival from 40 countries, to senior citizens from all the

countries and easing of visa issuance for conference

traffic should ease tourist inflow.

The inclusion of hotels with project cost in excess of

Rs.200 crore and convention centres with project cost of

more than Rs.300 crore in the Harmonised List of

Infrastructure and also to include such hotels and

convention centres of any star rating and located

anywhere in the country.

This is in addition to including three-star or higher

category hotels outside cities but in places with

populations of more than one million people in the

Reserve Bank of India's Infrastructure Lending List late

last year. The hotel industry has been demanding

infrastructure status for some years now to bail out

39 NOVEMBER - DECEMBER 2013

earnings. According to the World Travel & Tourism

Council (WTTC), a global forum for the business leaders

of the tourism industry, India is the 12th largest travel

and tourism economies of the world and a significant

contributor to the country's economy.

exports from agriculture, mining, automotive

manufacturing, financial services, construction, and

education. In 2012, India's share in international tourist

arrivals was 0.65 per cent of world travellers and its

share in international tourism receipts was relatively

higher at 1.61 per cent in 2012. The rising FTA flows is

clearly a function of the stellar performance of Indian

economy.

Correspondingly foreign exchange earnings too have

shown an increase- US$3103 million in 2002 to US$17,737

million in 2012 (see graph below). In 2013, till the month

of June, the country has received 3.31 million visitors and

has earned US$9201 million in terms of foreign exchange

The tourism industry constitutes a significant source of

export earnings. In 2011, visitor exports totalled US$17.2

billion. This was 12.0 per cent of all service exports and

3.9 per cent of all exports (including goods and services).

In 2012, this grew to Rs.1004.6 billion which is 4.2 per

cent of the total exports. This is forecast to grow by 8.7

per cent in 2013. The average growth rate per annum

from 2013-23 is slated at 5.7 per cent. In terms of

rankings, tourism sector earnings exceed earnings from

38ECONOMY MATTERS

Foreign Exchange Earnings from Tourism in India 1997-2012

Source: Ministry of Tourism, India

Percentage Share of India in InternationalTourist Arrivals in World

0.70

0.60

0.50

0.40

0.30

0.20

0.10

0.00

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Year

Ind

ia’s

Sh

are

(%)

Percentage Share of India in International TourismReceipts in World

1.8

1.6

1.4

1.2

1

0.8

0.6

0.4

0.2

0

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Year

Ind

ia’s

Sh

are

(%)

Source: Ministry of Tourism, India

20000

18000

16000

14000

12000

10000

8000

6000

4000

0

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Year

FE

E (

in U

S $

Mill

ion

)

Page 42: Economy Matters, November-December 2013

ECONOMY MATTERS

n

n

n

Keeps readers abreast of global & domestic

economic developments

Monthly Journal of top management of 8000

companies

Read by CII Members, Thought Leaders,

Diplomats, Policy Makers, MPs and other

decision makers

The Facts

n

n

n

n

n

n

n

Domestic Trends

Corporate Performance

Sector in Focus

Special Article

Special Feature

Economy Monitor

Global Trends

The Coverage

CII invites full-page* Advertisements for

this flagship document at an attractive rate

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

issues.

For more details, Please Contact: Confederation of Indian Industry

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

Dr. Danish A. Hashim, Director- Economic Research

Sixthly, short courses, vocational courses and skill

development programmes like the Hunar se Rozgar

schemes should be encouraged. Facilitation of PPP

models for tourism related courses and institutions in

conjunction with National Skill Development

Corporation should be encouraged.

Lastly and most importantly, marketing and promotion

of India as a major tourist destination is critical for the

industry to achieve its potential. The "Incredible India"

campaign helped place India on top of the list and there

is a need for a renewed campaign. Newer tourism

concepts, which include cruise tourism, adventure

tourism, agri tourism or rural tourism, are emerging in

India and these require support to develop and flourish.

Hence, greater marketing push for these different

products is required.

To remain competitive in the fiercely crowded space,

India needs to change its traditional methodology to a

more agile, young and modern approach. There is a need

to develop a niche market and a brand position which

captures the essence of the country. All this should make

Indian tourism a major foreign exchange earner for the

country.

has requested the reduction of distance of the 'No

Development Zones' all along the tidal water bodies in

selected coastal stretches for promoting tourism from

100 to 50 m. Implementation of M.S. Swaminathan

Committee Report can add a substantial number of

tourist on beaches. Also Ministry of Environment &

Forests needs to issue their Ecotourism policy. This will

help articulate a lot of matters relating to the conduct of

wildlife tourism, community participation and

sustainable operations.

Fifthly, Coordination with Ministry of Culture is needed.

UNESCO has nominated 23 cultural and 5 natural as

World Heritage Sites in India and 32 other sites across

various states have been proposed to be included under

Heritage Status. At most sites basic infrastructure such

as transport linkages, garbage and solid waste

management, tourist facilities such as toilets, day

centres, site information and manuals guide,

recreational facilities are in need of an upgrade. One way

of doing it by selective brandings at monuments in PPP

mode, which should be allowed in lieu of sharing of

upkeep costs. Also selectively allow use of monument

sites as venues should be allowed for events to enhance

experience.

40ECONOMY MATTERS

Page 43: Economy Matters, November-December 2013

ECONOMY MATTERS

n

n

n

Keeps readers abreast of global & domestic

economic developments

Monthly Journal of top management of 8000

companies

Read by CII Members, Thought Leaders,

Diplomats, Policy Makers, MPs and other

decision makers

The Facts

n

n

n

n

n

n

n

Domestic Trends

Corporate Performance

Sector in Focus

Special Article

Special Feature

Economy Monitor

Global Trends

The Coverage

CII invites full-page* Advertisements for

this flagship document at an attractive rate

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

issues.

For more details, Please Contact: Confederation of Indian Industry

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

Dr. Danish A. Hashim, Director- Economic Research

Sixthly, short courses, vocational courses and skill

development programmes like the Hunar se Rozgar

schemes should be encouraged. Facilitation of PPP

models for tourism related courses and institutions in

conjunction with National Skill Development

Corporation should be encouraged.

Lastly and most importantly, marketing and promotion

of India as a major tourist destination is critical for the

industry to achieve its potential. The "Incredible India"

campaign helped place India on top of the list and there

is a need for a renewed campaign. Newer tourism

concepts, which include cruise tourism, adventure

tourism, agri tourism or rural tourism, are emerging in

India and these require support to develop and flourish.

Hence, greater marketing push for these different

products is required.

To remain competitive in the fiercely crowded space,

India needs to change its traditional methodology to a

more agile, young and modern approach. There is a need

to develop a niche market and a brand position which

captures the essence of the country. All this should make

Indian tourism a major foreign exchange earner for the

country.

has requested the reduction of distance of the 'No

Development Zones' all along the tidal water bodies in

selected coastal stretches for promoting tourism from

100 to 50 m. Implementation of M.S. Swaminathan

Committee Report can add a substantial number of

tourist on beaches. Also Ministry of Environment &

Forests needs to issue their Ecotourism policy. This will

help articulate a lot of matters relating to the conduct of

wildlife tourism, community participation and

sustainable operations.

Fifthly, Coordination with Ministry of Culture is needed.

UNESCO has nominated 23 cultural and 5 natural as

World Heritage Sites in India and 32 other sites across

various states have been proposed to be included under

Heritage Status. At most sites basic infrastructure such

as transport linkages, garbage and solid waste

management, tourist facilities such as toilets, day

centres, site information and manuals guide,

recreational facilities are in need of an upgrade. One way

of doing it by selective brandings at monuments in PPP

mode, which should be allowed in lieu of sharing of

upkeep costs. Also selectively allow use of monument

sites as venues should be allowed for events to enhance

experience.

40ECONOMY MATTERS

Page 44: Economy Matters, November-December 2013

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

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

MONETARY VARIABLES (%)

CAPITAL FLOWS (US$ billion)

OTHER IMPORTANT INDICATORS (y-o-y%)

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

Net FII Flows Net FDI Flows Forex Reserves ECB flows

Core Sector Growth Cement Production Growth Steel Production Growth Commercial VehiclesProduction Growth

7.257.75

4.00 4.00 4.00 4.00 4.00

5.9

-16.4

10.5

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

22.6

32.6

18.121.8

2QFY13 3QFY13 4QFY13 1QFY14

61.6

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

17.318.4

17.916.8

14.1

Aug-13 Sep-13 Oct-13

0.4

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

1.7

3.2

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

281.3

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

1.0

2.8

4.2

0.9

2QFY13 3QFY13 4QFY13 1QFY14

8.0

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

11.5

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

6.6

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

-22.6

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

EXTERNAL ACCOUNT

12.310.9

6.8

59.8

63.263.8

12.5 12.2 12.5

-3.0 -2.5

1.22.1 1.7

277.2 275.5 276.3

0.1

3.13.7

2.3

0.8

5.5

3.4

7.0

4.3

2.0

4.0

6.0

8.0

10.0

12.0

0.0

-15.4-17.9 -19.6

-28.6

-6.2

11.6 13.0

-0.7

11.2

-18.1

13.5

-14.5

Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Nov-13

9.2

5.2

2QFY14

62.6

Nov-13

14.6

Jul-13 Aug-13 Sep-13 Oct-13 Nov-13

14.5

Jul-13 Aug-13 Sep-13 Oct-13 Nov-13

7.75

Nov-13

7.507.75

Dec-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13

0.3

Nov-13

2.0

Oct-13

291.3

Nov-13

1.5

2QFY14

-0.6

Oct-13

1.0

Oct-13

3.5

Oct-13

43 NOVEMBER - DECEMBER 2013

ECONOMY MONITOR

GDP GROWTH (y-o-y%)

WPI INFLATION (y-o-y%)

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

US GDP Growth Japan GDP Growth

IndustryOverall GDP

Overall

Euro Area GDP Growth China GDP Growth

Agriculture Services

Primary Fuel Manufacturing

General Manufacturing Electricity Mining

3Q12 4Q12 1Q13 2Q13

7.47.9 7.7 7.5 7.8

2.01.3 1.6

-1.2

-0.4

3Q12 4Q12 1Q13 2Q13

-0.3

0.11.2

3Q12 4Q12 1Q13 2Q13

5.24.8 4.4

2QFY13 3QFY13 4QFY13 2QFY14

1.7 1.81.4

2.7

2QFY13 3QFY13 4QFY13 1QFY14

1.3

2.52.7

0.2

7.6

6.7 6.6 6.6

2QFY13 3QFY13 4QFY13 1QFY14

3Q12 4Q12 1Q13 2Q13 3Q13

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

14.014.7

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

12.7

10.3

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

2.5

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

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

12.9

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

-1.0

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

GLOBAL GDP (y-o-y%)

3Q13

3.1

1.6

5.97.0 7.0

9.7

13.611.4

11.7

2.62.3 2.4

-1.8

2.6

0.4

2.0

-1.7

3.0

-0.2

0.60.0

5.2

7.2

-4.6

-3.0

3.3

-0.7-1.0

-0.6

3Q13

-0.2

3Q13

2.4

4.7 4.8

1QFY14

4.6

2QFY14

2.4

2QFY13 3QFY13 4QFY13 1QFY14 2QFY14

5.9

2QFY14

7.0

7.5

Nov-13

15.9

Nov-13

11.1

Nov-13 Nov-13

2.6

-1.8

Oct-13

-2.0

Oct-13

1.3

Oct-13

-3.5

Oct-13

42ECONOMY MATTERS

Page 45: Economy Matters, November-December 2013

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

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

MONETARY VARIABLES (%)

CAPITAL FLOWS (US$ billion)

OTHER IMPORTANT INDICATORS (y-o-y%)

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

Net FII Flows Net FDI Flows Forex Reserves ECB flows

Core Sector Growth Cement Production Growth Steel Production Growth Commercial VehiclesProduction Growth

7.257.75

4.00 4.00 4.00 4.00 4.00

5.9

-16.4

10.5

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

22.6

32.6

18.121.8

2QFY13 3QFY13 4QFY13 1QFY14

61.6

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

17.318.4

17.916.8

14.1

Aug-13 Sep-13 Oct-13

0.4

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

1.7

3.2

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

281.3

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

1.0

2.8

4.2

0.9

2QFY13 3QFY13 4QFY13 1QFY14

8.0

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

11.5

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

6.6

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

-22.6

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

EXTERNAL ACCOUNT

12.310.9

6.8

59.8

63.263.8

12.5 12.2 12.5

-3.0 -2.5

1.22.1 1.7

277.2 275.5 276.3

0.1

3.13.7

2.3

0.8

5.5

3.4

7.0

4.3

2.0

4.0

6.0

8.0

10.0

12.0

0.0

-15.4-17.9 -19.6

-28.6

-6.2

11.6 13.0

-0.7

11.2

-18.1

13.5

-14.5

Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Nov-13

9.2

5.2

2QFY14

62.6

Nov-13

14.6

Jul-13 Aug-13 Sep-13 Oct-13 Nov-13

14.5

Jul-13 Aug-13 Sep-13 Oct-13 Nov-13

7.75

Nov-13

7.507.75

Dec-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13

0.3

Nov-13

2.0

Oct-13

291.3

Nov-13

1.5

2QFY14

-0.6

Oct-13

1.0

Oct-13

3.5

Oct-13

43 NOVEMBER - DECEMBER 2013

ECONOMY MONITOR

GDP GROWTH (y-o-y%)

WPI INFLATION (y-o-y%)

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

US GDP Growth Japan GDP Growth

IndustryOverall GDP

Overall

Euro Area GDP Growth China GDP Growth

Agriculture Services

Primary Fuel Manufacturing

General Manufacturing Electricity Mining

3Q12 4Q12 1Q13 2Q13

7.47.9 7.7 7.5 7.8

2.01.3 1.6

-1.2

-0.4

3Q12 4Q12 1Q13 2Q13

-0.3

0.11.2

3Q12 4Q12 1Q13 2Q13

5.24.8 4.4

2QFY13 3QFY13 4QFY13 2QFY14

1.7 1.81.4

2.7

2QFY13 3QFY13 4QFY13 1QFY14

1.3

2.52.7

0.2

7.6

6.7 6.6 6.6

2QFY13 3QFY13 4QFY13 1QFY14

3Q12 4Q12 1Q13 2Q13 3Q13

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

14.014.7

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

12.7

10.3

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

2.5

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

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

12.9

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

-1.0

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

GLOBAL GDP (y-o-y%)

3Q13

3.1

1.6

5.97.0 7.0

9.7

13.611.4

11.7

2.62.3 2.4

-1.8

2.6

0.4

2.0

-1.7

3.0

-0.2

0.60.0

5.2

7.2

-4.6

-3.0

3.3

-0.7-1.0

-0.6

3Q13

-0.2

3Q13

2.4

4.7 4.8

1QFY14

4.6

2QFY14

2.4

2QFY13 3QFY13 4QFY13 1QFY14 2QFY14

5.9

2QFY14

7.0

7.5

Nov-13

15.9

Nov-13

11.1

Nov-13 Nov-13

2.6

-1.8

Oct-13

-2.0

Oct-13

1.3

Oct-13

-3.5

Oct-13

42ECONOMY MATTERS

Page 46: Economy Matters, November-December 2013

44ECONOMY MATTERS

DISCLAIMER

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

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

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

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

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

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

the notice of CII for appropriate corrections.

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

110003 (INDIA),

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

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

partnering industry, Government, and civil society, through advisory and consultative processes.

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

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

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

around 257 national and regional sectoral industry bodies.

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

efficiency, competitiveness and business opportunities for industry through a range of specialized services and strategic

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

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

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

across diverse domains including affirmative action, healthcare, education, livelihood, diversity management, skill

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

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

Towards this, CII advocacy will accord top priority to stepping up the growth trajectory of the nation, while retaining a strong

focus on accountability, transparency and measurement in the corporate and social eco-system, building a knowledge

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

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

UK, and USA, as well as institutional partnerships with 224 counterpart organizations in 90 countries, CII serves as a reference

point for Indian industry and the international business community.

ABOUT CII ResearchThe CII Research team regularly tracks economic, political and business developments within India and abroad to comment on

the emerging economic scenario for the Indian corporate sector. It tracks policy developments, offers comprehensive analysis

of industries and comments on and analyzes the economic climate through its regular publications– Economy Matters,

Business Outlook Survey and, Fortnightly Economic Updates.

We have in-house expertise in providing the most comprehensive, in-depth, unbiased and incisive analysis and forecasts on the

Indian economy and various sectors. CII Research is also well versed and well equipped to offer customized research based

consultancy services on any theme. It has been catering to the needs of various stakeholders including industries, business

houses and government providing meaningful insights about the prevailing trends, outlook on likely future trends, factors

behind these trends, existing government policies and policy recommendations with an objective to help stakeholders in

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

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

in our products, write to us at [email protected]

Page 47: Economy Matters, November-December 2013

44ECONOMY MATTERS

DISCLAIMER

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

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

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

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

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

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

the notice of CII for appropriate corrections.

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

110003 (INDIA),

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

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

partnering industry, Government, and civil society, through advisory and consultative processes.

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

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

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

around 257 national and regional sectoral industry bodies.

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

efficiency, competitiveness and business opportunities for industry through a range of specialized services and strategic

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

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

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

across diverse domains including affirmative action, healthcare, education, livelihood, diversity management, skill

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

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

Towards this, CII advocacy will accord top priority to stepping up the growth trajectory of the nation, while retaining a strong

focus on accountability, transparency and measurement in the corporate and social eco-system, building a knowledge

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

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

UK, and USA, as well as institutional partnerships with 224 counterpart organizations in 90 countries, CII serves as a reference

point for Indian industry and the international business community.

ABOUT CII ResearchThe CII Research team regularly tracks economic, political and business developments within India and abroad to comment on

the emerging economic scenario for the Indian corporate sector. It tracks policy developments, offers comprehensive analysis

of industries and comments on and analyzes the economic climate through its regular publications– Economy Matters,

Business Outlook Survey and, Fortnightly Economic Updates.

We have in-house expertise in providing the most comprehensive, in-depth, unbiased and incisive analysis and forecasts on the

Indian economy and various sectors. CII Research is also well versed and well equipped to offer customized research based

consultancy services on any theme. It has been catering to the needs of various stakeholders including industries, business

houses and government providing meaningful insights about the prevailing trends, outlook on likely future trends, factors

behind these trends, existing government policies and policy recommendations with an objective to help stakeholders in

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

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

in our products, write to us at [email protected]

Page 48: Economy Matters, November-December 2013