8/12/2019 D&B Economy Observer June 2014 Issue 85
1/41
Contents
View from the top
Page 1
Macro Scan
Page 2
Issue 85
June 2014
Economy Outlook
Page 3
Special Article
Page 4
Real Sector
Price Scenario
Money & Finance
External Sector
Viewfromthetop
D&B ECONOMY
Optimism that the revival of the economy is around the corner
is
gathering momentum as the new government has started
expediting long-delayed projects, taken measures to
streamline
the administrative structure to speed up decision making and
delivery and also aims to provide a single window for clearances
--
both at the centre and in the states and chalk out
investment-
friendly public-private partnership (PPP) mechanism. Besides,
the
ambitious plan to revive the growth in infrastructure such
as
launching a Diamond Quadrilateral project of high-speed
trains,
modernization and revamping the railways, modernizing
existing
ports as well building cities with a well-developed civic
infrastructure are also on the cards.
However, with a GDP growth of 4.7% during FY14, slightly
higher
than 4.5% in FY13, areas for concern remain. Last year while
the
rainfall has been above normal this year it is predicted to be
well
below normal. Lower rainfall would not only fan inflationary
pressures but also subdue rural demand. Political instability
which
is one of the greatest risks to global economic growth
remains
prominent during this year. Civil unrest in Iraq has led the
global
crude oil prices to soar while the military tensions over
Ukraine
have not subsided completely. Even as the current account
deficit
has lowered, sustaining this level without any imposition of
restriction on gold imports would be challenging.
Currently, the biggest challenge for the government would be to
set
the path for fiscal consolidation while focusing on revival in
growth.
India needs a robust fiscal policy to build the framework for
a
sustainable growth. Expectations are high on how the
government
will present an adjustment to the former government's budget
and
execute and implement its strategy. Another area of greater
challenge for the new government would be to create jobs for
its
emerging working age- population during the next five years.
The third but not the last important challenge would be on
strengthening the centre-state as well as inter-state
relations
which would aid in removing much of the structural
bottlenecks.
8/12/2019 D&B Economy Observer June 2014 Issue 85
2/42
Real Sector
Price
Money & Finance
External Sector
urce: MOSPI
Source: RBI
MacroScan
* GDP growth in Q4 FY14 stood at 4.6% compared with 4.4% in Q4
FY13.India's GDP stood at 4.7% in FY14 compared to 4.5% in
FY13.
* The agriculture and services sector grew by 4.7% and 6.8% in
FY14 asagainst 1.4% and 7.0% in FY13 while the industrial sector
grew by 0.4%in FY14 compared to 1.0% in FY13.
* The private final consumption expenditure remained subdued at
4.8%in FY14 compared to 5.0% in FY13. The gross fixed capital
formationdeclined by 0.1% in FY14 compared to the growth of 0.8% in
FY13.
* IIP grew by 3.4% in Apr-14 compared to -0.5% in Mar-14 and
1.5% inApr-13.
* The electricity sector recorded a double digit growth of 11.9%
and themanufacturing sector grew by 2.6% in Apr-14.
* As per the provisional data, the fiscal deficit for FY14 stood
at 4.5% ofGDP as compared to the budgeted 4.8% for FY14.
* Annual rate of WPI inflation rose to five months high of 6.0%
in May-14as against 5.2% in Apr-14 and 4.6% in the year ago
period.
* Inflation in food articles rose to 9.5% in May-14 from 8.6% in
Apr-14,primarily driven by increased inflation in fruits (19.4% in
May -14 from16.5% in Apr-14) and eggs, meat &fish segments
(12.5% in May-14from 10.0% in Apr-14).
* Inflation in fuel and power segments grew significantly by
10.5% (y-o-y)during May-14 as against the growth of 8.9% in Apr-14
whereasmanufactured products inflation grew marginally by 3.6% in
May-14 ascompared to 3.2% in the previous month.
* Annual rate of inflation under CPI (combined for rural and
urban),touched a three month low of 8.3% during May-14 after
growing by8.6% in Apr-14.
* The RBI kept the repo rate under the liquidity adjustment
facil ity (LAF)unchanged at 8.00%.
* The RBI reduced the statutory liquidity ratio (SLR) of
scheduledcommercial banks by 50 basis points from 23.0% to 22.5% of
theirNDTL with effect from the fortnight beginning 14-Jun-2014.
* The liquidity provided under the export credit refinance (ECR)
facility isdecreased from 50% of eligible export credit outstanding
to 32% withimmediate effect. However, a special term repo facility
of 0.25% ofNDTL is introduced to compensate fully for the reduction
in access toliquidity under the ECR, with immediate effect.
* The RBI allowed foreign portfolio investors to participate in
the domestic
exchange traded currency derivatives market to the extent of
theirunderlying exposures plus an additional US$ 10 mn.
* The aggregate deposit and bank credit grew by 14.1% (y-o-y)
and13.0% (y-o-y) respectively in the week ended May 30, 2014 as
againstthe growth of 13.1% and 13.8% in the year-ago period.
* India's current account deficit (CAD) narrowed sharply to US$
1.2 bn(0.2% of GDP) in Q4 of FY14 from US$ 18.1 bn (3.6% of GDP) in
Q4 ofFY13. CAD stood at 1.7% of GDP during FY14 compared to 4.7%
ofGDP in FY13.
* Net services recorded a growth of 15.6% in Q4 of FY14 as
against adecline of 3.9% in Q4 of FY13 on account of higher exports
of services.
*
While net inflows on account of portfolio investment was US$ 4.8
bn inFY14 compared to US$ 26.7 bn in FY13, net FDI flow was US$
30.8billion in FY14 compared to US$ 27.0 bn in FY13.
* Exports increased by 12.4% (y-o-y) to US$ 28.0 bn in
May-14,while imports fell by 11.4% to US$ 39.2 bn leading to a
trade deficit ofUS$ 11.2 bn.
CPI Food and fuel inflation moderates
ource: BSE
BSE continues recording historical highs
CAD as % GDP moderates significantly
urce: CSO, MOSPI
Sluggish industrial activities & private demand dragged down
GDP
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
0
0
0
0
0
0
FY10
FY11
FY12
FY13
FY14
%%
Industry GDP at Factor Cost PFCE
%%
Food, Beverages and Tobacco Fuel and Light General Index (CPI
Combined)
7.5
8.0
8.5
9.0
0.0
2.5
5.0
7.5
.0
.5
Jan-14 Feb-14 Mar-14 Apr-14 May-14
7000.0
8000.0
9000.0
20000.0
21000.0
22000.0
23000.0
24000.0
25000.0
26000.0
1-Jan-13
Index
21-Jan-13
10-Feb-13
2-Mar-13
22-Mar-13
11-Apr-13
1-May-13
21-May-13
10-Jun-13
30-Jun-13
20-Jul-13
9-Aug-13
29-Aug-13
18-Sep-13
8-Oct-13
28-Oct-13
17-Nov-13
7-Dec-13
27-Dec-13
16-Jan-14
5-Feb-14
25-Feb-14
17-Mar-14
6-Apr-14
26-Apr-14
16-May-14
5-Jun-14
-5.0
-4.0
-3.0
-2.0
-1.0
0.0FY09
CAD % GDP
FY10
FY11
FY12
FY13
FY14
8/12/2019 D&B Economy Observer June 2014 Issue 85
4/4 Copyright Dun & Bradstreet India (D&B);While D&B
India endeavours to ensure accuracy of information, we do not
accept any responsibility for any loss or damage to any person
resulting from reliance on it.
Please send your feedback to Dr Arun Singh, Senior
Economist.
Dun & Bradstreet Information Services India Pvt. Ltd., ICC
Chambers, Saki Vihar Road, Powai, Mumbai 400 072. CIN -
U74140MH1997PTC107813
Tel: 91-22-28574190 / 92 / 94 | Fax: 91-22-28572060 | Email:
[email protected] | www.dnb.co.in
FY09 shot up by 23%, composed of 36% growth in non-plan
revenue expenditure and a decline in the non-plan capital
expenditure by 37%. Much of the growth in non-plan revenue
expenditure was attributed to increase in subsidy outgo and
higher salary and pension bills due to the implementation of
the Sixth Central Pay Commission recommendations. Another
major component of Non-plan expenditure during this period
was interest outgo. Interest payments for FY09 constituted
31% of the Non- plan expenditure and recorded a growth of
12% over FY08 on account of the higher borrowings resorted
to finance the higher deficit. Stepping up of plan
expenditure
for boosting demand and investment in infrastructure sector
were also part of the Government fiscal stimuli measures.
Accordingly, Plan expenditure jumped by 26% (y-o-y) in FY09.
However, the bulk of the plan expenditure was on revenue
expenditure which grew by 37% while plan capital expenditure
increased by 29%.This trend of increase of plan expenditure
continued till FY11, following which there has been a
disturbing
trend of cut-backs in plan and capital expenditure while
non-
plan expenditure continues to surpass budget estimates. It
is
instructive to note that expenditure on the revenue account
has exceeded the budgeted numbers since FY07 while capital
expenditure has been falling short of the budgeted
estimates.
Expenditures in the social sector have consistently fallen
below the budgeted allocations. Specifically, in the case
ofhealth and education, the actual expenditure for FY13 was
less than the budget estimate by 18% and 10% respectively.
Quality of Expenditure
Moreover, what is also disconcerting in the current scenario
is
that the quality of the current and projected fiscal
consolidation
appears to be deteriorating. The attainment of better than
expected fiscal deficit target in FY14 has involved
offsetting
the decline in tax revenue through expenditure compression
(primarily plan and capital). As per the provisional
estimates,
Plan expenditure for FY14 was pruned to the tune of 18% from
the budgeted estimates. Going forward, speeding up the tax
reforms and focusing on expenditure-related reforms holds
the
key to stay on the path of fiscal in the current low growth
phase.
There is a need to reassess the quality of expenditure that
is
being axed in order to keep fiscal deficit at sustainable level.
It
is pertinent for the upcoming Budget to rebalance the
composition of expenditure with the focus shifting more
towards capital expenditure. Further rationalisation of
subsidies and enhanced Government spending on health,
education and infrastructure along with proper monitoring
would go a long way in pushing the Indian economy onto the
higher growth trajectory.
SpecialArticle
Public expenditure is an intrinsic tool in the hands of
government to bring about equitable distribution of income
and wealth. Government expenditure - as per the provision
in the Indian Constitution - is divided into revenue
expenditure and capital expenditure. The classification of
total expenditure into Plan and Non-Plan, although not
rooted in the Constitution, has evolved with the planning
process.
Plan and Non-Plan Expenditure
Plan expenditure comprises all the expenditure of the
government on the items (new projects and programmes)
during the period of a five year plan. They are spent on
creatingassets through centrally sponsored programmes and
schemes. Non-plan expenditure is a committed expenditure
on completed schemes of earlier plans. As more plans are
completed, a large amount of expenditure on the running of
existing government institutions in different sectors (eg.
education and health facilities etc), gets added to non-plan
expenditure, besides expenditure on defence services,
interest payments. Since the Non-Plan expenditure is of a
committed nature, it has been a practice to estimate
Non-Plan
expenditure first, based on historic parameters. The amount
of
resources left after meeting the Non-Plan expenditure is
calledthe Balance from Current Revenue (BCR) and is a part of
the
non-debt resources that is available for plan expenditure.
These non-debt resources added to the amount of net
borrowing planned to be incurred would give the total amount
of resources available for plan expenditure.
Trends in Plan
and Non-Plan expenditure
Non-plan Expenditure accounts for a dominant share in total
expenditure, with a share of close to 70%. The process of
fiscal correction and consolidation under the Fiscal
Responsibility and Budget Management (FRBM) framework
from FY04 onwards (post FRMA) had led to a moderation in
non-plan expenditure; as a percentage of GDP, non-plan
expenditure declined gradually from 13.4% in FY04 to 10.3%
in FY07. During this period, plan expenditure witnessed its
share in total expenditure increase to almost 30%. The
fiscal
correction and consolidation witnessed till FY08 reversed
somewhat during FY09 on account of the expansionary fiscal
stance adopted by both the Central and State Governments to
contain economic slowdown created by the global financial
crisis. As a percentage of GDP, Non-plan expenditure once
again increased to 11.6% in FY09. Non-plan expenditure in
Analysis of Plan and Non-Plan Expenditure
![[XLS]navy-training-transformation2.wikispaces.com · Web view0 15 15 85 85 100 100 5 85 100 0.3 1 0.35 0.35 1 85 85 85 85 85 85 85 85 85 85 85 85 85 85 85 85 85 85 85 85 15 15 5 11.5](https://img.pdfslide.us/doc/110x75/5adf226a7f8b9a6e5c8bbbe3/xlsnavy-training-view0-15-15-85-85-100-100-5-85-100-03-1-035-035-1-85-85-85.jpg)
