Bidisha ganguly

© Confederation of Indian Industry

November 21, 2012

The Indian Economy


• India: State of the Economy

• India: Trends in employment

• India: Policy reforms


Growth estimates have been revised down significantly

Source: IMF, World Economic Outlook, October 2012

2010 2011 2012 Projection

2013 Projection

World 5.1 3.8 3.3 3.6

Advanced Economies 3.0 1.6 1.3 1.5

USA 2.4 1.8 2.2 2.1

Euro Area 2.0 1.4 -0.4 0.2

Japan 4.5 -0.8 2.2 1.2

Emerging and Developing Economies

7.4 6.2 5.3 5.6

China 10.4 9.2 7.8 8.2

India 10.1 6.8 4.9 6.0

Brazil 7.5 2.7 1.5 4.0

Global Real GDP Growth Rates


• Although the US recession officially ended in June 2009, the American economy has not fully recovered even after three and a half years have passed.

• Indeed, it seems to be facing fresh weakness since the impact of the stimulus is fading out and fear of the “fiscal cliff” is causing uncertainty.

• Euro zone economies contracted in the third-quarter 2012 despite modest gains in Germany and France, as rising unemployment and fiscal austerity across much of Europe pushed the continent into its second recession since 2009.

Fresh challenges in the US and Europe


India will be impacted

20

08

q1

20

08

q2

20

08

q3

20

08

q4

20

09

q1

20

09

q2

20

09

q3

20

09

q4

20

10

q1

20

10

q2

20

10

q3

20

10

q4

20

11

q1

20

11

q2

20

11

q3

20

11

q4

20

12

q1

20

12

q2

20

12

q3

-10.0

-5.0

0.0

5.0

10.0

15.0Quarterly GDP growth

US India

2.0%


Exports Growth (%)

Exports are sliding

Source: CSO

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 H1

30.8%

23.4% 22.6%

29.0%

13.6%

-3.5%

40.5%

21.3%

-6.8%

• Exports now constitute almost 25% of GDP and will be a drag on overall growth

• The biggest declines in exports have been to Europe (-12%), ASEAN (-21%) and NE Asia (-15%) during the first half of 2012-13; surprisingly, exports to the US have increased by 14%.


FDI and Portfolio Inflows (US $ Billion) • While FDI inflows have been steady, portfolio inflows have been more volatile, impacted by the uncertainty of the global economic environment and tough austerity measures in many economies.

• Rupee had been gaining some strength against the dollar but has begun to depreciate once again. Rupee which was trading at Rs. 57/US$ and above in June 2012 is trading in a range of 54-55/ US$ in November 2012.

Capital Inflows have been Volatile

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Apr-Sep 2012

22.7

34.7

41.7

33.127.8

33.0

16.1

6.9

27.4

-14.0

32.4 30.3

17.2

6.4

Inward FDI Portfolio Exchange Rate: INR/USDN

ov-10

Jan-11

Mar-11

May-11

Jul-11

Sep-11

Nov-11

Jan-12

Mar-12

May-12

Jul-12

Sep-12

40.00

42.00

44.00

46.00

48.00

50.00

52.00

54.00


Twin deficits

20

05

-06

20

06

-07

20

07

-08

20

08

-09

20

09

-10

20

10

-11

20

11

-12

20

12

-13

BE

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Fiscal deficit (% GDP)

Current account deficit (% GDP)

3.7%

• The target for the fiscal deficit for 2012-13 has been revised up to 5.3% of GDP, in view of increased spending on subsidies and lower tax collections

• However, even this revised target is unlikely to be met in view of the shortfall in telecom auction receipts and in disinvestment receipts

• A shortfall of Rs 50,000 crore would take the fiscal deficit to 5.6% of GDP

• The current account deficit is expected to moderate to 3.7% of GDP on account of lower imports.

• However, even this will be difficult to finance

Domestic challenges, 1

5.3%


Nov-10

Jan-1

1

Mar-1

1

May-

11

Jul-1

1

Sep-11

Nov-11

Jan-1

2

Mar-1

2

May-

12

Jul-1

2

Sep-12

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Overall Core Food

• Although lower than last year, inflation remains high at 7.5%• Core inflation (non-food manufacturing) has declined but food inflation has

again increased• Inflation due to fuels and minerals remain in double digits and are a key

reason for higher inflationary expectation

Domestic challenges, 2

Persistently high inflation


• India: State of the Economy


• India: Policy Reforms


Source: NSSO, 66th Round survey & CII computations

Agriculture Industry Services Agriculture Industry ServicesGDP Employment

19.0

27.9

53.156.6

18.7

24.7

14.7

28.1

57.252.9

22.7 24.4

2004-05 2009-10

Share of sectors in GDP and employment


Total Work Force - 459 Million

40.0%

98.0%

Organized Sector32 Million

Un-Organized Sector427 Million

7.0% 93%

Public Sector 17.9 Million

Private Sector 14.2 Million

55.7% 44.3%

Total Population - 1180 Million

Total Labour Force - 469 Million

Workforce profile (2009-10)


Source: NSSO, 66th Round survey & CII computations

47

60

76

0

10

20

30

40

50

60

70

80

Casual Regular Self-Employed

in millions

Non-agricultural workers (2009-10)


• Employment created in the first half of the decade was much higher than in the second half

• In the second half, only non-manufacturing industrial sectors – mining, utilities and construction – created jobs; in all other sectors, there was a decline

• However, this was also accompanied by a decline in the labour force, so unemployment did not increase.

• This decline in the labour force was largely concentrated in the below 25 age group and among women and is therefore being interpreted as a positive sign

1999-00 to

2004-05

2004-05 to

2009-10

1999-00 to

2009-10

Agriculture 21.3 -15.7 5.5

Manufac-turing

11.7 -7.2 4.5

Non-manu-facturing industry

9.1 26.1 35.5

Services 18.6 -0.5 18.1

Total 60.7 2.7 63.4

Employment creation in the last decade

Increase in employment (in million)

Source: Planning Commission


• India: State of the economy


• India: Policy Reforms


Recent Policy Reforms

List of policy decisions taken recentlyReform Date

announcedImpact

Fuel price hike 13/09/ 2012 Reduction in fuel subsidy

FDI in multi-brand retail 14/09/ 2012 Greater competition and efficiency in the retail sector; more investmentsFDI in single-brand retail 14/09/ 2012

FDI in broadcasting services

14/09/ 2012 74% permitted in teleports, mobile TV and sky broadcasting services

FDI in civil aviation 14/09/ 2012 49% permitted in scheduled and non-scheduled air transport services

FDI in power trading exchanges

14/09/ 2012 49% permitted

PSU disinvestment 14/09/ 2012 More revenue for exchequer

Reduction in withholding tax on foreign borrowing

21/09/ 2012 Cheaper foreign loans

Financial restructuring of State Discoms

24/09/ 2012 State governments to take over 50% of liabilities

Infrastructure debt fund (IDF)

04/10/ 2012 Model Tripartite Agreement approved that will facilitate creation of IDFs


Electronic Cash Transfer

– The Prime Minister announced the architecture of moving to Electronic Cash Transfers so that benefits can be transferred directly to the bank account of the targeted segment. This would significantly reduce wastages and eliminate corruption but is dependent on the rollout of Aadhar for identification of beneficiaries. With this process being directed by the PM, we can hope for rapid progress.

National Investment Board

– The Finance Minister has proposed the setting up of a National Investment Board

(NIB) that will have the final authority in taking decisions with regard to the implementation of projects above Rs 1,000 crore. Such an authority is the need of the hour and would go a long way in expediting project implementation, which is currently inordinately delayed on account of inter-ministerial differences.

Some promising ideas


Key Bills pending in Parliament

Insurance Bill Introduced in Dec-2008 Allows FDI upto 49%

Pension Bill Introduced in Mar-2011 Seeks to give statutory status to the PFRDA

Companies Bill Re-introduced in Dec-2011

Ensures more transparent corporate governance

Forward Contracts Regulation Act (FCRA)

Introduced in Dec-2010 Gives statutory powers to FMC, allows trading in derivatives and options

Land Acquisition Bill Introduced in Sep-2011 For commercial land acquisition, and rehabilitation

National Food Security Bill

Introduced in Dec-2011 Provides for food and nutritional security by providing specific entitlements to certain groups

Public Procurement Bill Introduced in May-2012 Seeks to regulate and ensure transparency in the procurement process

Mines and Minerals (Development and Regulation) Bill

Introduced in Dec-2011 Consolidates and amends the law relating to the scientific development and regulation of mines and minerals

Goods and Services Tax (GST) Bill

Introduced in Mar-2011 Landmark Change – requires constitutional amendment with 2/3rd majority

Direct Taxes Code (DTC) Introduced in Aug-2010 The Bill replaces the Income Tax Act 1961 and the Wealth Tax Act, 1957

Banking Laws (Amendment) Bill

Introduced in Mar-2011 Seeks to strengthen the regulatory powers of the RBI


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