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Quarterly Review
State of the Economy
Seminar
August 8, 2013
QRE Team
Forecast: Purna Chandra Parida Agriculture: Anil K. Sharma Industry: Saurabh Bandopadhyay Services: Devender Pratap Money and Credit: Mythili Bhusnurmath Prices: Bornali Bhandari External Sector: Rajesh Chadha and Anjali Tandon Public Finance: Mythili Bhusnurmath Research/ Data Support: Devender Pratap, Charu Jain,
Himani Gupta, Farha Anis and Praveen Sachdeva
Organisational Support: Sudesh Bala and Shikha S. Vasudeva
When it rains, it pours…
• Monsoon covered all of India a month early
• Narendra Modi nominated as Chairman of BJP election committee
– Bhagwati-Sen debate
• 15 June, 2013 Uttarakhand floods – 6,000 people estimated dead
• 19 June, 2013: Federal Reserve Governor sets road map for end of stimulus
– 17 July: Accommodative Monetary Policy
• FDI liberalisation an on-going process
• Unemployment Rate in the US – 7.4% in July 2013
• China de-leveraging
• TMC sweeps West Bengal Panchayat elections
• Separate state, Telengana approved
• Governance issues have again come to the fore
– Sand mining banned
• Raghuram Rajan takes over as RBI Governor in September, 2013
Key Messages
Indian Growth Rate bottomed out in the third quarter of 2012-13
On an annual basis growth rate hits rock bottom
Double Dip?
Good Monsoon and worldwide weak commodity prices
Rupee depreciation
Overall, difficult to predict
Grim news continues
Revive Investment FDI policy is a step in the right direction but not enough!
Provisional Estimates
Indian GDP Growth Rate Slides – Was
growth above 9% the norm or flash in the pan?
Note: # Provisional Estimates
Source: CSO
9.5 9.6 9.3
6.7
8.69.3
6.25
0
2
4
6
8
10
12
2005-
06
2006-
07
2007-
08
2008-
09
2009-
10
2010-
11^
2011-
12 *
2012-
13 #
GDP Growth Rate (%YoY)
The economy did bottom out in the third
quarter – is this sustainable?
Source: CSO
5.55.3
4.5 4.8
0
1
2
3
4
5
6
2012-13:Q1 2012-13:Q2 2012-13:Q3 2012-13:Q4
GDP Growth Rate (% Y-o-Y)
Except Mining, Community, Social and Personal Services
and Construction – all sectors show a slow down
-2
0
2
4
6
8
10
12
14
Ag
ricu
lture
,
Fo
rest
ry a
nd
Fis
hin
g
Min
ing
an
d
Qu
arr
yin
g
Ma
nu
fact
uri
ng
Ele
ctri
city
,
Ga
s &
Wa
ter
Co
nst
ruct
ion
Tra
de
, Ho
tels
,
Tra
nsp
ort
Fin
an
ce,
Insu
ran
ce,
Re
al E
sta
te
Co
mm
un
ity,
So
cia
l an
d
Pe
rso
na
l
2011-12 * 2012-13 #Note: * First Revised Estimates, #
Provisional Estimates
Source: CSO
Mining slid deeper into recession and
construction growth decreased
in the fourth quarter of 2012-13 (compared
to the third quarter)
Gross Fixed capital Formation also
continues to move downwards (%Y-o-Y)
7.5
11.6
1.7
0
2
4
6
8
10
12
GFCF Growth
2010-11 2011-12 2012-13
Projections for the World % (Y-o-Y)
Country/ Region 2011 2012 2013 2014
US 1.8 2.2 1.7 2.7
China 9.3 7.8 7.8 7.7
Euro area 1.5 –0.6 –0.6 0.9
Japan -0.6 1.9 2.0 1.2
India 6.3 3.2 5.6 6.3
Emerging Market and
Developing
Economies 6.2 4.9 5.0 5.4
Advanced
Economies 1.7 1.2 1.2 2.1
World 3.9 3.1 3.1 3.8
Note: The arrow indicates whether the estimates have been revised from April 2013
Source: World Economic Outlook (WEO) Update, July 2013
Forecasts for Select Economic
Indicators for India (%)
Ministry of
Finance
PMEAC RBI ADB WEO
2013-14 2013-14 2013-14 2013 2014 2013 2014
Real GDP
growth
6.1 to 6.7
(February)
6.4
(April)
5.7
(March)
5.8
(July)
6.5
(July)
5.6
(July)
6.3
(July)
Sources: Asian Development Outlook July Updates 2013, World Economic Outlook July 2013 Update, RBI, Ministry of
Finance, PMEAC
2013-14 – Tomorrow is another day
Agriculture
Excess Rain
24.9
-20
-15
-10
-5
0
5
10
15
20
25
Deviations in Monsoon Rainfall
from the Normal (June-July) (per
cent)
2009-10 2010-11 2011-12 2012-13 2013-14
Except East (-12.6% Deviation in June-July)
Source: Computations from IMD Data
Actual and Estimated Levels of Output of
Selected Crops (Million tonnes)
Crops Actual 2010-11 Actual 2011-12 Fourth Advance
Estimates 2012-
13
Rice 96 105.3 104.4
Wheat 86.9 94.9 92.5
Coarse Cereals 43.4 42 40.1
Pulses 18.2 17.1 18.5
Total Foodgrains 244.5 259.3 255.4
Oilseeds 32.5 29.8 31
Cotton 33 35.2 34
Sugarcane 342.4 361 339
Source: Ministry of Agriculture, Government of India
Note: * The estimates for cotton are in million bales.
Paradox- Record output but agricultual GDP growth still slows down
Stock of cereals held by government
agencies, million tonnes
Cereal inflation 16.2% (April-June, 2013)
58.364.1
80.673.9
0
10
20
30
40
50
60
70
80
90
01-Jul-10 01-Jul-11 01-Jul-12 July 1 2013
Industry
Slide of the Industry (% Y-o-Y using IIP)
5.2
9.0
5.5
8.2
3.0
8.2
2.9
-2.4
1.3
4.0
1.1
-2.0
-5.0
0.0
5.0
10
.0
Mining Manufacturing Electricity General
2010-11 2011-12 2012-13 Source: CSO
Slide of Industry continues in the first two
months
Source: CSO
-4.50.1
5.2
0.1
-6
-4
-2
0
2
4
6
Min
ing
Ma
nu
fac
turin
g
Ele
ctric
ity
Ge
ne
ral
April-May, 2013-14 (% YoY)
Consumer durables lead the downfall
-10
-5
0
5
10
15
Ba
sic
go
od
s
Ca
pita
l
go
od
s
Inte
rme
dia
te
go
od
s
Co
ns
um
er
du
rab
les
Co
ns
um
er
no
n-
du
rab
les
Ov
era
ll
2010-11 2011-12 2012-13 2013-14*
Note: * April-May, Source: CSO
Basic Goods Inflation – 1.64%
Consumer Durables – 1.63%
Manufacturing – 3.18%
2-Digit Classification – only four show growth
above 5 per cent (April-February, %YoY)
• 12 out of the 22 industry groups in the manufacturing sector showed positive growth in April-May, 2013-14.
• In April–May 2013–14, there are only five industries that have recorded growth above 5 per cent.
– Wearing apparels (55%)
– Leather products (15.5%)
– Chemicals and Products (6.2%)
– Furniture (12.9%)
– Refined Petroleum Products (5.2%)
8 Core Industries Index (%YoY) shows
consistent decline
Refinery Products, steel, cement and electricity are the only ones that positive growth.
All have shown decline in the period April-May 2013-14 versus
corresponding period in 2012-13
6.6
5
3.4
2.4
0
1
2
3
4
5
6
7
2010–11 2011–12 2012-13 2013-14*
Services
Indicators of Service Sector Output
(% Change y-o-y)
Source: i) Foreign Tourist Arrivals- Press Information bureau, Ministry of Tourism; Railway traffic-Press Information bureau, Ministry of Railways; Port Cargos- Indian Port Association;
http:/ipa.nic.in/pcs/default.asp; and Aggregate Deposits and Bank Credit- RBI
Quarterly/Fi
scal Year
Touri
sts
Arriv
al
(Num
bers)
Revenu
e
Earning
Goods
Traffic
by
Railway
s (MT))
Cargo
Handled
at Major
Ports
(‘000
tonnes)
Producti
on of
Commer
cial
Vehicles
(‘000
Number
s)
New
Telepho
ne
Connect
ions
(Fixed+
Wireless
in
Millions)
Growth
in
Aggrega
te
Deposits
(Rs cr)
Bank
Credit to
Commer
cial
Sector
(Rs cr)
2012-13:Q1 4.8 4.7 -5.5 -3.7 9.0 16.5 19.2
2012-13:Q2 7.3 9.3 -0.8 -5.2 3.4 13.7 16.5
2012-13:Q3 5.3 -3.0 -2.7 -13.6 -3.3 10.9 15.0
2012-13:Q4 4.8 -0.8 -0.9 -17.3 -5.6 14.3 9.8
2013-14:Q1 1.9 4.9 -1.0 0.1 -5.9* 13.8 13.3
Domestic and international air passenger
and cargo traffic
Source: Airport Authority of India
Domestic Traffic International Traffic Total Traffic
Month
/Year
Pa
ss
en
ge
r
La
kh
%ch
g
Car
go
‘000
tonn
es
%ch
g
Pas
sen
ger
Lak
h
%ch
g
Car
go
‘000
tonn
es
%ch
g
Pas
sen
ger
Lak
h
%ch
g
Car
go
‘000
tonn
es
%ch
g
2012-
13
21
0.0
4.0 137.
4
5.1 68.9 4.6 243.
5
-6.4 278.
9
4.1 381.
0
-2.5
2013-
14
21
3.2
1.5 124.
7
-9.3 76.5 11.0 240.
0
-1.5 289.
7
3.9 364.
7
-4.3
Growth of Service Sector Exports (%YoY)
Source: RBI
Year Travel Transp
ortatio
n
Insuran
ce
G.n.i.e Softwar
e
Service
s
Non-
Software
Miscellan
eous
Services*
Total
Servic
es
2012-13:Q1 -5.2 -2.4 -6.5 14.5 4.6 3.5 2.1
2012-13:Q2 -6.6 -7.2 -11.8 1.8 15.3 4.9 5.9
2012-13:Q3 -0.4 -10.4 -34.4 -3.7 2.1 -5.7 -2.8
2012-13:Q4 0.5 -3.6 -4.9 166.0 2.9 -6.5 -0.7
Break-up of Non-Software Miscellaneous
Services Receipts (% Change y-o-y)
Source: RBI
Year Business Financial Communicati
on
Total Non-
Software
Miscellaneou
s Services
2012-13:Q1 31.7 1.9 16.4 3.5
2012-13:Q2 16.5 -14.1 16.7 4.9
2012-13:Q3 4.8 -14.3 -21.5 -5.6
2012-13:Q4 -8.8 -26.9 14.9 -6.5
External Sector
Current Account Deficit has moderated
Source: Reserve Bank of India
As a ratio to GDP 2012-13 (US $ billion)
Q1(PR) Q2(PR) Q3(PR) Q4(PR)
Trade Balance -10.2 -11.4 -12.0 -9.0
Net Services 3.5 3.9 3.4 3.3
Net Income 2.8 2.5 2.0 2.1
Current Account Balance -4.0 -5.0 -6.5 -3.6
Capital & Financial Account (Net)
3.8 4.9 6.5 4.0
PR: Partially Revised
Revival of Capital Flow but….
Source: Reserve Bank of India
(US $ billion)
2012-13 (Monthly Average) Q1 Q2 Q3 Q4
2013-14 Apr-May
FDI in India 2.0 3.2 1.4 2.4 2.7
FDI by India 0.7 0.5 0.7 0.5 0.3
FIIs -0.6 2.6 3.3 3.8 -0.2#
ADRs/GDRs 0.03 0.03 0.0 0.0 0.0
ECBs 0.1 0.4 1.0 1.4 0.8
NRI Deposits 2.2 0.9 0.9 0.9 1.5
#: Apr-Jun 2013
Vulnerability indicators show further
worsening
Source: Reserve Bank of India
(per cent)
Indicator End Mar 2011 End Mar 2012 End Mar 2013
Ratio of Total Debt to GDP 17.5 19.7 21.2
Ratio of Short-term to Total Debt(Original Maturity) 21.2 22.6 24.8
Ratio of Short-term to Total Debt(Residual Maturity)# 42.2 42.6 44.2
Ratio of Concessional Debt to Total Debt 15.5 13.9 11.7
Ratio of Reserves to Total Debt 99.7 85.2 74.9
Ratio of Short-term Debt to Reserves 21.3 26.6 33.1
Ratio of Short-term Debt(Residual Maturity) to Reserves# 42.3 50.1 59.0
Reserves cover of Imports (in months) 9.5 7.1 7.0
Debt-Service Ratio(Debt Service Payments to Current Receipts)
4.4 6.0 5.9
External Debt(US $ billion) 305.9 345.5 390.0
International Investment Position(IIP)(US $ billion) -207.0 -249.5 -307.3
IIP/GDP Ratio -11.9 -14.0 -16.7
# RBI Estimate
Steep Fall in the Rupee
0
10
20
30
40
50
60
70
Apr'09
July
Oct
Jan
Apr'10
July
Oct
Jan
Apr
'11
July
Oct
Jan
Apr
'12
July
Oct
Jan
Apr
80
85
90
95
100
105
110
Rs/ Dollar REER (36 country, trade weighted)
Prices
Moderation in Inflation (almost)
0
2
4
6
8
10
12
14
2012-13:Q1 2012-13:Q2 2012-13:Q3 2012-13:Q4 2013-14:Q1
CPI combined INFLCPIAL INFLCPIIW INFWPI
Money Sector
BCC and NBCG have fallen (% Y-o-Y)
0
10
20
30
40
50
60
Ap
r'0
9M
ay
Jun
July
Au
gS
ep
tO
ct
No
vD
ec
Jan
Fe
bM
ar
Ap
r'1
0M
ay
Jun
July
Au
gS
ep
tO
ct
No
vD
ec
Jan
F
eb
Ma
rA
pr
'11
Ma
yJu
ne
July
Au
gS
ep
tO
ct
No
vD
ec
Jan
F
eb
Ma
rA
pr
'12
Ma
yJu
ne
July
Au
gS
ep
tO
ct
No
vD
ec
Jan
Fe
bM
ar
Ap
rM
ay
Jun
BCC NBCG
Interest Rates and Inflation Rates (%)
-2
0
2
4
6
8
10
12A
pr'
09
July
Oct
Jan
Ap
r'1
0
July
Oct
Jan
Ap
r '1
1
July
Oct
Jan
Ap
r '1
2
July
Oct
Jan
Ap
r
Repo Rate
Reverse Repo Rate
WPI %YOY
BSE Sensex falls
10000
12000
14000
16000
18000
20000
22000
Ap
r'0
9
Ju
n
Au
g
Oct
Dec
Feb
Ap
r'1
0
Ju
n
Au
g
Oct
Dec
Feb
Ap
r '1
1
Ju
ne
Au
g
Oct
Dec
Feb
Ap
r '1
2
Ju
ne
Au
g
Oct
Dec
Feb
Ap
r
Ju
n
Public Finance
Trends in Deficits as % of GDP
4.9
6.6
5.4
2.3
5.2
1.9
9.1
7.9
5.7
4.35.2
8.2
6.3
2.63.1
-3
0
3
6
9
12
20
09
-10
Q2
20
09
-10
Q3
20
09
-10
Q4
20
10
-11
Q1
20
10
-11
Q2
20
10
-11
Q3
20
10
-11
Q4
20
11
-12
Q1
20
11
-12
Q2
20
11
-12
Q3
20
11
-12
Q4
20
12
-13
Q1
20
12
-13
Q2
20
12
-13
Q3
20
12
-13
Q4
Fiscal Deficit Revenue Deficit Primary Deficit
But….
• Too early to talk about it.
• Food Subsidy Bill – the elephant in the room
Thank You
An Assessment of Macroeconomic Scene for
2013-14
Quarterly Review of the Economy August 08, 2013
Sector-wise business activities remain low
Source: HSBC
Business confidence continued to
remain low
Source: NCAER
Low capacity utilisation of manufacturing companies
reflect the below potential growth rate of the sector
Source: Quarterly Order Books, Inventories and Capacity Utilisation Survey, RBI
High growth in manufacturing sector is
necessary for the recovery of service sector
Note: RGDPMFGSA_C = De-trended component of seasonally adjusted real GDP of Manufacturing sector
RGDPOSERSA_C = De-trended component of seasonally adjusted real GDP of Services other than community, social & personal services
-10000
-8000
-6000
-4000
-2000
0
2000
4000
6000
8000
10000
12000
2009Q
1
2009Q
2
2009Q
3
2009Q
4
2010Q
1
2010Q
2
2010Q
3
2010Q
4
20
11
Q1
20
11
Q2
20
11
Q3
20
11
Q4
2012Q
1
2012Q
2
2012Q
3
2012Q
4
Rs C
rore
RGDPMFGSA_C RGDPOSERSA_C
Forecast
Quarterly Model: Assumptions for 2013-14
Exogenous Variables
2013-14 2013-14
April July
Rainfall Normal Same
BSE Sensex (%yoy) 7.0% 5.0%
Bank Credit to the Commercial
Sector (%yoy) 16.6% 15.8%
Central Government Expenditure
(%yoy) 16.4% (BE) Same
Quarterly Model: GDP growth forecast for
2013-14
Forecast for 2013-14
April
2013-14
July
Q1 5.8 5.0
Q2 6.1 5.4
Q3 6.5 6.1
Q4 6.4 6.0
Overall 6.2 5.7
Source: NCAER
Annual Model: Assumptions for 2013-14
Exogenous Variables
Unit
2004-05 to
2008-09
Average
2013-14 2013-14
April
2013
July
2013
Agriculture related
Rainfall - Normal Same
Public investment in agriculture
sector (current prices) %YOY 23.9 20.0 20.0
External Conditions
World real GDP %YOY 3.5 3.3 3.1
International oil prices %YOY 28.5 3.0 0.0
Non-fuel international prices %YOY 10.8 5.0 0.0
FDI (US$) %YOY 73.9 15.0 10.0
Net foreign institutional investment
(US$) %YOY -41.0 15.0 10.0
Net invisibles (US$) %YOY 27.3 10.0 8.0
Exchange rate (Re/US$) %YOY 0.0 1.5 2.0
Annual Model: Assumptions for 2013-14
Unit
2004-05 to
2008-09
Average
2013-14
April
2013-14
July
Fiscal Account
Disinvestment revenue (Centre) Rs. Crore 9,178 40,000 Same
Subsidies
(% of
GDPmp) 1.6 2.03 Same
Direct tax collection rate %YOY 9.5 2.0 Same
Indirect tax collection rate %YOY -3 1.0 Same
Others
Public investment in non-
agriculture sector (current prices) %YOY 21.2 15.0 Same
WPI energy (Fuel, power, light
etc.) %YOY 6.7 4.0 Same
Annual Model: Forecast for 2012-13 and
2013-14
Note: # surplus (+)/deficit (-)
Item 2012–13
(AE)
NCAER forecast for
2013–14 April 2013
% Change y-o-y Real GDP - Agriculture 1.8 3.2
- Industry 3.1 4.4
- Services 6.6 7.7
Total 5.0 6.2
Exports ($ value) -1.8 23.9
Imports ($ value) 0.4 15.8
Inflation (WPI) 7.2 5.9
% of GDP at market prices Current account balance* -4.8 -3.5
Fiscal Deficit (Centre) 5.2 5.0
NCAER forecast for
2013–14 July 2013
3.2 4.3 7.1 5.9 9.4
12.4 5.9
-4.6 5.1
Thank You