ECONOMY MATTERSVolume 01 No. 07July 2013

Inside This Issue

The National Food Security Ordinance – Benefits and Concerns

Cover Story

Foreword 01

Executive Summary 02

Growth Outlook: 2013-14 03

Global Trends 04

Domestic Trends 9

Corporate Performance 15

Sector in Focus: Textiles 19

Special Article: The National 25

Food Security Ordinance

Economy Monitor 30

China's economy is besieged with several problems currently, which have had

adverse repercussions for the global growth too. The rebalancing towards

domestic consumption from an export and investment-led growth path has

not been as successful as was planned. Add to this the rising concerns over

banking sector's asset quality and slowing macroeconomic parameters and

you got a perfect recipe for an imminent loss of economic momentum.

However, the policy makers still seem comfortable with allowing growth to

cool to "sustainable levels". Elsewhere, in the last few months, Central Banks

globally have been paring interest rates in order to cushion falling growth, but

three emerging economies viz. Indonesia, Turkey and Brazil have gone

against the tide in raising interest rates to support their currencies and curb

inflationary pressures. India too could be added to that list, given that RBI

responded aggressively to curb the exchange rate volatility by announcing

slew of liquidity tightening measures in the last month.

On the domestic front, there is some good news finally. The progress of

South-West monsoon has been good so far, with the overall country receiving

17 per cent rainfall above LPA till end of July 2013. Consequently, the sowing

pattern has also remained robust so far, raising hopes for another year of

bumper harvest of food-grains. As regards to the fiscal situation, however,

things are not as rosy. The fiscal deficit in the first quarter has already reached

almost half of the budgeted target for the entire 2013-14 due to sluggish

revenue growth even though the government spending has remained robust.

The Finance Minister has reaffirmed his commitment to curb the fiscal deficit

around the budgeted levels in the current year too. However, it shouldn't

happen at the cost of curtailing government expenditure on plan/capital

heads, which, along with removal of structural impediments, is critical for

crowding in private investment to pull the economy out of the current

slowdown.

The promulgation of an ordinance on National Food Security by the

government is indeed a historic development. It provides a legal entitlement

to persons belonging to specified households to receive specific quantities of

food grain at subsidised prices from the state. If implemented properly, there

is no doubt that the ordinance will address the concerns on hunger and

malnutrition. However, there are some serious challenges to its

implementation. Some of the challenges are in terms of distribution and

logistics, rising food subsidy, lack of crop diversification and increasing food

inflation. How well the government is able to address these challenges will be

critical in scripting NFSO's success.

FOREWORD

1 JULY 2013

Chandrajit Banerjee

Director-General, CII

China's economy is besieged with several problems currently, which have had

adverse repercussions for the global growth too. The rebalancing towards

domestic consumption from an export and investment-led growth path has

not been as successful as was planned. Add to this the rising concerns over

banking sector's asset quality and slowing macroeconomic parameters and

you got a perfect recipe for an imminent loss of economic momentum.

However, the policy makers still seem comfortable with allowing growth to

cool to "sustainable levels". Elsewhere, in the last few months, Central Banks

globally have been paring interest rates in order to cushion falling growth, but

three emerging economies viz. Indonesia, Turkey and Brazil have gone

against the tide in raising interest rates to support their currencies and curb

inflationary pressures. India too could be added to that list, given that RBI

responded aggressively to curb the exchange rate volatility by announcing

slew of liquidity tightening measures in the last month.

On the domestic front, there is some good news finally. The progress of

South-West monsoon has been good so far, with the overall country receiving

17 per cent rainfall above LPA till end of July 2013. Consequently, the sowing

pattern has also remained robust so far, raising hopes for another year of

bumper harvest of food-grains. As regards to the fiscal situation, however,

things are not as rosy. The fiscal deficit in the first quarter has already reached

almost half of the budgeted target for the entire 2013-14 due to sluggish

revenue growth even though the government spending has remained robust.

The Finance Minister has reaffirmed his commitment to curb the fiscal deficit

around the budgeted levels in the current year too. However, it shouldn't

happen at the cost of curtailing government expenditure on plan/capital

heads, which, along with removal of structural impediments, is critical for

crowding in private investment to pull the economy out of the current

slowdown.

The promulgation of an ordinance on National Food Security by the

government is indeed a historic development. It provides a legal entitlement

to persons belonging to specified households to receive specific quantities of

food grain at subsidised prices from the state. If implemented properly, there

is no doubt that the ordinance will address the concerns on hunger and

malnutrition. However, there are some serious challenges to its

implementation. Some of the challenges are in terms of distribution and

logistics, rising food subsidy, lack of crop diversification and increasing food

inflation. How well the government is able to address these challenges will be

critical in scripting NFSO's success.

FOREWORD

1 JULY 2013

Chandrajit Banerjee

Director-General, CII

2

EXECUTIVE SUMMARY

Global Trends

Domestic Trends

Corporate Performance

Chinese economy in the first-half of the current year

witnessed a generally stable growth. However, the

economy is still faced with grim and complicated

economic situation. The rebalancing towards domestic

consumption from an export and investment-led

growth path has not been as successful as was planned.

The policymakers in China have indicated that they will

continue to maintain proactive fiscal policy and a

prudent monetary policy in 2013 in order to lift the

economic growth to 7.5 per cent for the year.

Elsewhere, in the last few months, Central Banks

globally have been paring interest rates in order to

cushion falling growth, but three emerging economies

viz. Indonesia, Turkey and Brazil have gone against the

tide in raising interest rates to support their currencies

and curb inflationary pressures.

The progress of South-West monsoon has been good so

far, with the overall country receiving 17 per cent rainfall

above LPA till end of July 2013. However, the skewed

spatial pattern of rainfall cannot be missed as we have

seen excess rains causing floods in states such as

Uttarakhand, while below normal rains in states such as

Assam, Haryana, West Bengal etc. have created

problems. Notwithstanding this uneven distribution of

rainfall, the sowing of major kharif crops has remained

robust so far, raising hopes for another year of bumper

harvest of food-grains. On the fiscal front, the situation

has not been sound as fiscal deficit in the first-quarter

2013-14 was almost half of the budgeted target for the

entire year mainly due to sluggish revenue growth even

though government spending remained robust.

Firms remained plagued by stagnant net sales and poor

domestic demand, in the face of headwinds such as

sliding rupee, weak export growth and high retail

inflation in the first quarter of the current fiscal. While

revenues plummeted sharply, corporate sector

continued to pull expenses down against the backdrop

of a clouded economic outlook. In face of dwindling net

sales growth, rise in profitability came as the much

needed respite, attributable mainly to moderation in

expenditure costs. Margins, both net and gross saw an

improvement in the quarter too, reflecting the

improved profitability. Our analysis is based on the

financial performance of balanced panel of 524 firms

(extracted on July 31, 2013).

The textile and clothing (T&C) industry is one of the

leading sectors of the Indian economy and constitutes

major part of the industrial sector. It contributes

significantly to the industrial output, employment

generation and foreign exchange earnings in India. It is

also the second largest provider of employment, after

the agricultural sector. India's position in the global T&C

scenario is indeed praiseworthy as it remains the

world's second largest producer of textiles after China.

Currently, the Indian textile industry is facing challenges

due to various issues related to FTAs, technology,

labour and power that are crucial for its growth. The

sector needs an enabling policy environment, fiscal and

export incentives, market access, raw material

securitization and infrastructure support.

In keeping with the UPA's entitlement based approach,

the government recently promulgated an ordinance on

National Food Security. It provides a legal entitlement

to persons belonging to specified households to receive

specific quantities of food grain at subsidised prices

from the state. One of the expected benefits from the

new legislation is that it moves the PDS away from the

APL-BPL system, which was fraught with problems of

identification. Further, the prices proposed under the

new legislation are highly subsidised so that it is

expected to leave additional income in the hands of

beneficiaries. The ordinance has a special focus on

nutritional support to women and children, which is not

limited to food rations. If implemented properly, there

is no doubt that the ordinance will address the concerns

on hunger and malnutrition. However, there are some

serious challenges to its implementation. One of the

real challenge is in terms of distribution and logistics,

while rising food subsidy, lack of crop diversification

and increasing food inflation are its other drawbacks.

Sector in Focus: Textiles

Special Article

ECONOMY MATTERS 33 JULY 2013

REVISED GROWTH OUTLOOK: 2013-142012-13 2013-14 Rationale

GDP Growth 5.0% 5.3-5.8%

5.3-5.8 per cent for the current fiscal as compared to 6.0-6.4

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

expected demand compression in the wake of

intensification of global uncertainities coupled with fragile

domestic situation. The recent weakening in the Rupee too

has also reduced the probability of faster reduction in

interest rates, which is also expected to impinge on growth.

The only silver lining visible at the current juncture seems to

be the advent of normal monsoons which is expected to

cushion growth to some extent.

Agriculture 1.9% 3.0-3.5% The progress of monsoons so far has been satisfactory,

reflected also in the robust sowing patterns of the kharif

crop. Aided by the low base and normal monsoons,

agriculture is expected to grow at an above-trend rate of 3.5

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

up the growth forecast of agriculture GDP to a range of 3.0-

3.5 per cent from 2.5-3.5 per cent forecasted earlier.

Industry 2.1% 3.5-4.0% Industry GDP growth has been scaled down to a range of 3.5-

4.0 per cent as compared to an earlier estimate of 5.0-5.5 per

cent. The main reasons for this growth downgrade of the

industrial sector is the continued poor performance by the

sector in the wake of depressed global demand, reduced

chances of RBI cutting interest rates at a fast pace, 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% 6.5-7.0% Services sector GDP growth too has been revised downward

to a range of 6.5-7.0 per cent as compared to an earlier

estimate of 7.2-7.5 per cent. The spillovers from lower

industrial growth are expected to adversely impact services

sector growth in the current fiscal. 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 7.3% 5.5-6.0% We have not revised our WPI inflation forecast for the

current year, despite a sharp depreciation seen in the Rupee

and some firming up of crude prices owing to two main

reasons: firstly, normal monsoons in the current year will

help in keeping food inflation in check and secondly, slower

GDP growth will help in further cooling down of demand-

side pressures on inflation. However, the timing and

magnitude of administered price revisions, particularly of

electricity and coal, will impact the evolution of inflation

trajectory during the year.

We have scaled down our growth forecast to a range of

2

EXECUTIVE SUMMARY

Global Trends

Domestic Trends

Corporate Performance

Chinese economy in the first-half of the current year

witnessed a generally stable growth. However, the

economy is still faced with grim and complicated

economic situation. The rebalancing towards domestic

consumption from an export and investment-led

growth path has not been as successful as was planned.

The policymakers in China have indicated that they will

continue to maintain proactive fiscal policy and a

prudent monetary policy in 2013 in order to lift the

economic growth to 7.5 per cent for the year.

Elsewhere, in the last few months, Central Banks

globally have been paring interest rates in order to

cushion falling growth, but three emerging economies

viz. Indonesia, Turkey and Brazil have gone against the

tide in raising interest rates to support their currencies

and curb inflationary pressures.

The progress of South-West monsoon has been good so

far, with the overall country receiving 17 per cent rainfall

above LPA till end of July 2013. However, the skewed

spatial pattern of rainfall cannot be missed as we have

seen excess rains causing floods in states such as

Uttarakhand, while below normal rains in states such as

Assam, Haryana, West Bengal etc. have created

problems. Notwithstanding this uneven distribution of

rainfall, the sowing of major kharif crops has remained

robust so far, raising hopes for another year of bumper

harvest of food-grains. On the fiscal front, the situation

has not been sound as fiscal deficit in the first-quarter

2013-14 was almost half of the budgeted target for the

entire year mainly due to sluggish revenue growth even

though government spending remained robust.

Firms remained plagued by stagnant net sales and poor

domestic demand, in the face of headwinds such as

sliding rupee, weak export growth and high retail

inflation in the first quarter of the current fiscal. While

revenues plummeted sharply, corporate sector

continued to pull expenses down against the backdrop

of a clouded economic outlook. In face of dwindling net

sales growth, rise in profitability came as the much

needed respite, attributable mainly to moderation in

expenditure costs. Margins, both net and gross saw an

improvement in the quarter too, reflecting the

improved profitability. Our analysis is based on the

financial performance of balanced panel of 524 firms

(extracted on July 31, 2013).

The textile and clothing (T&C) industry is one of the

leading sectors of the Indian economy and constitutes

major part of the industrial sector. It contributes

significantly to the industrial output, employment

generation and foreign exchange earnings in India. It is

also the second largest provider of employment, after

the agricultural sector. India's position in the global T&C

scenario is indeed praiseworthy as it remains the

world's second largest producer of textiles after China.

Currently, the Indian textile industry is facing challenges

due to various issues related to FTAs, technology,

labour and power that are crucial for its growth. The

sector needs an enabling policy environment, fiscal and

export incentives, market access, raw material

securitization and infrastructure support.

In keeping with the UPA's entitlement based approach,

the government recently promulgated an ordinance on

National Food Security. It provides a legal entitlement

to persons belonging to specified households to receive

specific quantities of food grain at subsidised prices

from the state. One of the expected benefits from the

new legislation is that it moves the PDS away from the

APL-BPL system, which was fraught with problems of

identification. Further, the prices proposed under the

new legislation are highly subsidised so that it is

expected to leave additional income in the hands of

beneficiaries. The ordinance has a special focus on

nutritional support to women and children, which is not

limited to food rations. If implemented properly, there

is no doubt that the ordinance will address the concerns

on hunger and malnutrition. However, there are some

serious challenges to its implementation. One of the

real challenge is in terms of distribution and logistics,

while rising food subsidy, lack of crop diversification

and increasing food inflation are its other drawbacks.

Sector in Focus: Textiles

Special Article

ECONOMY MATTERS 33 JULY 2013

REVISED GROWTH OUTLOOK: 2013-142012-13 2013-14 Rationale

GDP Growth 5.0% 5.3-5.8%

5.3-5.8 per cent for the current fiscal as compared to 6.0-6.4

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

expected demand compression in the wake of

intensification of global uncertainities coupled with fragile

domestic situation. The recent weakening in the Rupee too

has also reduced the probability of faster reduction in

interest rates, which is also expected to impinge on growth.

The only silver lining visible at the current juncture seems to

be the advent of normal monsoons which is expected to

cushion growth to some extent.

Agriculture 1.9% 3.0-3.5% The progress of monsoons so far has been satisfactory,

reflected also in the robust sowing patterns of the kharif

crop. Aided by the low base and normal monsoons,

agriculture is expected to grow at an above-trend rate of 3.5

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

up the growth forecast of agriculture GDP to a range of 3.0-

3.5 per cent from 2.5-3.5 per cent forecasted earlier.

Industry 2.1% 3.5-4.0% Industry GDP growth has been scaled down to a range of 3.5-

4.0 per cent as compared to an earlier estimate of 5.0-5.5 per

cent. The main reasons for this growth downgrade of the

industrial sector is the continued poor performance by the

sector in the wake of depressed global demand, reduced

chances of RBI cutting interest rates at a fast pace, 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% 6.5-7.0% Services sector GDP growth too has been revised downward

to a range of 6.5-7.0 per cent as compared to an earlier

estimate of 7.2-7.5 per cent. The spillovers from lower

industrial growth are expected to adversely impact services

sector growth in the current fiscal. 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 7.3% 5.5-6.0% We have not revised our WPI inflation forecast for the

current year, despite a sharp depreciation seen in the Rupee

and some firming up of crude prices owing to two main

reasons: firstly, normal monsoons in the current year will

help in keeping food inflation in check and secondly, slower

GDP growth will help in further cooling down of demand-

side pressures on inflation. However, the timing and

magnitude of administered price revisions, particularly of

electricity and coal, will impact the evolution of inflation

trajectory during the year.

We have scaled down our growth forecast to a range of

4ECONOMY MATTERS

GLOBAL TRENDS

China's Economy in the First Half of 2013: Stable and Moderate Growth

the 2008 financial crisis had provided a welcome boost

to global demand, and substantial progress has been

made in rebalancing China's external accounts.

However, it warned that the pattern of economic

activity in the world's second largest economy has

become too reliant on investment and credit, resulting

in rising domestic vulnerabilities in the financial sector,

local government finances, and real estate. Further, the

report says that in addition to the Chinese authorities

announcing broad range of reforms and policy

objectives for 2013 to contain risks and balance growth,

priority should now be focused on devising specific

action plans and implementing them swiftly.

Further, in an interesting observation by the report,

China is at the dawn of a demographic shift as the

economy will soon start to be weighed down by a

shrinking workforce and aging population. The working

age (15-64) population will start to fall in less than a

decade due to declining fertility, reflecting the one-child

policy. The cohort of 25-39 year olds-the core industrial

workers-will shrink even faster, with implications for the

pattern of growth reliant on building new factories and

finding a ready supply of workers. These demographic

changes imply that China will reach a point when the

supply of plentiful low-cost labor is exhausted-toward

the end of the decade. As the surplus labor dwindles,

labor cost will rise, which would affect prices, incomes,

and corporate profits in China and would have

implications for trade, employment, and price

In the first half of 2013, faced with the complicated and

volatile economic environment at home and abroad, the

Chinese economy performed moderately well.

According to the preliminary estimation, the gross

domestic product (GDP) of China in the first half of this

year was 24,801 billion yuan, recording a year-on-year

increase of 7.6 per cent as compared to 7.9 per cent

during the same period last year. However, policy

makers still seem comfortable with allowing growth to

cool to "sustainable levels". Consequently, even in the

face of apparent slowing growth, the Central Bank has

resorted to credit tightening, giving precedence to

concerns over banking sector's asset quality.

Specifically, the authorities have mentioned property

sector controls and new rules to curb misuse of public

funds as being responsible for lower growth in the short

term. They seem confident of growth meeting the

official target of 7.5 per cent for the entire year.

Growth of the first quarter was 7.7 per cent, and 7.5 per

cent for the second quarter. Primary industry was up by

3.0 per cent, while secondary industry grew by 7.6 per

cent in the first-half of the current fiscal. Tertiary sector

has performed well, growing by a robust 8.3 per cent

during the comparable period.

As per the latest country assessment report published

by the International Monetary Fund (IMF), China's

economy is expected to grow by 7.75 per cent in the

current year- broadly the same pace as last year. The

report said that the resilience of China's economy since

5

able to reap this economic advantage, its investment

climate needs to improve, in addition to mending its

governance and relaxing policy requirements.

developments in key trading partners. India is widely

expected to be a key beneficiary of this demographic

change in China as manufacturing activity is likely to

shift in the wake of rising labour costs. But for India to be

CPI Inflation in the First-Half

In the first half, the consumer price went up by 2.4

percent year-on-year, maintaining the same level as that

in the first quarter and 0.9 percentage point lower than

that in the same period of 2012. Specifically, the price

went up by 2.4 per cent in cities and 2.5 per cent in rural

areas. Grouped by commodity categories, prices for

food rose most to the tune of 4.0 per cent, while

housing prices were up 2.9 per cent in the first-half 2013.

In terms of food prices, grain grew up by 5.1 per cent, oil

up by 3.3 per cent, pork down by 3.7 per cent and fresh

vegetables up by 2.3 per cent in the reporting period.

As far as investments are concerned, in the first half, the

investment in fixed assets (excluding rural households)

was 18,132 billion yuan, recording a year-on-year growth

of 20.1 per cent, which was 0.3 percentage point lower

than that in the same period of 2012. Of this total,

investment in the state-owned and state holding

enterprises reached 5,734 billion yuan, an increase of

17.5 per cent; private investment reached 11,558 billion

yuan, up by 23.4 per cent. Total retail sales of consumer

goods registered an increase of 12.7 per cent in the first-

half of 2013, which was 1.7 percentage points lower than

the same period last year.

JULY 2013

1Q 12 2Q 12 3Q 12 4Q 12 1Q 13 2Q 13

8.0

7.5

7.0

7.6

7.4

7.9

7.7

7.5

y-o-y%

China's GDP Growth is Moderating

Source: National Bureau of Statistics

Jan-

12

Feb

-12

Mar

-12

Apr

-12

May

-12

Jun-

12

Jul-1

2

Aug

-12

Sep

-12

Oct

-12

Nov

-12

Dec

-12

Jan-

12

Feb

-13

Mar

-13

Apr

-13

May

-13

Jun-

13

5

4

3

2

1

4.5

2.7

y-o-y%

CPI Inflation in China

Source: National Bureau of Statistics

4ECONOMY MATTERS

GLOBAL TRENDS

China's Economy in the First Half of 2013: Stable and Moderate Growth

the 2008 financial crisis had provided a welcome boost

to global demand, and substantial progress has been

made in rebalancing China's external accounts.

However, it warned that the pattern of economic

activity in the world's second largest economy has

become too reliant on investment and credit, resulting

in rising domestic vulnerabilities in the financial sector,

local government finances, and real estate. Further, the

report says that in addition to the Chinese authorities

announcing broad range of reforms and policy

objectives for 2013 to contain risks and balance growth,

priority should now be focused on devising specific

action plans and implementing them swiftly.

Further, in an interesting observation by the report,

China is at the dawn of a demographic shift as the

economy will soon start to be weighed down by a

shrinking workforce and aging population. The working

age (15-64) population will start to fall in less than a

decade due to declining fertility, reflecting the one-child

policy. The cohort of 25-39 year olds-the core industrial

workers-will shrink even faster, with implications for the

pattern of growth reliant on building new factories and

finding a ready supply of workers. These demographic

changes imply that China will reach a point when the

supply of plentiful low-cost labor is exhausted-toward

the end of the decade. As the surplus labor dwindles,

labor cost will rise, which would affect prices, incomes,

and corporate profits in China and would have

implications for trade, employment, and price

In the first half of 2013, faced with the complicated and

volatile economic environment at home and abroad, the

Chinese economy performed moderately well.

According to the preliminary estimation, the gross

domestic product (GDP) of China in the first half of this

year was 24,801 billion yuan, recording a year-on-year

increase of 7.6 per cent as compared to 7.9 per cent

during the same period last year. However, policy

makers still seem comfortable with allowing growth to

cool to "sustainable levels". Consequently, even in the

face of apparent slowing growth, the Central Bank has

resorted to credit tightening, giving precedence to

concerns over banking sector's asset quality.

Specifically, the authorities have mentioned property

sector controls and new rules to curb misuse of public

funds as being responsible for lower growth in the short

term. They seem confident of growth meeting the

official target of 7.5 per cent for the entire year.

Growth of the first quarter was 7.7 per cent, and 7.5 per

cent for the second quarter. Primary industry was up by

3.0 per cent, while secondary industry grew by 7.6 per

cent in the first-half of the current fiscal. Tertiary sector

has performed well, growing by a robust 8.3 per cent

during the comparable period.

As per the latest country assessment report published

by the International Monetary Fund (IMF), China's

economy is expected to grow by 7.75 per cent in the

current year- broadly the same pace as last year. The

report said that the resilience of China's economy since

5

able to reap this economic advantage, its investment

climate needs to improve, in addition to mending its

governance and relaxing policy requirements.

developments in key trading partners. India is widely

expected to be a key beneficiary of this demographic

change in China as manufacturing activity is likely to

shift in the wake of rising labour costs. But for India to be

CPI Inflation in the First-Half

In the first half, the consumer price went up by 2.4

percent year-on-year, maintaining the same level as that

in the first quarter and 0.9 percentage point lower than

that in the same period of 2012. Specifically, the price

went up by 2.4 per cent in cities and 2.5 per cent in rural

areas. Grouped by commodity categories, prices for

food rose most to the tune of 4.0 per cent, while

housing prices were up 2.9 per cent in the first-half 2013.

In terms of food prices, grain grew up by 5.1 per cent, oil

up by 3.3 per cent, pork down by 3.7 per cent and fresh

vegetables up by 2.3 per cent in the reporting period.

As far as investments are concerned, in the first half, the

investment in fixed assets (excluding rural households)

was 18,132 billion yuan, recording a year-on-year growth

of 20.1 per cent, which was 0.3 percentage point lower

than that in the same period of 2012. Of this total,

investment in the state-owned and state holding

enterprises reached 5,734 billion yuan, an increase of

17.5 per cent; private investment reached 11,558 billion

yuan, up by 23.4 per cent. Total retail sales of consumer

goods registered an increase of 12.7 per cent in the first-

half of 2013, which was 1.7 percentage points lower than

the same period last year.

JULY 2013

1Q 12 2Q 12 3Q 12 4Q 12 1Q 13 2Q 13

8.0

7.5

7.0

7.6

7.4

7.9

7.7

7.5

y-o-y%

China's GDP Growth is Moderating

Source: National Bureau of Statistics

Jan-

12

Feb

-12

Mar

-12

Apr

-12

May

-12

Jun-

12

Jul-1

2

Aug

-12

Sep

-12

Oct

-12

Nov

-12

Dec

-12

Jan-

12

Feb

-13

Mar

-13

Apr

-13

May

-13

Jun-

13

5

4

3

2

1

4.5

2.7

y-o-y%

CPI Inflation in China

Source: National Bureau of Statistics

7 JULY 2013

have recorded the steepest declines. Noteworthy, the

hike in interest rates in Brazil have come on the back of

slowing growth indicators including the decline of GDP

for the first quarter of the current year to 0.5 per cent.

expansion in recent years, have continued to decline.

Sales in the articles of personal and domestic use

category as well as in the fuels and lubricants category

6ECONOMY MATTERS

as was planned. The policymakers in China have

indicated that they will continue to maintain proactive

fiscal policy and a prudent monetary policy in 2013 in

order to lift the economic growth to 7.5 per cent for the

year. China adopted a proactive fiscal policy and a

moderately easy monetary policy to stimulate the

economy due to the impact of the global financial crisis

in 2009 and 2010, which marked a shift from the prudent

fiscal policy and tight monetary policy implemented in

2008 for the purpose of bringing down inflation. To

implement the proactive fiscal policy in the current year,

the government is expected to increase the deficit and

government debt in combination with tax reform and

structural tax cuts, as well as optimize government

spending and improve management over local

government borrowing.

Firm recovery in China is very critical for the global

economic prospects. The policy makers in the world's

second largest economy would need to adopt

unconventional policy measures to sustain the high

economic growth, which the country has seen in the last

many years. The rebalancing of economic growth in

favor of domestic consumption will be crucial in order to

achieve this.

However, despite subdued inflationary pressures,

monetary authority in China (People's Bank of China,

PBoC) stood pat and refrained from infusing easy

liquidity as the PBoC wanted to encourage banks to be

more prudent. Specifically, PBoC was concerned that

banks were taking greater risks and increasing their off-

balance sheet assets. Recent statements of PBoC

officials and other Government figures seem to suggest

that authorities are determined to curb off-balance

sheet lending by banks and seem willing to even sacrifice

a bit of growth in order to improve the banking sector's

health. By the end of June, the balance of broad money

(M2) was 105 trillion yuan, a year-on-year growth of 14.0

per cent, which was 1.8 percentage points lower than

that in the previous month or 0.2 percentage points

higher than that at the end of the previous year.

As a whole, the first half of 2013 witnessed a generally

stable growth of overall economy with major indicators

falling within the rational range of annual expectation.

However, the economy is still faced with grim and

complicated economic situation. The rebalancing

towards domestic consumption from an export and

investment-led growth path has not been as successful

In the recent months, Central Banks of major economies

have stepped up their expansionary monetary policies

to deal with global growth slowdown. Considering the

continued downward trends in inflation and stagnant

growth, policies have been primarily aimed at monetary

easing. In April 2013, Bank of Japan outlined an

aggressive monetary easing framework aimed at

ending deflation. In contrast, several economies across

the globe have witnessed a surge in interest rates in

their attempts to stem capital outflows and combat

inflation. Emerging economies such as Brazil, Indonesia

and Turkey are the economies that have raised interest

rates as policy makers in these economies have

attempted to take steps to stem capital outflows

sparked by the concern that the US Federal Reserve will

start to scale back liquidity injections. Reserve Bank of

India also announced several liquidity tightening

measures in July 2013 in order to arrest the fall in Rupee.

Additionally, these economies have been also plagued

with high inflation along with declining purchasing

power, low consumer confidence, falling sales and slow

Some Central Banks Turn the Tide; Raise Interest Ratesgrowth. In this article, we will discuss the economic

scenario prevailing in these economies, which led the

respective Central Banks to raise interest rates in the

past few months, as opposed to the general trend of

paring rates witnessed across most global economies.

Brazil is raising borrowing costs this year as above-

target inflation undercuts months of government

stimulus by curbing retail sales growth. In July 2013, the

central bank of Brazil raised the benchmark policy rate a

third consecutive time to 8.5 per cent since April 2013

amidst inflation concerns. The central bank targets

inflation at 4.5 percent, plus or minus two percentage

points. According to the latest data available, Brazil

consumer prices increased by 6.7 per cent in June 2013

as compared to same period last year, the fastest pace

since October 2011. High inflation has thus started to

erode the purchasing power and consumption. As a

result, retail sales, the harbinger of Brazil's economic

Brazil

Monetary Policy Changes (%)

14

12

10

8

6

Jan-

08

Jul-0

8

Jan-

09

Jul-0

9

Jan-

10

Jul-1

0

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

Jan-

12

Mar-1

2

May-1

2

Jul-1

2

Sep-1

2

Nov-1

2

Jan-

13

Mar-1

3

May-1

3

8

6

4

2

0

6.26.7

Source: Banco Central Do Brasil

CPI Inflation in Brazil

3.5-5.5 per cent for 2013. Inflationary pressures have

exacerbated mainly on account of the recent decision

by the government of Indonesia to increase prices of

subsided fuel. In addition, the hike was also aimed to

provide much-needed support to the flagging Rupiah,

which has tumbled against the dollar owing to huge

outflows of capital. In 2012, the Rupiah was the worst

performing currency amongst emerging Asia, shedding

6 per cent against the dollar.

Indonesia

Apart from Brazil, Indonesia is another major emerging

economy which has seen rise in interest rates in the past

few months. Followed by the first hike in March this

year, the benchmark policy rate was raised again by 50

basis points to 6.50 per cent in July 2013, mainly to

combat rising inflation which rose to a high of 8.6 per

cent in July 2013 as against the inflation target range of

10

9

8

7

6

5

0

01-J

an-0

8

01-D

ec-0

8

01-N

ov-0

9

01-O

ct-1

0

01-S

ep-1

1

01-A

ug-1

2

01-J

ul-1

3

6.50%

Monetary Policy Changes (%)

Jan-

12

Mar-1

2

May-1

2

Jul-1

2

Sep-1

2

Nov-1

2

Jan-

13

Mar-1

3

May-1

3

10

8

6

4

2

0

8.6

y-o-y%

CPI Inflation in Indonesia

Source: Bank Indonesia

(y-o-y%)

7 JULY 2013

have recorded the steepest declines. Noteworthy, the

hike in interest rates in Brazil have come on the back of

slowing growth indicators including the decline of GDP

for the first quarter of the current year to 0.5 per cent.

expansion in recent years, have continued to decline.

Sales in the articles of personal and domestic use

category as well as in the fuels and lubricants category

6ECONOMY MATTERS

as was planned. The policymakers in China have

indicated that they will continue to maintain proactive

fiscal policy and a prudent monetary policy in 2013 in

order to lift the economic growth to 7.5 per cent for the

year. China adopted a proactive fiscal policy and a

moderately easy monetary policy to stimulate the

economy due to the impact of the global financial crisis

in 2009 and 2010, which marked a shift from the prudent

fiscal policy and tight monetary policy implemented in

2008 for the purpose of bringing down inflation. To

implement the proactive fiscal policy in the current year,

the government is expected to increase the deficit and

government debt in combination with tax reform and

structural tax cuts, as well as optimize government

spending and improve management over local

government borrowing.

Firm recovery in China is very critical for the global

economic prospects. The policy makers in the world's

second largest economy would need to adopt

unconventional policy measures to sustain the high

economic growth, which the country has seen in the last

many years. The rebalancing of economic growth in

favor of domestic consumption will be crucial in order to

achieve this.

However, despite subdued inflationary pressures,

monetary authority in China (People's Bank of China,

PBoC) stood pat and refrained from infusing easy

liquidity as the PBoC wanted to encourage banks to be

more prudent. Specifically, PBoC was concerned that

banks were taking greater risks and increasing their off-

balance sheet assets. Recent statements of PBoC

officials and other Government figures seem to suggest

that authorities are determined to curb off-balance

sheet lending by banks and seem willing to even sacrifice

a bit of growth in order to improve the banking sector's

health. By the end of June, the balance of broad money

(M2) was 105 trillion yuan, a year-on-year growth of 14.0

per cent, which was 1.8 percentage points lower than

that in the previous month or 0.2 percentage points

higher than that at the end of the previous year.

As a whole, the first half of 2013 witnessed a generally

stable growth of overall economy with major indicators

falling within the rational range of annual expectation.

However, the economy is still faced with grim and

complicated economic situation. The rebalancing

towards domestic consumption from an export and

investment-led growth path has not been as successful

In the recent months, Central Banks of major economies

have stepped up their expansionary monetary policies

to deal with global growth slowdown. Considering the

continued downward trends in inflation and stagnant

growth, policies have been primarily aimed at monetary

easing. In April 2013, Bank of Japan outlined an

aggressive monetary easing framework aimed at

ending deflation. In contrast, several economies across

the globe have witnessed a surge in interest rates in

their attempts to stem capital outflows and combat

inflation. Emerging economies such as Brazil, Indonesia

and Turkey are the economies that have raised interest

rates as policy makers in these economies have

attempted to take steps to stem capital outflows

sparked by the concern that the US Federal Reserve will

start to scale back liquidity injections. Reserve Bank of

India also announced several liquidity tightening

measures in July 2013 in order to arrest the fall in Rupee.

Additionally, these economies have been also plagued

with high inflation along with declining purchasing

power, low consumer confidence, falling sales and slow

Some Central Banks Turn the Tide; Raise Interest Ratesgrowth. In this article, we will discuss the economic

scenario prevailing in these economies, which led the

respective Central Banks to raise interest rates in the

past few months, as opposed to the general trend of

paring rates witnessed across most global economies.

Brazil is raising borrowing costs this year as above-

target inflation undercuts months of government

stimulus by curbing retail sales growth. In July 2013, the

central bank of Brazil raised the benchmark policy rate a

third consecutive time to 8.5 per cent since April 2013

amidst inflation concerns. The central bank targets

inflation at 4.5 percent, plus or minus two percentage

points. According to the latest data available, Brazil

consumer prices increased by 6.7 per cent in June 2013

as compared to same period last year, the fastest pace

since October 2011. High inflation has thus started to

erode the purchasing power and consumption. As a

result, retail sales, the harbinger of Brazil's economic

Brazil

Monetary Policy Changes (%)

14

12

10

8

6

Jan-

08

Jul-0

8

Jan-

09

Jul-0

9

Jan-

10

Jul-1

0

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

Jan-

12

Mar-1

2

May-1

2

Jul-1

2

Sep-1

2

Nov-1

2

Jan-

13

Mar-1

3

May-1

3

8

6

4

2

0

6.26.7

Source: Banco Central Do Brasil

CPI Inflation in Brazil

3.5-5.5 per cent for 2013. Inflationary pressures have

exacerbated mainly on account of the recent decision

by the government of Indonesia to increase prices of

subsided fuel. In addition, the hike was also aimed to

provide much-needed support to the flagging Rupiah,

which has tumbled against the dollar owing to huge

outflows of capital. In 2012, the Rupiah was the worst

performing currency amongst emerging Asia, shedding

6 per cent against the dollar.

Indonesia

Apart from Brazil, Indonesia is another major emerging

economy which has seen rise in interest rates in the past

few months. Followed by the first hike in March this

year, the benchmark policy rate was raised again by 50

basis points to 6.50 per cent in July 2013, mainly to

combat rising inflation which rose to a high of 8.6 per

cent in July 2013 as against the inflation target range of

10

9

8

7

6

5

0

01-J

an-0

8

01-D

ec-0

8

01-N

ov-0

9

01-O

ct-1

0

01-S

ep-1

1

01-A

ug-1

2

01-J

ul-1

3

6.50%

Monetary Policy Changes (%)

Jan-

12

Mar-1

2

May-1

2

Jul-1

2

Sep-1

2

Nov-1

2

Jan-

13

Mar-1

3

May-1

3

10

8

6

4

2

0

8.6

y-o-y%

CPI Inflation in Indonesia

Source: Bank Indonesia

(y-o-y%)

8ECONOMY MATTERS

Turkey in June 2013 stood at 8.3 percent, which is higher

than the estimated course of inflation. This has been

mainly attributed to the developments in the

unprocessed food prices. In addition, the Turkish Lira

has depreciated by 7.4 per cent this year making it

weakest among emerging market currencies in Africa,

Europe and the Middle-East. Hence, the central bank

deemed it necessary to adopt a flexible monetary policy

framework for combating inflation and stemming the

decline in Lira.

Turkey

Recently, the Central Bank of Turkey too raised the key

lending rates for the first time in nearly two years, as it

joined a growing list of emerging-market central banks

forced to tighten policy after weeks of market pressure.

The bank's Monetary Policy Committee raised its

overnight lending rate by 0.75 percentage point to 7.25

per cent and signaled that it could tighten further in

order to prevent inflation from rising further. Inflation in

To conclude, we have seen that three emerging

economies have gone against the tide in raising interest

rates to support their currencies after a huge sell off

sparked by signals from the Federal Reserve's that it

might start to taper its multibillion-dollar bond buying

program in addition to arresting the inflationary

pressures in their respective economies. Their decision

has also underscored the dilemma facing developing

economies currently whether to focus on inflation or

growth. Investors too have largely welcomed this step

as the strong policy signals will not only help banks

regain their credibility but also encourage market

confidence.

Dec

-11

Sep

-10

Mar

-11

Jun-

11

Sep

-11

Dec

-11

Mar

-12

Jun-

12

Sep

-12

Dec

-12

Mar

-13

Jun-

13

7.25

8.75

14

12

10

8

6

Monetary Policy Changes (%)

Source: Central Bank of Turkey

Other Global Developments During the Month

v

v

v

v

In US, non-farm payrolls (NFP) increased by 162K in July 2013, lower than market expectations of an increase of

185K. Total job addition for May 2013 was revised lower to 176K from 195K earlier, while that for June 2013 was

revised to 188K from 195K. As per the household survey, the unemployment rate fell by 20 bps to 7.4 per cent

in July 2013, the lowest level since December 2008.

Both the European Central Bank (ECB) and Bank of England (BoE) kept their key policy rate unchanged at 0.50

per cent in their latest monetary policy reviews held on August 1, 2013.

Meanwhile, the Reserve Bank of Australia (RBA) reduced the benchmark rate by 25 bps to 2.5 per cent in its

meeting held on August 6, 2013. The rate cut was precipitated due to below trend domestic growth along with

inflation remaining within the target levels.

UK construction PMI leapt to 57.0 in July 2013, up from 51.0 in June and its strongest level since June 2010, led

by a surge in residential building. Meanwhile, China's non-manufacturing PMI rebounded to 54.1 in July 2013,

up from 53.9 in June 2013, after falling for three consecutive months. US manufacturing sector PMI too

increased by 4.5 points in July to 55.4, its highest level in two years.

DOMESTIC TRENDS

Monsoon Update: So Far So Good

September. The below graph captures the rain gap,

defined as the percentage deviation from the long-

period average (LPA) vis-à-vis the agriculture growth in

the last decade. 2002-03, 2004-05 and 2009-10 were

particularly bad years in terms of annual rainfall received

hence agricultural growth remained subdued during

those years. Last year, the rainfall gap was 8 per cent

below the LPA resulting in an anemic 1.9 per cent

growth for the farm sector.

With the Indian agriculture continuing to be driven by

the vagaries of monsoons, there is no gainsaying the

importance of normal monsoons for the agricultural

growth. Indian economy still remains a gamble on the

monsoons, as Lord Curzon once famously remarked.

Originating from the southern parts of the Indian

Ocean, the monsoons in India typically begin in end

May/early June and last for about four months till end-

Percentage growth in Agriculture % monsoon deviation from LPA

15

10

5

0

-5

-10

-15

-20

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

Source: Indian Meteorological Department (IMD) Note: Highlighted years were the drought years

India's Rainfall Gap (%)

9 JULY 2013

8ECONOMY MATTERS

Turkey in June 2013 stood at 8.3 percent, which is higher

than the estimated course of inflation. This has been

mainly attributed to the developments in the

unprocessed food prices. In addition, the Turkish Lira

has depreciated by 7.4 per cent this year making it

weakest among emerging market currencies in Africa,

Europe and the Middle-East. Hence, the central bank

deemed it necessary to adopt a flexible monetary policy

framework for combating inflation and stemming the

decline in Lira.

Turkey

Recently, the Central Bank of Turkey too raised the key

lending rates for the first time in nearly two years, as it

joined a growing list of emerging-market central banks

forced to tighten policy after weeks of market pressure.

The bank's Monetary Policy Committee raised its

overnight lending rate by 0.75 percentage point to 7.25

per cent and signaled that it could tighten further in

order to prevent inflation from rising further. Inflation in

To conclude, we have seen that three emerging

economies have gone against the tide in raising interest

rates to support their currencies after a huge sell off

sparked by signals from the Federal Reserve's that it

might start to taper its multibillion-dollar bond buying

program in addition to arresting the inflationary

pressures in their respective economies. Their decision

has also underscored the dilemma facing developing

economies currently whether to focus on inflation or

growth. Investors too have largely welcomed this step

as the strong policy signals will not only help banks

regain their credibility but also encourage market

confidence.

Dec

-11

Sep

-10

Mar

-11

Jun-

11

Sep

-11

Dec

-11

Mar

-12

Jun-

12

Sep

-12

Dec

-12

Mar

-13

Jun-

13

7.25

8.75

14

12

10

8

6

Monetary Policy Changes (%)

Source: Central Bank of Turkey

Other Global Developments During the Month

v

v

v

v

In US, non-farm payrolls (NFP) increased by 162K in July 2013, lower than market expectations of an increase of

185K. Total job addition for May 2013 was revised lower to 176K from 195K earlier, while that for June 2013 was

revised to 188K from 195K. As per the household survey, the unemployment rate fell by 20 bps to 7.4 per cent

in July 2013, the lowest level since December 2008.

Both the European Central Bank (ECB) and Bank of England (BoE) kept their key policy rate unchanged at 0.50

per cent in their latest monetary policy reviews held on August 1, 2013.

Meanwhile, the Reserve Bank of Australia (RBA) reduced the benchmark rate by 25 bps to 2.5 per cent in its

meeting held on August 6, 2013. The rate cut was precipitated due to below trend domestic growth along with

inflation remaining within the target levels.

UK construction PMI leapt to 57.0 in July 2013, up from 51.0 in June and its strongest level since June 2010, led

by a surge in residential building. Meanwhile, China's non-manufacturing PMI rebounded to 54.1 in July 2013,

up from 53.9 in June 2013, after falling for three consecutive months. US manufacturing sector PMI too

increased by 4.5 points in July to 55.4, its highest level in two years.

DOMESTIC TRENDS

Monsoon Update: So Far So Good

September. The below graph captures the rain gap,

defined as the percentage deviation from the long-

period average (LPA) vis-à-vis the agriculture growth in

the last decade. 2002-03, 2004-05 and 2009-10 were

particularly bad years in terms of annual rainfall received

hence agricultural growth remained subdued during

those years. Last year, the rainfall gap was 8 per cent

below the LPA resulting in an anemic 1.9 per cent

growth for the farm sector.

With the Indian agriculture continuing to be driven by

the vagaries of monsoons, there is no gainsaying the

importance of normal monsoons for the agricultural

growth. Indian economy still remains a gamble on the

monsoons, as Lord Curzon once famously remarked.

Originating from the southern parts of the Indian

Ocean, the monsoons in India typically begin in end

May/early June and last for about four months till end-

Percentage growth in Agriculture % monsoon deviation from LPA

15

10

5

0

-5

-10

-15

-20

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

Source: Indian Meteorological Department (IMD) Note: Highlighted years were the drought years

India's Rainfall Gap (%)

9 JULY 2013

positive implications for the domestic poultry industry.

Kharif crop output touched an all-time high of 131.3

million tonnes in 2011-12. But kharif production had

fallen in 2012-13 because of the drought in Karnataka,

Maharashtra, Gujarat and Rajasthan. Timely sowing this

year will ensure crops get adequate time to mature. The

higher kharif output this year is expected to cool food

inflation as well.

The area under cotton, another important kharif crop,

has surged by 7.3 per cent to 108.5 lh, and this bodes well

for the textile industry. In 2012-13, domestic cotton

output had declined four per cent to 34 million bales

owing to a drought in the main cotton producing states

of Gujarat and Maharashtra. This had also impacted

cotton exports last year. Further, the coverage of coarse

cereals went up by 20.1 per cent to 163.1 lh. This has

11 JULY 2013

deficiency as "below normal". Anything lower, or less

than 81 cm, usually portends drought conditions.

The cumulative rainfall in the first two months of South-

West monsoons (June-July) was healthy, at 16.7 per cent

above LPA as compared to 19 per cent below LPA in the

same period last year for the country as a whole. Rainfall

was excess/normal in 30 and deficient/scanty in 6 out of

36 meteorological sub-divisions. However, the spatial

distribution of the monsoon has been little skewed so

far, with east and north-eastern states, Haryana and

Tamil Nadu receiving deficient rainfall so far till July 2013.

Maximum deficiency in rainfall was seen in Assam at 40

per cent below LPA, followed by Bihar and Haryana. In

fact, the Delhi-Haryana-Chandigarh sub-division is

facing 25 per cent rainfall deficiency, which provides the

sole exception to the otherwise good rainfall in the

north-west India region, which has recorded 25 per cent

surplus rain. In contrast, states such as Uttarakhand

have been ravaged by devastating floods, which saw

thousands of people losing their lives.

Though the occurrence of normal monsoon is pivotal in

supporting the growth rate of the farm sector every

year, this fiscal it assumes greater importance in the

context of the macroeconomic challenges facing the

economy. As rainfall is the main source of irrigation for

55 per cent of arable land, normal rainfall received so far

has alleviated to some extent the fear of exacerbating

inflationary pressures. As for the current fiscal, as per

the Indian Meteorological Department's (IMD) initial

forecast released in April 2013, normal monsoon was

expected this year at 98 per cent of the LPA of 89 cm,

with a model error of plus or minus five per cent. This

was certainly a good piece of news for the economy

devoid of any silver linings in the past few quarters.

Adding to this good news was the recently released

IMD's mid-season long range forecast (LRF) for 2013

South-West monsoons, forecasting normal rainfall for

August and September. The meteorological

department classifies rainfall within a 4 per cent

window of 89 cm as normal and a 5-15 per cent

100

80

60

20

0

-20

-40

-60

-80

June 1- July 31, 2012 June 1- July 31, 2013

Ass

am

Bih

ar

Har

yana

Tam

il N

adu

Wes

t Ben

gal

Pun

jab

J &

K

Him

acha

l

All

Indi

a

Oris

sa

And

hra

Pra

desh

Kar

anat

aka

Raj

asth

an

Utta

r P

rade

sh

Guj

arat

Kar

ala

Uttr

anch

al

Mah

aras

htra

Mad

hya

Pra

desh

%

Source: IMD & CII calculations

State-Wise Rainfall Deviation from LPA

Cooperation reported that the sowing of kharif crops in

the country has touched 819.9 lakh hectares (lh) as on

02 August 2013, higher when compared to 734.5 lh sown

during the same period last year. Sowing of all the major

kharif crops was higher so far as compared to the

previous fiscal except for sugarcane. The sowing of rice,

the main kharif crop, stood at 238.8 lh, up 3.2 per cent

from the previous year. Over the same period, sowing of

pulses was up by 26.2 per cent and of oilseeds by 19.6

per cent.

Concomitant with relatively strong progress in

monsoons, kharif crop production in the country is

expected to hit a record this year on higher than

expected rains followed by record sowing. Kharif

sowing starts with the onset of June and crop is

harvested during September-October. Past experience

has shown that July rainfall is critical since most sowing

takes place by July, although late sowing continues well

into August. Department of Agriculture and

Crop Area sown in 2013-14 (lakh hectares) Area sown in 2012-13 (lakh hectres) y-o-y% Change

Rice 238.9 231.4 3.2

Pulses 79.5 63.0 26.2

Coarse Cereals 163.1 135.8 20.1

Oilseeds 173.2 144.9 19.6

Sugarcane 48.5 50.1 -3.1

Cotton 108.5 101.1 7.3

Jute & Mesta 8.3 8.4 -0.7

Total 820.0 734.6 11.6

Source: Ministry of Agriculture

Trend in Sowing of Kharif Crops (As on August 2, 2013)

Outlook

The progress of South-West monsoon has been good so far, with the overall country receiving 17 per cent rainfall

above LPA till end of July 2013. However, the skewed spatial pattern of rainfall cannot be missed as we have seen

excess rains causing floods in states such as Uttarakhand, while below normal rains in states such as Assam,

Haryana, West Bengal etc have created problems. Notwithstanding this uneven distribution of rainfall, the sowing

of major kharif crops has remained robust so far, raising hopes for another year of bumper harvest of food grains.

This news of above normal monsoon has come as a silver lining for the otherwise beleaguered economy and should

in all probability have a positive impact on the overall growth prospects of the economy, in addition to cooling of

food inflation.

10ECONOMY MATTERS

positive implications for the domestic poultry industry.

Kharif crop output touched an all-time high of 131.3

million tonnes in 2011-12. But kharif production had

fallen in 2012-13 because of the drought in Karnataka,

Maharashtra, Gujarat and Rajasthan. Timely sowing this

year will ensure crops get adequate time to mature. The

higher kharif output this year is expected to cool food

inflation as well.

The area under cotton, another important kharif crop,

has surged by 7.3 per cent to 108.5 lh, and this bodes well

for the textile industry. In 2012-13, domestic cotton

output had declined four per cent to 34 million bales

owing to a drought in the main cotton producing states

of Gujarat and Maharashtra. This had also impacted

cotton exports last year. Further, the coverage of coarse

cereals went up by 20.1 per cent to 163.1 lh. This has

11 JULY 2013

deficiency as "below normal". Anything lower, or less

than 81 cm, usually portends drought conditions.

The cumulative rainfall in the first two months of South-

West monsoons (June-July) was healthy, at 16.7 per cent

above LPA as compared to 19 per cent below LPA in the

same period last year for the country as a whole. Rainfall

was excess/normal in 30 and deficient/scanty in 6 out of

36 meteorological sub-divisions. However, the spatial

distribution of the monsoon has been little skewed so

far, with east and north-eastern states, Haryana and

Tamil Nadu receiving deficient rainfall so far till July 2013.

Maximum deficiency in rainfall was seen in Assam at 40

per cent below LPA, followed by Bihar and Haryana. In

fact, the Delhi-Haryana-Chandigarh sub-division is

facing 25 per cent rainfall deficiency, which provides the

sole exception to the otherwise good rainfall in the

north-west India region, which has recorded 25 per cent

surplus rain. In contrast, states such as Uttarakhand

have been ravaged by devastating floods, which saw

thousands of people losing their lives.

Though the occurrence of normal monsoon is pivotal in

supporting the growth rate of the farm sector every

year, this fiscal it assumes greater importance in the

context of the macroeconomic challenges facing the

economy. As rainfall is the main source of irrigation for

55 per cent of arable land, normal rainfall received so far

has alleviated to some extent the fear of exacerbating

inflationary pressures. As for the current fiscal, as per

the Indian Meteorological Department's (IMD) initial

forecast released in April 2013, normal monsoon was

expected this year at 98 per cent of the LPA of 89 cm,

with a model error of plus or minus five per cent. This

was certainly a good piece of news for the economy

devoid of any silver linings in the past few quarters.

Adding to this good news was the recently released

IMD's mid-season long range forecast (LRF) for 2013

South-West monsoons, forecasting normal rainfall for

August and September. The meteorological

department classifies rainfall within a 4 per cent

window of 89 cm as normal and a 5-15 per cent

100

80

60

20

0

-20

-40

-60

-80

June 1- July 31, 2012 June 1- July 31, 2013

Ass

am

Bih

ar

Har

yana

Tam

il N

adu

Wes

t Ben

gal

Pun

jab

J &

K

Him

acha

l

All

Indi

a

Oris

sa

And

hra

Pra

desh

Kar

anat

aka

Raj

asth

an

Utta

r P

rade

sh

Guj

arat

Kar

ala

Uttr

anch

al

Mah

aras

htra

Mad

hya

Pra

desh

%

Source: IMD & CII calculations

State-Wise Rainfall Deviation from LPA

Cooperation reported that the sowing of kharif crops in

the country has touched 819.9 lakh hectares (lh) as on

02 August 2013, higher when compared to 734.5 lh sown

during the same period last year. Sowing of all the major

kharif crops was higher so far as compared to the

previous fiscal except for sugarcane. The sowing of rice,

the main kharif crop, stood at 238.8 lh, up 3.2 per cent

from the previous year. Over the same period, sowing of

pulses was up by 26.2 per cent and of oilseeds by 19.6

per cent.

Concomitant with relatively strong progress in

monsoons, kharif crop production in the country is

expected to hit a record this year on higher than

expected rains followed by record sowing. Kharif

sowing starts with the onset of June and crop is

harvested during September-October. Past experience

has shown that July rainfall is critical since most sowing

takes place by July, although late sowing continues well

into August. Department of Agriculture and

Crop Area sown in 2013-14 (lakh hectares) Area sown in 2012-13 (lakh hectres) y-o-y% Change

Rice 238.9 231.4 3.2

Pulses 79.5 63.0 26.2

Coarse Cereals 163.1 135.8 20.1

Oilseeds 173.2 144.9 19.6

Sugarcane 48.5 50.1 -3.1

Cotton 108.5 101.1 7.3

Jute & Mesta 8.3 8.4 -0.7

Total 820.0 734.6 11.6

Source: Ministry of Agriculture

Trend in Sowing of Kharif Crops (As on August 2, 2013)

Outlook

The progress of South-West monsoon has been good so far, with the overall country receiving 17 per cent rainfall

above LPA till end of July 2013. However, the skewed spatial pattern of rainfall cannot be missed as we have seen

excess rains causing floods in states such as Uttarakhand, while below normal rains in states such as Assam,

Haryana, West Bengal etc have created problems. Notwithstanding this uneven distribution of rainfall, the sowing

of major kharif crops has remained robust so far, raising hopes for another year of bumper harvest of food grains.

This news of above normal monsoon has come as a silver lining for the otherwise beleaguered economy and should

in all probability have a positive impact on the overall growth prospects of the economy, in addition to cooling of

food inflation.

10ECONOMY MATTERS

On the expenditure front, the non-plan expenditure

was at Rs 2,674 billion in the April-June 2013 quarter,

which is 24 per cent of the BE of Rs 11,099.8 billion. This

was 23.2 per cent in the corresponding period last year.

Also, the plan expenditure was higher than what it was

in June 2012. The Centre's plan expenditure was Rs

1,148.3 billion in the first quarter of the current fiscal

which was 20.7 per cent of the BE of Rs 5,553 billion. The

upside risk to non-plan expenditure has increased

significantly in the wake of expected implementation of

the Food Security Bill. Additionally, the recent

weakening of the Rupee has raised the upside risk to the

oil import bill, which would pull up the oil subsides too.

Owing to the slow growth witnessed currently, growth

in revenue receipts has at best remained tepid. In the

first quarter of the current fiscal, the revenue receipt

stood at Rs 1172.3 billion which is 11.1 per cent of the BE of

Rs 10,563.3 billion, against 12.7 per cent in April-June

2012 quarter. Tax collections have also remained muted.

Tax revenue stood at only Rs 1,019.1 billion which was

11.5 per cent of the BE of Rs 8840.8 billion in the first-

quarter. However, there was a surge in corporate tax

collection as Rs 507.3 billion was collected till June, two

per cent higher than Rs 494.1 billion collected in the

corresponding period last year. Non-tax revenue

receipts on the other hand stood at Rs 153.2 billion in

the reporting quarter, which was 8.9 per cent of the BE

as compared to 8.6 per cent in same period of last year.

Disinvestment proceeds so far have also remained

under Rs 10 billion, against the target of Rs 400 billion

for the year.

The government was able to deftly trim the fiscal deficit

for 2012-13 at 4.9 per cent of GDP, way below the revised

estimates of 5.2 per cent, mainly due to significant

expenditure compression coupled with higher mop-up

by the way of non-tax revenue collection. In order to

meet the current year target of 4.8 per cent of GDP,

government needs to take major initiatives to prop up

both tax and non tax revenues, so that the onus does

not entirely fall on expenditure moderation. As per the

government's fiscal consolidation plan, fiscal deficit is

expected to decline by 0.6 percentage points every year

to reach 3.0 per cent of GDP in 2016-17.

As per the latest numbers released by the Controller

General of Accounts (CGA), Centre's fiscal deficit during

the first quarter jumped to Rs 2,628 billion or almost half

of the budgeted target for the entire 2013-14 as

compared to 37 per cent in the same period of last fiscal.

The main reason for the high fiscal gap during April-June

was the sluggish revenue growth even though

government spending remained robust. While total

expenditure in the April-June quarter in the current year

stood at 23 per cent of the budget estimate (BE) as

compared to 20.9 per cent in the corresponding period

last year, total receipts have come down from 12.4 per

cent of the BE to 10.6 per cent of the BE in the first

quarter of the current fiscal. Grim revenue growth is

attributable to the sluggish economic growth. Further,

net government market borrowings in the first-quarter

stood at Rs 1,763 billion, which was 35 per cent of the

budgeted levels for the year.

12ECONOMY MATTERS

First Quarter Fiscal Deficit Hits a Record High

(Rs billion) Budget Estimates (BE) April-June (Actual) Percentage to Budget Estimates

2013-14 2013-14 2012-13 2013-14

1. Revenue Receipts (i+ii) 10563.3 1172.3 12.7% 11.1%

(i) Tax Revenue (net) 8840.8 1019.1 13.6% 11.5%

(ii) Non-Tax Revenue 1722.5 153.2 8.6% 8.9%

2. Non-Plan Expenditure 11099.8 2674.0 23.2% 24.1%

3. Plan Expenditure 5553.2 1148.3 16.5% 20.7%

6. Total Expenditure 16653.0 3822.3 20.9% 23.0%

7. Revenue Deficit 3798.4 2104.8 43.6% 55.4%

9. Gross Fiscal Deficit 5425.0 2628.2 37.1% 48.4%

Fiscal Trends in the First Quarter of 2013-14

Source: Controller General of Accounts (CGA)

to 0.5 per cent of the NDTL of the banking system,

reckoned at Rs 375 billion for this purpose. The

allocation to individual banks will be made in

proportion to their bids, subject to the overall

ceiling. This change in LAF came into effect from

July 24, 2013.

The Reserve Bank will conduct Open Market Sales

of Government of India Securities of Rs 120 billion

on July 18, 2013. Details of the securities included for

the OMO sale auction will be announced through a

separate press release tomorrow.

The RBI also raised the daily balance requirement

for the Cash Reserve Ratio to 99 per cent from 70 thper cent, effective July 27 , 2013.

Additionally, the RBI will also auction Rs 60 billion of

Cash Management Bills.

n

n

n

(A). Monetary Tightening

Measures Announced by the RBI

n

n

In the month of July 2013, the Reserve Bank of India

(RBI) announced policy measures to support the Rupee

that has been has been witnessing heavy depreciation

pressure over the last 2 months. Against this backdrop,

the following measures have been announced:

The Marginal Standing Facility (MSF) rate was

recalibrated with immediate effect to be 300 basis

points above the policy repo rate under the

Liquidity Adjustment Facility (LAF). Consequently,

the MSF rate will now be 10.25 per cent.

Accordingly, the Bank Rate also stands adjusted to

10.25 per cent with immediate effect.

The overall allocation of funds under the LAF limited

13 JULY2013

Outlook

Given the current trends, significant shortfall in tax revenues is likely in the current fiscal. Realisation of budgeted

disinvestment proceeds crucially hinges on market conditions. It should, however, be kept in mind that the fiscal

consolidation should not happen at the cost of curtailing government expenditure on plan/capital heads, which,

along with removal of structural impediments, is critical for crowding in private investment to pull the economy out

of the current slowdown.

Key Policy Developments During the Month

CII View

With these measures, the RBI's intention is to tighten the liquidity scenario further and shift the operating interest

rate from repo (i.e. 7.25 per cent) previously to Marginal Standing Facility (i.e. 10.25 per cent) now. With the advent

of tighter liquidity conditions in the system, cost of funding for financial institutions is likely to go up. Along with

this, tighter liquidity also means that interest rates across the board will witness an uptick, which is a negative for

growth. Since this kind of tightening of liquidity is effectively a reversal in the accommodative monetary policy, this

is likely to have adverse growth concerns given the fact that our recovery is now nascent at best.

Cabinet on July 16th and August 2nd, 2013 approved the

proposal for reviewing FDI (Foreign Direct Investment)

caps and routes across various sectors, which are

summed up below.

(B). Relaxation of FDI Norms for

Some Sectors

In order to relax foreign investment norms, the Union

On the expenditure front, the non-plan expenditure

was at Rs 2,674 billion in the April-June 2013 quarter,

which is 24 per cent of the BE of Rs 11,099.8 billion. This

was 23.2 per cent in the corresponding period last year.

Also, the plan expenditure was higher than what it was

in June 2012. The Centre's plan expenditure was Rs

1,148.3 billion in the first quarter of the current fiscal

which was 20.7 per cent of the BE of Rs 5,553 billion. The

upside risk to non-plan expenditure has increased

significantly in the wake of expected implementation of

the Food Security Bill. Additionally, the recent

weakening of the Rupee has raised the upside risk to the

oil import bill, which would pull up the oil subsides too.

Owing to the slow growth witnessed currently, growth

in revenue receipts has at best remained tepid. In the

first quarter of the current fiscal, the revenue receipt

stood at Rs 1172.3 billion which is 11.1 per cent of the BE of

Rs 10,563.3 billion, against 12.7 per cent in April-June

2012 quarter. Tax collections have also remained muted.

Tax revenue stood at only Rs 1,019.1 billion which was

11.5 per cent of the BE of Rs 8840.8 billion in the first-

quarter. However, there was a surge in corporate tax

collection as Rs 507.3 billion was collected till June, two

per cent higher than Rs 494.1 billion collected in the

corresponding period last year. Non-tax revenue

receipts on the other hand stood at Rs 153.2 billion in

the reporting quarter, which was 8.9 per cent of the BE

as compared to 8.6 per cent in same period of last year.

Disinvestment proceeds so far have also remained

under Rs 10 billion, against the target of Rs 400 billion

for the year.

The government was able to deftly trim the fiscal deficit

for 2012-13 at 4.9 per cent of GDP, way below the revised

estimates of 5.2 per cent, mainly due to significant

expenditure compression coupled with higher mop-up

by the way of non-tax revenue collection. In order to

meet the current year target of 4.8 per cent of GDP,

government needs to take major initiatives to prop up

both tax and non tax revenues, so that the onus does

not entirely fall on expenditure moderation. As per the

government's fiscal consolidation plan, fiscal deficit is

expected to decline by 0.6 percentage points every year

to reach 3.0 per cent of GDP in 2016-17.

As per the latest numbers released by the Controller

General of Accounts (CGA), Centre's fiscal deficit during

the first quarter jumped to Rs 2,628 billion or almost half

of the budgeted target for the entire 2013-14 as

compared to 37 per cent in the same period of last fiscal.

The main reason for the high fiscal gap during April-June

was the sluggish revenue growth even though

government spending remained robust. While total

expenditure in the April-June quarter in the current year

stood at 23 per cent of the budget estimate (BE) as

compared to 20.9 per cent in the corresponding period

last year, total receipts have come down from 12.4 per

cent of the BE to 10.6 per cent of the BE in the first

quarter of the current fiscal. Grim revenue growth is

attributable to the sluggish economic growth. Further,

net government market borrowings in the first-quarter

stood at Rs 1,763 billion, which was 35 per cent of the

budgeted levels for the year.

12ECONOMY MATTERS

First Quarter Fiscal Deficit Hits a Record High

(Rs billion) Budget Estimates (BE) April-June (Actual) Percentage to Budget Estimates

2013-14 2013-14 2012-13 2013-14

1. Revenue Receipts (i+ii) 10563.3 1172.3 12.7% 11.1%

(i) Tax Revenue (net) 8840.8 1019.1 13.6% 11.5%

(ii) Non-Tax Revenue 1722.5 153.2 8.6% 8.9%

2. Non-Plan Expenditure 11099.8 2674.0 23.2% 24.1%

3. Plan Expenditure 5553.2 1148.3 16.5% 20.7%

6. Total Expenditure 16653.0 3822.3 20.9% 23.0%

7. Revenue Deficit 3798.4 2104.8 43.6% 55.4%

9. Gross Fiscal Deficit 5425.0 2628.2 37.1% 48.4%

Fiscal Trends in the First Quarter of 2013-14

Source: Controller General of Accounts (CGA)

to 0.5 per cent of the NDTL of the banking system,

reckoned at Rs 375 billion for this purpose. The

allocation to individual banks will be made in

proportion to their bids, subject to the overall

ceiling. This change in LAF came into effect from

July 24, 2013.

The Reserve Bank will conduct Open Market Sales

of Government of India Securities of Rs 120 billion

on July 18, 2013. Details of the securities included for

the OMO sale auction will be announced through a

separate press release tomorrow.

The RBI also raised the daily balance requirement

for the Cash Reserve Ratio to 99 per cent from 70 thper cent, effective July 27 , 2013.

Additionally, the RBI will also auction Rs 60 billion of

Cash Management Bills.

n

n

n

(A). Monetary Tightening

Measures Announced by the RBI

n

n

In the month of July 2013, the Reserve Bank of India

(RBI) announced policy measures to support the Rupee

that has been has been witnessing heavy depreciation

pressure over the last 2 months. Against this backdrop,

the following measures have been announced:

The Marginal Standing Facility (MSF) rate was

recalibrated with immediate effect to be 300 basis

points above the policy repo rate under the

Liquidity Adjustment Facility (LAF). Consequently,

the MSF rate will now be 10.25 per cent.

Accordingly, the Bank Rate also stands adjusted to

10.25 per cent with immediate effect.

The overall allocation of funds under the LAF limited

13 JULY2013

Outlook

Given the current trends, significant shortfall in tax revenues is likely in the current fiscal. Realisation of budgeted

disinvestment proceeds crucially hinges on market conditions. It should, however, be kept in mind that the fiscal

consolidation should not happen at the cost of curtailing government expenditure on plan/capital heads, which,

along with removal of structural impediments, is critical for crowding in private investment to pull the economy out

of the current slowdown.

Key Policy Developments During the Month

CII View

With these measures, the RBI's intention is to tighten the liquidity scenario further and shift the operating interest

rate from repo (i.e. 7.25 per cent) previously to Marginal Standing Facility (i.e. 10.25 per cent) now. With the advent

of tighter liquidity conditions in the system, cost of funding for financial institutions is likely to go up. Along with

this, tighter liquidity also means that interest rates across the board will witness an uptick, which is a negative for

growth. Since this kind of tightening of liquidity is effectively a reversal in the accommodative monetary policy, this

is likely to have adverse growth concerns given the fact that our recovery is now nascent at best.

Cabinet on July 16th and August 2nd, 2013 approved the

proposal for reviewing FDI (Foreign Direct Investment)

caps and routes across various sectors, which are

summed up below.

(B). Relaxation of FDI Norms for

Some Sectors

In order to relax foreign investment norms, the Union

15

Prospects Sink as Firms Struggle to Shield Their Bottom Line

extracted from the Ace Equity database as on July 31,

2013.

Growth in net sales, on an aggregate basis, dropped to

5.0 per cent in the first quarter of 2013-14, as compared

to 19.3 per cent in the first quarter of the previous fiscal.

As a result of depressed domestic demand as well as

weak export growth, this downward trend in growth of

net sales has been persistent for more than ten quarters

now. While the net sales growth in manufacturing sector

plunged to 0.6 per cent in the first quarter of the current

fiscal, as compared to a growth of 14.6 per cent in the

comparable quarter last year, the growth in net sales in

the service sector moderated sharply to 11.0 per cent as

compared to 26.1 per cent in the first quarter of 2012-13.

Indian firms remain plagued by stagnant net sales and

poor domestic demand, in the face of headwinds such as

sliding rupee, weak export growth and high retail

inflation in the first quarter of the current fiscal. While

revenues have been plummeting sharply, corporate

sector continues to pull expenses down against the

backdrop of a clouded economic outlook. In face of

dwindling net sales growth, rise in profitability came as

the much needed respite, attributable mainly to

moderation in expenditure costs.

The analysis of the corporate in this section factors in the

financial performance during the first quarter of 2013-14

and uses a balanced panel of 358 manufacturing

companies (excluding oil & gas) and 166 services firms

CORPORATE PERFORMANCE

JULY 201314ECONOMY MATTERS

Sector Cap Route

1. Petroleum and Natural Gas and Refining 49% Automatic

2. Commodity Exchanges 49% Automatic

3. Power Exchanges 49% Automatic

4. Stock Exchanges, Depositories, Corporation 49% Automatic

5. Asset Reconstruction companies Upto 49% Automatic49% to 100% FIPB

6. Credit Information companies 74% Automatic

7. Single Brand Retail trading Upto 49% Automatic49% to 100% FIPB

8. Basic and Cellular Services, etc. Upto 49% Automatic49% to 100% FIPB

9. Courier Services 100% Automatic

10. Defence Production CCS may approve proposals on case to case basis beyond 26% which

are likely to result in access to modernand state of the art technology in the

country.

11. Telecom Services Upto 49% Automatic49% to 74% FIPB

Source: Press Information Bureau (PIB)

Government Relaxes FDI Norms for Some Sectors

CII View

CII welcomes the decision of the Cabinet to endorse the announcements of the government on raising caps on FDI

for a wide array of sectors and also for moving sectors into the automatic route. This is a commentary on the

commitment of the government to taking reforms forward at a time when the economy is in need of many such

measures. The present situation on the current account deficit front necessitates greater foreign funds flow and

therefore, CII hopes that we shall see FDI interests in these sectors soon, keeping with the medium-term promise

that India presents.

Growth in Net Sales (y-o-y%)

0 5 10 15 20 25 30

Manufacturing

Services

Aggregate

14.6

0.6

26.1

11.0

19.3

5.0

FY14Q1

FY13Q1

Source: Ace Equity database & CII calculations

15

Prospects Sink as Firms Struggle to Shield Their Bottom Line

extracted from the Ace Equity database as on July 31,

2013.

Growth in net sales, on an aggregate basis, dropped to

5.0 per cent in the first quarter of 2013-14, as compared

to 19.3 per cent in the first quarter of the previous fiscal.

As a result of depressed domestic demand as well as

weak export growth, this downward trend in growth of

net sales has been persistent for more than ten quarters

now. While the net sales growth in manufacturing sector

plunged to 0.6 per cent in the first quarter of the current

fiscal, as compared to a growth of 14.6 per cent in the

comparable quarter last year, the growth in net sales in

the service sector moderated sharply to 11.0 per cent as

compared to 26.1 per cent in the first quarter of 2012-13.

Indian firms remain plagued by stagnant net sales and

poor domestic demand, in the face of headwinds such as

sliding rupee, weak export growth and high retail

inflation in the first quarter of the current fiscal. While

revenues have been plummeting sharply, corporate

sector continues to pull expenses down against the

backdrop of a clouded economic outlook. In face of

dwindling net sales growth, rise in profitability came as

the much needed respite, attributable mainly to

moderation in expenditure costs.

The analysis of the corporate in this section factors in the

financial performance during the first quarter of 2013-14

and uses a balanced panel of 358 manufacturing

companies (excluding oil & gas) and 166 services firms

CORPORATE PERFORMANCE

JULY 201314ECONOMY MATTERS

Sector Cap Route

1. Petroleum and Natural Gas and Refining 49% Automatic

2. Commodity Exchanges 49% Automatic

3. Power Exchanges 49% Automatic

4. Stock Exchanges, Depositories, Corporation 49% Automatic

5. Asset Reconstruction companies Upto 49% Automatic49% to 100% FIPB

6. Credit Information companies 74% Automatic

7. Single Brand Retail trading Upto 49% Automatic49% to 100% FIPB

8. Basic and Cellular Services, etc. Upto 49% Automatic49% to 100% FIPB

9. Courier Services 100% Automatic

10. Defence Production CCS may approve proposals on case to case basis beyond 26% which

are likely to result in access to modernand state of the art technology in the

country.

11. Telecom Services Upto 49% Automatic49% to 74% FIPB

Source: Press Information Bureau (PIB)

Government Relaxes FDI Norms for Some Sectors

CII View

CII welcomes the decision of the Cabinet to endorse the announcements of the government on raising caps on FDI

for a wide array of sectors and also for moving sectors into the automatic route. This is a commentary on the

commitment of the government to taking reforms forward at a time when the economy is in need of many such

measures. The present situation on the current account deficit front necessitates greater foreign funds flow and

therefore, CII hopes that we shall see FDI interests in these sectors soon, keeping with the medium-term promise

that India presents.

Growth in Net Sales (y-o-y%)

0 5 10 15 20 25 30

Manufacturing

Services

Aggregate

14.6

0.6

26.1

11.0

19.3

5.0

FY14Q1

FY13Q1

Source: Ace Equity database & CII calculations

16ECONOMY MATTERS 17 JULY 2013

The cost of services and raw materials component

displayed a de-growth to the tune of 4.7 per cent in the

first quarter of 2013-14 as compared to a growth of 13.7

per cent in the corresponding quarter last year.

Similarly, salaries & wages too showed a deceleration in

growth which stood at 15.4 per cent in the reporting

quarter as compared to a growth of 20.9 per cent same

period last year. This could be an early indication of

slowdown impacting the growth in income, even as the

retail inflation continues to hover around the double-

digit mark.

The expenditure costs of the firms, on an aggregate

basis, witnessed moderation to 3.1 per cent in the

reporting quarter, as compared to 20.1 per cent in the

comparable time period last year. This came as a

breather and fairly cushioned the severe impact of lower

net sales growth during the quarter. The decline in

growth of expenditure costs was driven largely by a

decline in the growth of interest cost, which stood at 8.4

per cent in the first quarter of 2013-14 as compared 30.1

per cent in the same period last year. This mirrors the

reduction in interest rates by the RBI in the recent

months and also the slowdown in new projects.

Growth in Expenditure (y-o-y%)

-4.7

20.9

13.7

15.4

25.1

16.4

FY

13Q

1

FY

13Q

2

FY

13Q

3

FY

13Q

4

FY

14Q

1

FY

13Q

1

FY

13Q

2

FY

13Q

3

FY

13Q

4

FY

14Q

1

FY

13Q

1

FY

13Q

2

FY

13Q

3

FY

13Q

4

FY

14Q

1

Services & Raw Materials Wages & Salaries Interest

Source: Ace Equity database & CII calculations

firms, PAT growth moderated to 14.0 per cent as

compared to a growth of 18.8 per cent in the first

quarter of previous year.

Growth in operating profits (profits earned from a firm's

core business operations excluding investments and the

effects of depreciation, interest and taxes) on an

aggregate basis saw a slight moderation to 12.1 per cent

in the April-June, 2013 quarter as compared to a growth

13.9 per cent in the first quarter of last year. PAT growth

decelerated at a much faster rate than growth in

operating profits due to high interest rates prevailing in

the economy.

Encouraging signs were displayed by an improvement in

the bottom line growth across the firms on an aggregate

basis, despite a dip in Profit after Tax (PAT) growth in

service sector, attributable to the improvement in

profitability in the manufacturing sector. The growth in

profitability on an aggregate basis stood at a healthy 12.4

per cent in the reporting quarter as compared to a

growth of 5.7 per cent in the comparable quarter of

previous fiscal. This was driven by an improved PAT

growth to the tune of 10.9 per cent in the manufacturing

sector against a contraction of 4.0 per cent in the first

quarter of 2012-13. However, across the service sector

Growth in PAT (y-o-y%)

Source: Ace Equity database & CII calculations

Growth in PBDIT (y-o-y%)

-10 -5 0 5 10 15 20

-4.0

10.9

18.8

14.0

5.712.4

FY14Q1

FY13Q1

Manufacturing

Services

Aggregate

Manufacturing

Services

Aggregate

FY14Q1

FY13Q1

0 5 10 15 20 25

4.9

1.5

22.5

20.6

13.9

12.1

profitability, despite falling net sales, has been possible

only since the contraction in outlays has surpassed

contraction in net sales. Consequently, ignoring the

anomalous data for the third quarter of 2012-13, the

growth in PAT has shown an upward trend since the

decline in growth of expenditure costs has exceeded

the decline in growth of net sales.

For over two previous financial years, growth in net sales

has shown a consistent decline. Interest rate cuts,

moderation in cost of services and raw materials and

cost efficient measures employed by the firms in order

to mitigate the poor demand scenario, have yielded in

simultaneous stable reduction in expenditure costs.

However, the growth of profitability has displayed

varying trends. Our analysis reveals that a rise in

Growth on Aggregate Basis (y-o-y%)

0

10

20

30

40

-10

-30

-20

22.8

5.7

12.4

FY12Q1 FY12Q2 FY12Q3 FY12Q4 FY13Q1 FY13Q2 FY13Q3 FY13Q4 FY14Q1

Net Sales Expenditure PAT

Source: Ace Equity database & CII calculations

quarter as compared with corresponding quarter in the

previous year. The betterment in margins mirrored the

improved profitability in the reporting quarter.

Both net margin (ratio of PAT to net sales) and gross

margins (ratio of operating profits to net sales) saw an

improvement across manufacturing as well as service

firms, and thus also on aggregate basis in the reporting

16ECONOMY MATTERS 17 JULY 2013

The cost of services and raw materials component

displayed a de-growth to the tune of 4.7 per cent in the

first quarter of 2013-14 as compared to a growth of 13.7

per cent in the corresponding quarter last year.

Similarly, salaries & wages too showed a deceleration in

growth which stood at 15.4 per cent in the reporting

quarter as compared to a growth of 20.9 per cent same

period last year. This could be an early indication of

slowdown impacting the growth in income, even as the

retail inflation continues to hover around the double-

digit mark.

The expenditure costs of the firms, on an aggregate

basis, witnessed moderation to 3.1 per cent in the

reporting quarter, as compared to 20.1 per cent in the

comparable time period last year. This came as a

breather and fairly cushioned the severe impact of lower

net sales growth during the quarter. The decline in

growth of expenditure costs was driven largely by a

decline in the growth of interest cost, which stood at 8.4

per cent in the first quarter of 2013-14 as compared 30.1

per cent in the same period last year. This mirrors the

reduction in interest rates by the RBI in the recent

months and also the slowdown in new projects.

Growth in Expenditure (y-o-y%)

-4.7

20.9

13.7

15.4

25.1

16.4

FY

13Q

1

FY

13Q

2

FY

13Q

3

FY

13Q

4

FY

14Q

1

FY

13Q

1

FY

13Q

2

FY

13Q

3

FY

13Q

4

FY

14Q

1

FY

13Q

1

FY

13Q

2

FY

13Q

3

FY

13Q

4

FY

14Q

1

Services & Raw Materials Wages & Salaries Interest

Source: Ace Equity database & CII calculations

firms, PAT growth moderated to 14.0 per cent as

compared to a growth of 18.8 per cent in the first

quarter of previous year.

Growth in operating profits (profits earned from a firm's

core business operations excluding investments and the

effects of depreciation, interest and taxes) on an

aggregate basis saw a slight moderation to 12.1 per cent

in the April-June, 2013 quarter as compared to a growth

13.9 per cent in the first quarter of last year. PAT growth

decelerated at a much faster rate than growth in

operating profits due to high interest rates prevailing in

the economy.

Encouraging signs were displayed by an improvement in

the bottom line growth across the firms on an aggregate

basis, despite a dip in Profit after Tax (PAT) growth in

service sector, attributable to the improvement in

profitability in the manufacturing sector. The growth in

profitability on an aggregate basis stood at a healthy 12.4

per cent in the reporting quarter as compared to a

growth of 5.7 per cent in the comparable quarter of

previous fiscal. This was driven by an improved PAT

growth to the tune of 10.9 per cent in the manufacturing

sector against a contraction of 4.0 per cent in the first

quarter of 2012-13. However, across the service sector

Growth in PAT (y-o-y%)

Source: Ace Equity database & CII calculations

Growth in PBDIT (y-o-y%)

-10 -5 0 5 10 15 20

-4.0

10.9

18.8

14.0

5.712.4

FY14Q1

FY13Q1

Manufacturing

Services

Aggregate

Manufacturing

Services

Aggregate

FY14Q1

FY13Q1

0 5 10 15 20 25

4.9

1.5

22.5

20.6

13.9

12.1

profitability, despite falling net sales, has been possible

only since the contraction in outlays has surpassed

contraction in net sales. Consequently, ignoring the

anomalous data for the third quarter of 2012-13, the

growth in PAT has shown an upward trend since the

decline in growth of expenditure costs has exceeded

the decline in growth of net sales.

For over two previous financial years, growth in net sales

has shown a consistent decline. Interest rate cuts,

moderation in cost of services and raw materials and

cost efficient measures employed by the firms in order

to mitigate the poor demand scenario, have yielded in

simultaneous stable reduction in expenditure costs.

However, the growth of profitability has displayed

varying trends. Our analysis reveals that a rise in

Growth on Aggregate Basis (y-o-y%)

0

10

20

30

40

-10

-30

-20

22.8

5.7

12.4

FY12Q1 FY12Q2 FY12Q3 FY12Q4 FY13Q1 FY13Q2 FY13Q3 FY13Q4 FY14Q1

Net Sales Expenditure PAT

Source: Ace Equity database & CII calculations

quarter as compared with corresponding quarter in the

previous year. The betterment in margins mirrored the

improved profitability in the reporting quarter.

Both net margin (ratio of PAT to net sales) and gross

margins (ratio of operating profits to net sales) saw an

improvement across manufacturing as well as service

firms, and thus also on aggregate basis in the reporting

18ECONOMY MATTERS

Simultaneously, there are also expectations of some

more economic reforms from the policymakers that

would elevate the economy, help pick-up sales and

boost the infrastructure and profitability for the Indian

corporate in the months to come.

Struck with lackluster demand in the economy,

diminishing balance of trade, burgeoning trade deficit,

weak sales, efforts are in force by firms to improve their

own production efficiencies and employ cost effective

measures to tide over the current difficult times.

The textile and clothing (T&C) industry is one of the

leading sectors of the Indian economy and constitutes

major part of the industrial sector. It contributes

significantly to the industrial output, employment

generation and foreign exchange earnings in India.

About 14 per cent of industrial production, 4 per cent of

GDP, 9 per cent of excise collections and 11 per cent of

the country's export earnings are contributed by the

T&C sector. It is also the second largest provider of

employment, after the agricultural sector, with direct

employment of over 35 million people (another 50

million are engaged in allied activities), which includes a

substantial number of SC/ST, women, and economically

weaker section of population. India's position in the

global T&C scenario is indeed praiseworthy as it remains

the world's second largest producer of textiles after

China. It is also the world's largest producer of jute,

second largest producer of silk, third largest producer of

cotton-after China and the US. In the man-made fibre

sector, India is the third largest producer of Cellulosic

Fibre/Yarn and fifth largest producer of Synthetic Fibres.

However the sector faced severe headwinds from the

global financial crisis of 2008-09, only to recover in the

subsequent years but once again face the heat from the

current bout of slowdown. Exports especially faced the

major brunt of the slowdown, with T&C exports

declining by over 4 per cent in 2008-09. Due to the

stimulus doled out by the government, exports picked

up in the subsequent years, growing by a massive 57 per

cent by 2011-12. However, during the calendar year 2012,

the volatility in the EU market severely affected India's

SECTOR IN FOCUS

TextilesT&C exports to EU, resulting in a US$1.3 billion shortfall

of India's T&C exports to EU. In 2012-13, textiles exports

fell by 4.8 per cent over the previous year. Thus, the

textile sector is still facing headwinds, due to weak

demand in global markets, mainly from US and Europe.

The major sub-sectors of the textiles sector are cotton

industry, the jute & jute textiles industry, the man-made

fibre / filament yarn industry, the wool & woolen textiles

industry, the sericulture & silk textiles industry, and the

handlooms & handicrafts. These segments have all

registered positive growth in output post the Multi-

Fibre Agreement (MFA) regime, which expired on

January 1, 2005. Under the MFA regime, India and other

developing countries had faced restrictions on exports

of yarn, textiles and apparels from the developed world.

Cotton textiles continue to form the predominant

base of the Indian textile industry, though other

types of fabric have gained share in recent years. It is

one of the principal crops of India and plays a vital role in

the country's economic growth by providing substantial

employment and making significant contributions to

export earnings. There has been a significant yield

improvement in India since the adoption of genetically

modified (GM) and hybrid cotton (BT) varieties in 2003-

04. Consequent to the introduction of these new and

superior varieties of cotton, the sector was able to

Trends in Production

Cotton

19 JULY 2013

Manufacturing

Services

Aggregate

0 5 10 15 20

FY14Q1

FY13Q1

11.7

12.8

14.1

14.5

12.713.6

Source: Ace Equity database & CII calculations

Gross Margin (%) Net Margin (%)

Manufacturing

Services

Aggregate

0 10 20 30 40

18.8

19.0

30.9

33.6

24.025.7

FY14Q1

FY13Q1

18ECONOMY MATTERS

Simultaneously, there are also expectations of some

more economic reforms from the policymakers that

would elevate the economy, help pick-up sales and

boost the infrastructure and profitability for the Indian

corporate in the months to come.

Struck with lackluster demand in the economy,

diminishing balance of trade, burgeoning trade deficit,

weak sales, efforts are in force by firms to improve their

own production efficiencies and employ cost effective

measures to tide over the current difficult times.

The textile and clothing (T&C) industry is one of the

leading sectors of the Indian economy and constitutes

major part of the industrial sector. It contributes

significantly to the industrial output, employment

generation and foreign exchange earnings in India.

About 14 per cent of industrial production, 4 per cent of

GDP, 9 per cent of excise collections and 11 per cent of

the country's export earnings are contributed by the

T&C sector. It is also the second largest provider of

employment, after the agricultural sector, with direct

employment of over 35 million people (another 50

million are engaged in allied activities), which includes a

substantial number of SC/ST, women, and economically

weaker section of population. India's position in the

global T&C scenario is indeed praiseworthy as it remains

the world's second largest producer of textiles after

China. It is also the world's largest producer of jute,

second largest producer of silk, third largest producer of

cotton-after China and the US. In the man-made fibre

sector, India is the third largest producer of Cellulosic

Fibre/Yarn and fifth largest producer of Synthetic Fibres.

However the sector faced severe headwinds from the

global financial crisis of 2008-09, only to recover in the

subsequent years but once again face the heat from the

current bout of slowdown. Exports especially faced the

major brunt of the slowdown, with T&C exports

declining by over 4 per cent in 2008-09. Due to the

stimulus doled out by the government, exports picked

up in the subsequent years, growing by a massive 57 per

cent by 2011-12. However, during the calendar year 2012,

the volatility in the EU market severely affected India's

SECTOR IN FOCUS

TextilesT&C exports to EU, resulting in a US$1.3 billion shortfall

of India's T&C exports to EU. In 2012-13, textiles exports

fell by 4.8 per cent over the previous year. Thus, the

textile sector is still facing headwinds, due to weak

demand in global markets, mainly from US and Europe.

The major sub-sectors of the textiles sector are cotton

industry, the jute & jute textiles industry, the man-made

fibre / filament yarn industry, the wool & woolen textiles

industry, the sericulture & silk textiles industry, and the

handlooms & handicrafts. These segments have all

registered positive growth in output post the Multi-

Fibre Agreement (MFA) regime, which expired on

January 1, 2005. Under the MFA regime, India and other

developing countries had faced restrictions on exports

of yarn, textiles and apparels from the developed world.

Cotton textiles continue to form the predominant

base of the Indian textile industry, though other

types of fabric have gained share in recent years. It is

one of the principal crops of India and plays a vital role in

the country's economic growth by providing substantial

employment and making significant contributions to

export earnings. There has been a significant yield

improvement in India since the adoption of genetically

modified (GM) and hybrid cotton (BT) varieties in 2003-

04. Consequent to the introduction of these new and

superior varieties of cotton, the sector was able to

Trends in Production

Cotton

19 JULY 2013

Manufacturing

Services

Aggregate

0 5 10 15 20

FY14Q1

FY13Q1

11.7

12.8

14.1

14.5

12.713.6

Source: Ace Equity database & CII calculations

Gross Margin (%) Net Margin (%)

Manufacturing

Services

Aggregate

0 10 20 30 40

18.8

19.0

30.9

33.6

24.025.7

FY14Q1

FY13Q1

21

which muga with its golden yellow glitter is unique and

prerogative of India. During 2012-13 (April- Jan'13), raw

silk production in the country was 17,887 MT compared

to 17,483 MT in 2011-12 recording an increase of 2.3 per

cent. Weak demand due to growth slowdown,

weakening of Indian Rupee, higher production costs and

tough competition from China are some of the problems thplaguing the sector currently. The 12 Five year plan has

taken some important steps to address these problems

such as inclusion of sericulture industry as agriculture &

allied activity under Rashtriya Krishi Vikas Yojana (RKVY).

Sericulture & Silk

India is the second largest producer of silk in the world

and has 17.5 per cent share in global raw silk production,

only next to China. It is also the largest consumer of raw

silk in the world. But as production lags behind

consumption, the balance is imported from China. India

has the unique distinction of being the only country

producing all the five known commercial silks, namely,

mulberry, tropical tasar, oak tasar, eri and muga, of

Rajasthan, Punjab, Jammu & Kashmir, Karnataka,

Gujarat, Uttar Pradesh, Uttaranchal, Andhra Pradesh,

Maharashtra and Haryana. India is the seventh-largest

producer of wool and accounts for nearly 2 per cent of

total world production.

Wool

The woolen sector is a highly organized and

decentralized sector and major part of this industry is

rural based. The main wool producing states of India are

the organized mills and the decentralized hosiery sector

is very limited, India depends largely on import;

Australia and New Zealand being the major suppliers.

The production trends of this industry have been largely

inconsistent over the last few years. Since the

indigenous production of fine quality wool required by

20ECONOMY MATTERS

production levels in the last fiscal, the increase in cotton

production over the past years has shifted India from

being a small net importer of cotton in the early 2000s to

being a substantial net exporter in recent years.

Currently, India is the second largest exporter of cotton

behind the US.

increase its production levels over the years. However,

in the financial year 2012-13, cotton production is

expected to moderate to 334 lakh Bales as compared to

353 lakh bales in 2011-12, mainly due to lower cotton

prices leading to lower cultivation area and slower

global demand. Notwithstanding the decline in

Source: Based on reports of Ministry of Textiles and Cotton Advisory Board (2012-13)

Production of Cotton

estimated world production. Bulk of the manufactured

jute goods is predominantly being used in packaging

purposes in domestic market. Between 2008-09 and

2012-13, jute production shrank by 2.6 per cent. Further,

Bangladesh has emerged as a significant competitor to

the traditional jute industry in India. Thus, in years to

come it is imperative that concerted efforts are taken by

the government to improve the sectors output.

Furthering of the National Jute Policy announced in 2005

is an important step in this direction.

Jute

The Jute industry occupies an important place in the

national economy of India. It is one of the major

industries in the eastern region, particularly in West

Bengal and Raw jute crop is an important cash crop to

the farmers. Cultivation of raw jute crop provides not

only fibre which has industrial use, but jute stick which is

used as fuel and building material by the farming

community. India is the leading jute goods producing

country in the world, accounting for about 70 per cent of

Trends in Production of Jute Goods

Source: Office of the Jute Commissioner, MoT

JULY 2013

Production of Raw Silk

Source: Central Silk Board

Lakh Bales

400

300

200

Production of Cotton

2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

Qty. in 000'

M.tons

2000

1800

1600

1400

1200

1000

Total Production

MT

25000

20000

15000

Total Raw Silk Produce

2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

The Woollen Industry in India Broadly Falls Under Two Sectors:

Organised Sector Decentralized Sector

Composite Mills Hosiery and Knitting

Combing units Powerlooms

Worsted and non worsted spinning units Hand Knotted Carpets, Druggets and Namdahs

Knitwear and Woven Garments Units Independent dyeing process houses

Machine made carpets manufacturing units

21

which muga with its golden yellow glitter is unique and

prerogative of India. During 2012-13 (April- Jan'13), raw

silk production in the country was 17,887 MT compared

to 17,483 MT in 2011-12 recording an increase of 2.3 per

cent. Weak demand due to growth slowdown,

weakening of Indian Rupee, higher production costs and

tough competition from China are some of the problems thplaguing the sector currently. The 12 Five year plan has

taken some important steps to address these problems

such as inclusion of sericulture industry as agriculture &

allied activity under Rashtriya Krishi Vikas Yojana (RKVY).

Sericulture & Silk

India is the second largest producer of silk in the world

and has 17.5 per cent share in global raw silk production,

only next to China. It is also the largest consumer of raw

silk in the world. But as production lags behind

consumption, the balance is imported from China. India

has the unique distinction of being the only country

producing all the five known commercial silks, namely,

mulberry, tropical tasar, oak tasar, eri and muga, of

Rajasthan, Punjab, Jammu & Kashmir, Karnataka,

Gujarat, Uttar Pradesh, Uttaranchal, Andhra Pradesh,

Maharashtra and Haryana. India is the seventh-largest

producer of wool and accounts for nearly 2 per cent of

total world production.

Wool

The woolen sector is a highly organized and

decentralized sector and major part of this industry is

rural based. The main wool producing states of India are

the organized mills and the decentralized hosiery sector

is very limited, India depends largely on import;

Australia and New Zealand being the major suppliers.

The production trends of this industry have been largely

inconsistent over the last few years. Since the

indigenous production of fine quality wool required by

20ECONOMY MATTERS

production levels in the last fiscal, the increase in cotton

production over the past years has shifted India from

being a small net importer of cotton in the early 2000s to

being a substantial net exporter in recent years.

Currently, India is the second largest exporter of cotton

behind the US.

increase its production levels over the years. However,

in the financial year 2012-13, cotton production is

expected to moderate to 334 lakh Bales as compared to

353 lakh bales in 2011-12, mainly due to lower cotton

prices leading to lower cultivation area and slower

global demand. Notwithstanding the decline in

Source: Based on reports of Ministry of Textiles and Cotton Advisory Board (2012-13)

Production of Cotton

estimated world production. Bulk of the manufactured

jute goods is predominantly being used in packaging

purposes in domestic market. Between 2008-09 and

2012-13, jute production shrank by 2.6 per cent. Further,

Bangladesh has emerged as a significant competitor to

the traditional jute industry in India. Thus, in years to

come it is imperative that concerted efforts are taken by

the government to improve the sectors output.

Furthering of the National Jute Policy announced in 2005

is an important step in this direction.

Jute

The Jute industry occupies an important place in the

national economy of India. It is one of the major

industries in the eastern region, particularly in West

Bengal and Raw jute crop is an important cash crop to

the farmers. Cultivation of raw jute crop provides not

only fibre which has industrial use, but jute stick which is

used as fuel and building material by the farming

community. India is the leading jute goods producing

country in the world, accounting for about 70 per cent of

Trends in Production of Jute Goods

Source: Office of the Jute Commissioner, MoT

JULY 2013

Production of Raw Silk

Source: Central Silk Board

Lakh Bales

400

300

200

Production of Cotton

2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

Qty. in 000'

M.tons

2000

1800

1600

1400

1200

1000

Total Production

MT

25000

20000

15000

Total Raw Silk Produce

2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

The Woollen Industry in India Broadly Falls Under Two Sectors:

Organised Sector Decentralized Sector

Composite Mills Hosiery and Knitting

Combing units Powerlooms

Worsted and non worsted spinning units Hand Knotted Carpets, Druggets and Namdahs

Knitwear and Woven Garments Units Independent dyeing process houses

Machine made carpets manufacturing units

22ECONOMY MATTERS

thTotal Production declined marginally at the end of 11

Five Year Plan (2011-12) to 44.7 million kg from 45.1 thmillion kg in the 10 Five Year Plan (2006-07). At present,

the main problems plaguing the woolen sector are the

high import duty structure, presence of long chain of

intermediaries and availability of wool in desired quality

and quantity, which have all prevented the industry from

improving its cost-competitiveness.

23

Trends in Exports

In the global exports of Textiles, India has been ranked

as the third largest exporter, trailing EU-27 and China

while in the global exports of Clothing, India is ranked as

the fifth largest exporter as per latest WTO data (2011).

T&C exports have come a long way with their total value

rising from US$17.52 billion in 2004-05 to US$31.7 billion

in 2012-13, thus recording a massive growth of more

than 80 per cent. However, as per the provisional data,

textile exports in 2012-13 came lower than the target of

US$40.5 billion for the year and registered a decline of

4.8 per cent over the previous year.

Government has been continually supporting the

textiles exports through various policy initiatives to

enable the sector to increase market share in the global

textiles markets. Some of the measures have been

introduced in the Union Budget 2013-14 and in the

annual supplement to the Foreign Trade Policy 2009-14.

These measures include schemes such as incentives

under Focus Market Scheme and Focus Product

Scheme; enhancing the coverage of Market Linked

Focus Product Scheme for textile products and

extension of Market Linked Focus Product Scheme etc.

to increase India's share in various countries amongst

other measures.

The USA and the EU account for about two-thirds of

India's textiles & clothing exports. Exports to the US

have further increased since 2005, post the

termination of the MFA. The other major export

destinations include China, U.A.E., Sri Lanka, Saudi

Arabia, Republic of Korea, Bangladesh, Turkey,

Pakistan, Brazil, Hong-Kong, Canada and Egypt etc.

Handloom

The handloom sector is the second highest employer in

the country after agriculture. The sector accounts for 13

per cent of the total cloth produced in the country,

excluding wool, silk and handspun yarn. The richness

and diversity in this sector has been kept alive by skilled

weavers engaged in the age old tradition of weaving.

The sector is weighed down by several problems such as

obsolete technology and unorganised production

system. The economic downturn in 2008 had left all the

sectors badly hit and the handloom sector was no

exception. However, with revised policies and increased

allocation of funds, the production increased to 6.9

million sq. meters in 2012-13, up from 6.6 billion sq.

meters in 2008-09.

Fabric & Yarn

India is among the top producers of yarns & fabrics in the

world and accounts for 12 per cent of the world's

production of textile fibres & yarn. Man-made yarn has

driven much of this, showing a robust growth of 4.3 per

cent in the last five years. Spun yarn production has also

shown a steady growth, increasing by over 17 per cent

between 2007-08 and 2011-12. In 2012-13, the production

of spun yarn stood at 4850 mn kgs. During this period,

fabric production increased by over 4 per cent, driven

primarily by small scale, decentralized power loom

sector.

Financial Performance

Overall financial performance of the Indian T&C industry

was robust in the last fiscal year. Net sales saw an

upsurge from Rs 640.8 billion in 2008-09 to Rs 1211.4

billion in 2012-13, thus growing by an astronomical 89

per cent during the four year period. Analysis reveals

that during 2009-10 and 2012-13, net sales recorded a

high growth primarily due to growth in the domestic

market, along with overall rise in exports. Profit after

Tax (PAT), in general, exhibited a robust performance

after 2010, growing by over a 1000 per cent in 2012-13

over the previous year. The rise in PAT could be credited

to the fall in the growth of raw materials costs,

accompanied by a fall in growth of interest costs.

JULY 2013

Production of Indigenous Wool

Source: Dept. of Animal Husbandry, Ministry of Agriculture

Million Kg

45

44

43

42

Production Quantity

2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

Production of Yarn

Source: Office of the Textile Commissioner Note: P- Provisional

Million Kgs

5000

4000

3000

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13(P)

Total Spun Yarn Production

Production of Fabrics

Million Sq. Mtrs.

64000

62000

60000

58000

56000

54000

52000

50000

Total Fabric Production

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13(P)

Source: Ministry of Textiles, GoI Note: The years are calendar years

Top 10 Exports Destinations for India's T&C

(US$ million) 2011 2012 % Change

US 5779 5994 3.7

China 2928 3907 33.5

UAE 2162 2172 0.5

UK 2087 2080 -0.4

Germany 1959 1567 -20.0

Bangladesh 1101 1659 50.7

Italy 1030 774 -24.8

France 1017 823 -19.1

Spain 814 732 -10.0

Turkey 731 659 -9.9

Netherlands 728 626 -14.0

22ECONOMY MATTERS

thTotal Production declined marginally at the end of 11

Five Year Plan (2011-12) to 44.7 million kg from 45.1 thmillion kg in the 10 Five Year Plan (2006-07). At present,

the main problems plaguing the woolen sector are the

high import duty structure, presence of long chain of

intermediaries and availability of wool in desired quality

and quantity, which have all prevented the industry from

improving its cost-competitiveness.

23

Trends in Exports

In the global exports of Textiles, India has been ranked

as the third largest exporter, trailing EU-27 and China

while in the global exports of Clothing, India is ranked as

the fifth largest exporter as per latest WTO data (2011).

T&C exports have come a long way with their total value

rising from US$17.52 billion in 2004-05 to US$31.7 billion

in 2012-13, thus recording a massive growth of more

than 80 per cent. However, as per the provisional data,

textile exports in 2012-13 came lower than the target of

US$40.5 billion for the year and registered a decline of

4.8 per cent over the previous year.

Government has been continually supporting the

textiles exports through various policy initiatives to

enable the sector to increase market share in the global

textiles markets. Some of the measures have been

introduced in the Union Budget 2013-14 and in the

annual supplement to the Foreign Trade Policy 2009-14.

These measures include schemes such as incentives

under Focus Market Scheme and Focus Product

Scheme; enhancing the coverage of Market Linked

Focus Product Scheme for textile products and

extension of Market Linked Focus Product Scheme etc.

to increase India's share in various countries amongst

other measures.

The USA and the EU account for about two-thirds of

India's textiles & clothing exports. Exports to the US

have further increased since 2005, post the

termination of the MFA. The other major export

destinations include China, U.A.E., Sri Lanka, Saudi

Arabia, Republic of Korea, Bangladesh, Turkey,

Pakistan, Brazil, Hong-Kong, Canada and Egypt etc.

Handloom

The handloom sector is the second highest employer in

the country after agriculture. The sector accounts for 13

per cent of the total cloth produced in the country,

excluding wool, silk and handspun yarn. The richness

and diversity in this sector has been kept alive by skilled

weavers engaged in the age old tradition of weaving.

The sector is weighed down by several problems such as

obsolete technology and unorganised production

system. The economic downturn in 2008 had left all the

sectors badly hit and the handloom sector was no

exception. However, with revised policies and increased

allocation of funds, the production increased to 6.9

million sq. meters in 2012-13, up from 6.6 billion sq.

meters in 2008-09.

Fabric & Yarn

India is among the top producers of yarns & fabrics in the

world and accounts for 12 per cent of the world's

production of textile fibres & yarn. Man-made yarn has

driven much of this, showing a robust growth of 4.3 per

cent in the last five years. Spun yarn production has also

shown a steady growth, increasing by over 17 per cent

between 2007-08 and 2011-12. In 2012-13, the production

of spun yarn stood at 4850 mn kgs. During this period,

fabric production increased by over 4 per cent, driven

primarily by small scale, decentralized power loom

sector.

Financial Performance

Overall financial performance of the Indian T&C industry

was robust in the last fiscal year. Net sales saw an

upsurge from Rs 640.8 billion in 2008-09 to Rs 1211.4

billion in 2012-13, thus growing by an astronomical 89

per cent during the four year period. Analysis reveals

that during 2009-10 and 2012-13, net sales recorded a

high growth primarily due to growth in the domestic

market, along with overall rise in exports. Profit after

Tax (PAT), in general, exhibited a robust performance

after 2010, growing by over a 1000 per cent in 2012-13

over the previous year. The rise in PAT could be credited

to the fall in the growth of raw materials costs,

accompanied by a fall in growth of interest costs.

JULY 2013

Production of Indigenous Wool

Source: Dept. of Animal Husbandry, Ministry of Agriculture

Million Kg

45

44

43

42

Production Quantity

2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

Production of Yarn

Source: Office of the Textile Commissioner Note: P- Provisional

Million Kgs

5000

4000

3000

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13(P)

Total Spun Yarn Production

Production of Fabrics

Million Sq. Mtrs.

64000

62000

60000

58000

56000

54000

52000

50000

Total Fabric Production

2007-08

2008-09

2009-10

2010-11

2011-12

2012-13(P)

Source: Ministry of Textiles, GoI Note: The years are calendar years

Top 10 Exports Destinations for India's T&C

(US$ million) 2011 2012 % Change

US 5779 5994 3.7

China 2928 3907 33.5

UAE 2162 2172 0.5

UK 2087 2080 -0.4

Germany 1959 1567 -20.0

Bangladesh 1101 1659 50.7

Italy 1030 774 -24.8

France 1017 823 -19.1

Spain 814 732 -10.0

Turkey 731 659 -9.9

Netherlands 728 626 -14.0

25 JULY2013

The National Food Security Ordinance (NFSO) provides a legal entitlement to persons belonging to specified

households to receive specific quantities of foodgrain at subsidised prices from the state. The specifics of the

entitlement are given below:

Entitlement: 5 kg per person per month

Price: Rs 3 per kg for rice, Rs 2 per kg for wheat and Rs 1 per kg for coarse grains

Coverage: 75 per cent of the rural population and 50 per cent of the urban population, amounting to about two-

third of a population of 1.2 billion people (or 800 million people)

The poorest of poor households (who are currently covered under the Antyodaya Anna Yajna) would continue to

receive 35 kg food grains per household per month at the subsidized prices of Rs 3, Rs 2 and Rs 1.

24ECONOMY MATTERS

Parliament had begun debating the Bill in the last few

days of the Budget session, it could not be passed. While

the government has passed an ordinance, the law will be

debated in the monsoon session of Parliament which thbegan on August 5 . This note will highlight the key

features of the law and its expected welfare benefits as

well as concerns expressed by different stakeholders.

In keeping with the UPA's entitlement based approach,

the government recently promulgated an ordinance on

National Food Security. The ordinance route has been

chosen by the government even though the monsoon thsession of Parliament began on August 5 , 2013. The Bill

was originally introduced in Parliament in December

2011 and the standing committee has submitted its

recommendations. However, although members of

The National Food Security Ordinance – Benefits and Concerns

SPECIAL ARTICLE

NFSO, 67 per cent of the population will be entitled

to support without any categorisation.

Second, the AAY and BPL households are allocated

35 kg foodgrains per month while allocation to APL

households is subject to availability of food grains.

Under the NFSO, only AAY households will continue

n

Three critical differences with the existing targeted

public distribution system (TPDS) may be pointed out.

One, in the existing TPDS, there are two categories

of beneficiaries: below poverty line (BPL) including

the poorest beneficiaries under Antyodaya Anna

Yojana (AAY) and above poverty line (APL). Under

n

Source: Ace equity database & CII calculations

Financial Performance of the Textiles Industry

Net Sales (Rs billion) 640.8 750.7 963.9 1070.5 1211.4

Net sales growth (%) 8.5 17.2 28.4 11.1 13.2

Operating profit growth (%) -8.8 57.2 37.4 -13.6 30.3

PAT growth (%) -184.5 -253.6 102.5 -95.8 1088.5

Cost of raw materials and services 5.6 16.9 35.0 16.1 6.9growth (%)

Cost of interest growth (%) 45.7 9.6 15.7 41.3 13.6

2008-09 2009-10 2010-11 2011-12 2012-13

stakeholders in the entire textile value chain with

varied expectations and work to reduce the

fragmentation that has impacted the sector.

A reduced duty structure is a common suggestion.

Also, there is a need to reduce excise duty on man-

made fibres.

Create new textiles cities in the proposed Mumbai -

Delhi Industrial corridor and the new Mumbai -

Bangalore Industrial corridor.

As the garment industry will drive growth in the

textile sector, it has to play the lead role ahead. The

industry needs to move into rural areas and work

closely with State Governments for this.

Policy measures should encourage the development

of the synthetic industry. We need to look at multi-

fibre and work on a fibre neutral policy. Therefore,

there is an urgent need to announce the National

Fibre Policy to address all the areas relating to raw

material.

There is an urgent need to create a "Made in India"

Brand in Textiles to dictate the Indian story

worldwide. There is large potential in the

international market. Further disruption of textiles

production in Bangladesh and the subsequent fall in

the foreign demand of its products has given India a

comparative advantage.

In the end, industry has to come up with a code of

conduct as industry is fragmented. There is a need

for the creation of one national level apex body that

can be the nodal organization to work towards a

larger cause / common goals. This body can help in

the revamping of various sectoral and regional

textile promotion councils.

n

n

n

n

n

n

The government announced several measures to

support the textiles sector in the Union Budget 2013-14,

like extending the term of the Technology Up gradation thFund Scheme (TUFS) to the 12 Plan period with an

investment target of Rs. 1,51,000 crore, allocation of Rs.

50 crore to the Ministry of Textile to incentivize setting

up of Apparel Parks within the SITPs, a new scheme with

an outlay of Rs. 500 crore called the Integrated

Processing Development Scheme proposed to be t himplemented in the 12 Plan to address the

environmental concerns of the textile industry and

extending concessional loans to the distressed

handloom sector, amongst other measures. Further, in

the Foreign Trade Policy for 2013-14, some more

welcome steps were announced by the sector like

extension of the 2 per cent Interest Subvention Scheme

applicable to specific textile sectors such as handlooms,

readymade garments, carpets etc by one more year, i.e., stup to 31 March, 2014. However, it is important that

these measures are supplemented by some 'out of the

box' steps too. Some of the measures which CII

recommends in this regard are enumerated below:

ILO allows 50 hours overtime per month while Indian

law allows 50 hours overtime per quarter. The

Ministry of Textiles needs to work with the Labour

ministry to resolve this issue. The issue of time

flexibility also needs to be addressed.

Textile industry has been power intensive and since,

power cost constitutes a significant part of the total

conversion cost in textile industry, we need to work

on a Government - industry sharing model on power

generation.

The existing textile policy was announced in the year

2000 needs a major revamp. The comprehensive

policy should recognize the multitude of

n

n

n

Key Features of the Ordinance

25 JULY2013

The National Food Security Ordinance (NFSO) provides a legal entitlement to persons belonging to specified

households to receive specific quantities of foodgrain at subsidised prices from the state. The specifics of the

entitlement are given below:

Entitlement: 5 kg per person per month

Price: Rs 3 per kg for rice, Rs 2 per kg for wheat and Rs 1 per kg for coarse grains

Coverage: 75 per cent of the rural population and 50 per cent of the urban population, amounting to about two-

third of a population of 1.2 billion people (or 800 million people)

The poorest of poor households (who are currently covered under the Antyodaya Anna Yajna) would continue to

receive 35 kg food grains per household per month at the subsidized prices of Rs 3, Rs 2 and Rs 1.

24ECONOMY MATTERS

Parliament had begun debating the Bill in the last few

days of the Budget session, it could not be passed. While

the government has passed an ordinance, the law will be

debated in the monsoon session of Parliament which thbegan on August 5 . This note will highlight the key

features of the law and its expected welfare benefits as

well as concerns expressed by different stakeholders.

In keeping with the UPA's entitlement based approach,

the government recently promulgated an ordinance on

National Food Security. The ordinance route has been

chosen by the government even though the monsoon thsession of Parliament began on August 5 , 2013. The Bill

was originally introduced in Parliament in December

2011 and the standing committee has submitted its

recommendations. However, although members of

The National Food Security Ordinance – Benefits and Concerns

SPECIAL ARTICLE

NFSO, 67 per cent of the population will be entitled

to support without any categorisation.

Second, the AAY and BPL households are allocated

35 kg foodgrains per month while allocation to APL

households is subject to availability of food grains.

Under the NFSO, only AAY households will continue

n

Three critical differences with the existing targeted

public distribution system (TPDS) may be pointed out.

One, in the existing TPDS, there are two categories

of beneficiaries: below poverty line (BPL) including

the poorest beneficiaries under Antyodaya Anna

Yojana (AAY) and above poverty line (APL). Under

n

Source: Ace equity database & CII calculations

Financial Performance of the Textiles Industry

Net Sales (Rs billion) 640.8 750.7 963.9 1070.5 1211.4

Net sales growth (%) 8.5 17.2 28.4 11.1 13.2

Operating profit growth (%) -8.8 57.2 37.4 -13.6 30.3

PAT growth (%) -184.5 -253.6 102.5 -95.8 1088.5

Cost of raw materials and services 5.6 16.9 35.0 16.1 6.9growth (%)

Cost of interest growth (%) 45.7 9.6 15.7 41.3 13.6

2008-09 2009-10 2010-11 2011-12 2012-13

stakeholders in the entire textile value chain with

varied expectations and work to reduce the

fragmentation that has impacted the sector.

A reduced duty structure is a common suggestion.

Also, there is a need to reduce excise duty on man-

made fibres.

Create new textiles cities in the proposed Mumbai -

Delhi Industrial corridor and the new Mumbai -

Bangalore Industrial corridor.

As the garment industry will drive growth in the

textile sector, it has to play the lead role ahead. The

industry needs to move into rural areas and work

closely with State Governments for this.

Policy measures should encourage the development

of the synthetic industry. We need to look at multi-

fibre and work on a fibre neutral policy. Therefore,

there is an urgent need to announce the National

Fibre Policy to address all the areas relating to raw

material.

There is an urgent need to create a "Made in India"

Brand in Textiles to dictate the Indian story

worldwide. There is large potential in the

international market. Further disruption of textiles

production in Bangladesh and the subsequent fall in

the foreign demand of its products has given India a

comparative advantage.

In the end, industry has to come up with a code of

conduct as industry is fragmented. There is a need

for the creation of one national level apex body that

can be the nodal organization to work towards a

larger cause / common goals. This body can help in

the revamping of various sectoral and regional

textile promotion councils.

n

n

n

n

n

n

The government announced several measures to

support the textiles sector in the Union Budget 2013-14,

like extending the term of the Technology Up gradation thFund Scheme (TUFS) to the 12 Plan period with an

investment target of Rs. 1,51,000 crore, allocation of Rs.

50 crore to the Ministry of Textile to incentivize setting

up of Apparel Parks within the SITPs, a new scheme with

an outlay of Rs. 500 crore called the Integrated

Processing Development Scheme proposed to be t himplemented in the 12 Plan to address the

environmental concerns of the textile industry and

extending concessional loans to the distressed

handloom sector, amongst other measures. Further, in

the Foreign Trade Policy for 2013-14, some more

welcome steps were announced by the sector like

extension of the 2 per cent Interest Subvention Scheme

applicable to specific textile sectors such as handlooms,

readymade garments, carpets etc by one more year, i.e., stup to 31 March, 2014. However, it is important that

these measures are supplemented by some 'out of the

box' steps too. Some of the measures which CII

recommends in this regard are enumerated below:

ILO allows 50 hours overtime per month while Indian

law allows 50 hours overtime per quarter. The

Ministry of Textiles needs to work with the Labour

ministry to resolve this issue. The issue of time

flexibility also needs to be addressed.

Textile industry has been power intensive and since,

power cost constitutes a significant part of the total

conversion cost in textile industry, we need to work

on a Government - industry sharing model on power

generation.

The existing textile policy was announced in the year

2000 needs a major revamp. The comprehensive

policy should recognize the multitude of

n

n

n

Key Features of the Ordinance

27 JULY 2013

While committing such a large amount of resources

(likely to be about 1 per cent of GDP) to food security, the

government would need to ensure an efficient delivery

mechanism. While some states have done well in

targeting beneficiaries, current data suggests that there

are substantial leakages from the PDS. For example,

while the off-take of rice and wheat under PDS was 42.4

million tons in 2009-10, NSS data shows that only 25.3

million tons of PDS grains were actually consumed. This

suggests a leakage of 40.3 per cent. Although the

Ordinance contains provisions for application of ICT and

use of Aadhar, implementation on the ground remains a

challenge.

26ECONOMY MATTERS

MSP of Paddy and Wheat (Rs per quintal)

2000-01 510 540 550

2001-02 530 560 580

2002-03 550 580 610

2003-04 550 580 620 (+Rs.10 as drought relief)

2004-05 560 590 630

2005-06 570 600 640

2006-07 580 (+Rs. 40 bonus) 610 (+Rs. 40 bonus) 650 (+ Rs.50 as bonus)

2007-08 645 (+Rs. 100 bonus) 675 (+Rs. 100 bonus) Rs.750 (+Rs.100 as bonus)

2008-09 850 (+Rs. 50 bonus) 880 (+Rs. 50 bonus) 1000

2009-10 950 (+Rs. 50 bonus) 980 (+Rs. 50 bonus) 1080

2010-11 1000 1030 1100

2011-12 1080 1110 Rs.1120 (+Rs.50 as bonus)

2012-13 1250 1280 1285

2013-14 1350

Paddy - common Paddy - Grade A Wheat

to get 35 kg while all others will have a 5 kg per

person entitlement.

Third, different prices are charged to different

categories of households. Currently, the per kg

Central Issue Prices of wheat / rice are Rs 2/3 for

AAY, Rs.4.15/ 5.65 for BPL households and Rs.6.10/

8.30 for APL households respectively. Under the

new scheme, all categories will be charged a

uniform price.

One of the expected benefits from the new legislation is

that it moves the PDS away from the APL-BPL system,

which was fraught with problems of identification. It has

been noticed in recent surveys that states which gave up

the targeting principle and made the PDS as universal as

possible have been able to reduce leakages more

successfully. Currently, although all BPL households are

entitled to subsidised food grain from the PDS, much

more than half do not access the system due to lack of

proper identification. The new system will be based on

excluding the top 33 per cent of the population rather

than identifying the poor. It will, therefore, also include a

large number of people who may be above the poverty

line but still need adequate nutrition.

Further, the prices proposed under the new legislation

are highly subsidised so that it is expected to leave

additional income in the hands of beneficiaries. The price

that was earlier applicable only to AAY households will

now be applicable to all beneficiaries. CRISIL Research

has estimated that the NFSO could generate additional

annual savings of about Rs 4,400 for every BPL

household that purchases subsidised food grain,

enabling them to allocate more to other areas such as

health, education and nutritious food.

The Ordinance has a special focus on nutritional support

to women and children, which is not limited to food

rations. Pregnant women and lactating mothers will be

entitled to nutritious meals as per the prescribed

nutritional norms and also receive maternity benefit of

at least of Rs 6,000. Children in the age group of 6

months to 14 years will be entitled to take home ration or

hot cooked food as per prescribed nutritional norms.

n

Expected Benefits

2. Lack of Crop Diversification

A related concern is that food security defined purely in

terms of cereal availability will require the government

to provide incentives to farmers to keep producing

adequate quantities of grain to the detriment of other

crops. Already, this has been the trend, with the

government increasing minimum support prices (MSP)

of wheat and rice year after year (see below table). Even

so, there has not been any spectacular increase in the

production of food grain (see graph on the next page).

Children suffering from malnutrition will be entitled to

meals through the local anganwadi.

If implemented properly, there is no doubt that the

NFSO will address the concerns on hunger and

malnutrition. However, there are some serious

challenges to its implementation. The main issue is that

food distribution continues to be dependent on the

existing PDS, which is known for its inefficiency and

leakages. The NFSO will require a significant increase in

the scale of procurement and distribution of grains,

creating huge pressure on the existing infrastructure

which is already considered inadequate. Several

unintended macroeconomic consequences such as

rising food subsidy, lack of crop diversification and

increasing food inflation may also follow. We examine

these in the following section.

The food subsidy bill under NFSO is expected to increase

substantially on account of the increase in the number of

beneficiaries, lower price to beneficiaries envisaged

under the new scheme together with the need to

increase MSP to farmers to incentivise them to increase

production. The government has estimated the annual

food grain requirement under NFSO at 612.3 lakh tons

and the corresponding food subsidy at Rs 124,724 crore

for 2013-14 costs. This is higher than the estimated food

subsidy of Rs 90,000 crore in the Budget for 2013-14 and

is clearly an indication that subsidies can be expected to

rise in the coming years.

The graph below shows that food subsidy has already

been on a rising trend, having more than doubled in the

last five years and increased five times in the last ten.

Record procurements in recent years, increasing cost of

handling grains and widening difference between the

procurement cost of grains and the central issue price

have been the major factors leading to the ballooning

food subsidy. The food security legislation will

substantially increase this burden, contrary to the

Finance Ministry's intention of getting subsidies under

control.

Causes for Concern

1. Rising Food Subsidy

Rising Food Subsidy Under NFSO

1,40,000

1,20,000

1,00,000

80,000

60,000

40,000

20,000

0

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2012

-13 R

E

2013

-14 B

E

2013

-14 N

FSO

2011

-12

Rs crores

Source: Ministry of Finance, Ministry of Consumer Affairs, Food and Public DistributionNote: BE- Budget Estimates, RE- Revised Estimates

Source: Food Cooperation of India (FCI)

27 JULY 2013

While committing such a large amount of resources

(likely to be about 1 per cent of GDP) to food security, the

government would need to ensure an efficient delivery

mechanism. While some states have done well in

targeting beneficiaries, current data suggests that there

are substantial leakages from the PDS. For example,

while the off-take of rice and wheat under PDS was 42.4

million tons in 2009-10, NSS data shows that only 25.3

million tons of PDS grains were actually consumed. This

suggests a leakage of 40.3 per cent. Although the

Ordinance contains provisions for application of ICT and

use of Aadhar, implementation on the ground remains a

challenge.

26ECONOMY MATTERS

MSP of Paddy and Wheat (Rs per quintal)

2000-01 510 540 550

2001-02 530 560 580

2002-03 550 580 610

2003-04 550 580 620 (+Rs.10 as drought relief)

2004-05 560 590 630

2005-06 570 600 640

2006-07 580 (+Rs. 40 bonus) 610 (+Rs. 40 bonus) 650 (+ Rs.50 as bonus)

2007-08 645 (+Rs. 100 bonus) 675 (+Rs. 100 bonus) Rs.750 (+Rs.100 as bonus)

2008-09 850 (+Rs. 50 bonus) 880 (+Rs. 50 bonus) 1000

2009-10 950 (+Rs. 50 bonus) 980 (+Rs. 50 bonus) 1080

2010-11 1000 1030 1100

2011-12 1080 1110 Rs.1120 (+Rs.50 as bonus)

2012-13 1250 1280 1285

2013-14 1350

Paddy - common Paddy - Grade A Wheat

to get 35 kg while all others will have a 5 kg per

person entitlement.

Third, different prices are charged to different

categories of households. Currently, the per kg

Central Issue Prices of wheat / rice are Rs 2/3 for

AAY, Rs.4.15/ 5.65 for BPL households and Rs.6.10/

8.30 for APL households respectively. Under the

new scheme, all categories will be charged a

uniform price.

One of the expected benefits from the new legislation is

that it moves the PDS away from the APL-BPL system,

which was fraught with problems of identification. It has

been noticed in recent surveys that states which gave up

the targeting principle and made the PDS as universal as

possible have been able to reduce leakages more

successfully. Currently, although all BPL households are

entitled to subsidised food grain from the PDS, much

more than half do not access the system due to lack of

proper identification. The new system will be based on

excluding the top 33 per cent of the population rather

than identifying the poor. It will, therefore, also include a

large number of people who may be above the poverty

line but still need adequate nutrition.

Further, the prices proposed under the new legislation

are highly subsidised so that it is expected to leave

additional income in the hands of beneficiaries. The price

that was earlier applicable only to AAY households will

now be applicable to all beneficiaries. CRISIL Research

has estimated that the NFSO could generate additional

annual savings of about Rs 4,400 for every BPL

household that purchases subsidised food grain,

enabling them to allocate more to other areas such as

health, education and nutritious food.

The Ordinance has a special focus on nutritional support

to women and children, which is not limited to food

rations. Pregnant women and lactating mothers will be

entitled to nutritious meals as per the prescribed

nutritional norms and also receive maternity benefit of

at least of Rs 6,000. Children in the age group of 6

months to 14 years will be entitled to take home ration or

hot cooked food as per prescribed nutritional norms.

n

Expected Benefits

2. Lack of Crop Diversification

A related concern is that food security defined purely in

terms of cereal availability will require the government

to provide incentives to farmers to keep producing

adequate quantities of grain to the detriment of other

crops. Already, this has been the trend, with the

government increasing minimum support prices (MSP)

of wheat and rice year after year (see below table). Even

so, there has not been any spectacular increase in the

production of food grain (see graph on the next page).

Children suffering from malnutrition will be entitled to

meals through the local anganwadi.

If implemented properly, there is no doubt that the

NFSO will address the concerns on hunger and

malnutrition. However, there are some serious

challenges to its implementation. The main issue is that

food distribution continues to be dependent on the

existing PDS, which is known for its inefficiency and

leakages. The NFSO will require a significant increase in

the scale of procurement and distribution of grains,

creating huge pressure on the existing infrastructure

which is already considered inadequate. Several

unintended macroeconomic consequences such as

rising food subsidy, lack of crop diversification and

increasing food inflation may also follow. We examine

these in the following section.

The food subsidy bill under NFSO is expected to increase

substantially on account of the increase in the number of

beneficiaries, lower price to beneficiaries envisaged

under the new scheme together with the need to

increase MSP to farmers to incentivise them to increase

production. The government has estimated the annual

food grain requirement under NFSO at 612.3 lakh tons

and the corresponding food subsidy at Rs 124,724 crore

for 2013-14 costs. This is higher than the estimated food

subsidy of Rs 90,000 crore in the Budget for 2013-14 and

is clearly an indication that subsidies can be expected to

rise in the coming years.

The graph below shows that food subsidy has already

been on a rising trend, having more than doubled in the

last five years and increased five times in the last ten.

Record procurements in recent years, increasing cost of

handling grains and widening difference between the

procurement cost of grains and the central issue price

have been the major factors leading to the ballooning

food subsidy. The food security legislation will

substantially increase this burden, contrary to the

Finance Ministry's intention of getting subsidies under

control.

Causes for Concern

1. Rising Food Subsidy

Rising Food Subsidy Under NFSO

1,40,000

1,20,000

1,00,000

80,000

60,000

40,000

20,000

0

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2012

-13 R

E

2013

-14 B

E

2013

-14 N

FSO

2011

-12

Rs crores

Source: Ministry of Finance, Ministry of Consumer Affairs, Food and Public DistributionNote: BE- Budget Estimates, RE- Revised Estimates

Source: Food Cooperation of India (FCI)

29 JULY 2013

4. Possibility of Triggering

Imports

Conclusion

Since there will now be a legal entitlement to food, the

government will be forced to import grains if there is a

shortfall in domestic production. Of course, this is not an

immediate concern since food grain stocks are now

more than adequate to meet the requirement. The

Ministry has estimated an annual requirement of 61.2

million tons for food security while the FCI is currently

carrying a stock of over 70 million tons. The government

is currently procuring almost one-third of total

production, amounting to about 65 million tons every

year. However, given the high level of dependence of

Indian agriculture on the monsoon, the possibility of a

decline in production in a drought year is quite high. As

we have experienced earlier, when India enters the

global market for either rice or wheat, it has an adverse

impact on the price.

Implementation of the NFSO will be a real challenge in

terms of distribution and logistics. Currently, the

government is not able to distribute all the grain that it

procures, resulting in a large pile up of stocks with the

Food Corporation of India (FCI). As against a buffer stock

norm of 31.9 million tons of grain (rice & wheat) on 31

July of each year, total stock with the FCI was 73.9 million

tons as on 31 July 2013. This excess stock of over 40

million tons has resulted in higher carrying cost for the

FCI and a higher outgo on food subsidy. The FCI is also

facing an acute shortage of storage space, resulting in

high level of wastage. Investment in storage and

warehousing facilities has not kept up with the

requirement.

Given the difficulties in efficiently moving large

quantities of grain, this would have been a good time to

move away from physical distribution of food to income

transfers in the form of either conditional cash transfers

or food coupons. With the rollout of the Unique Identity/

Aadhar Numbers, the government could have

introduced direct transfer of income to beneficiaries

rather than move ahead with an enlargement of the

current procurement and distribution of grain. Such

experiments have proved to be successful in other parts

of the world, such as Latin America and East Asia, while

pilot projects in India have shown a reduction in

leakages.

The management of the food economy over the last few

years has had its consequences for the entire economy.

With food inflation remaining high, the central bank has

refused to ease monetary policy and industry has had to

pay a price. The process of growth has slowed down,

taking a toll on job creation and income generation. Even

as GDP growth slowed down to a decadal low of 5.0 per

cent in 2012-13 with industrial growth at 2.0 per cent,

inflation remained high due to the existence of supply-

side bottlenecks in the agricultural sector.

The failure to reform agriculture is now having an impact

on the entire economy. It is likely that the poor have

been hit the hardest by the rise in prices of essential

commodities together with a failure to create adequate

work opportunities.

28ECONOMY MATTERS JUNE 2013

Production of Food grains

Million Tones

270

250

230

210

190

170

150

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

2000

-01

Creals Foodgrain

Source: Ministry of Agriculture

While current production of cereals is just adequate to

meet the demands of the NFSO, future production will

have to keep increasing to meet the increasing

entitlements under the law. With the government

providing incentives by increasing the MSP of wheat and

rice, production of non-cereal crops as well as

diversification into farm-related activities such as dairy,

horticulture and poultry may suffer.

What is required is a strategy to encourage crop

diversification that would match the increasing demand

for non-cereal food items such as fruits and vegetables,

pulses, edible oils and protein-based foods. NSS data

shows that while per capita consumption of cereals is

falling, the reverse is true for non-cereal food items. This

change in dietary pattern is in line with the overall rise in

per capita incomes and is expected to continue. Without

adequate diversification into non-cereals, we may not

be able to meet the nutritional needs of our growing

population.

For the last few years, the country has been plagued by

the problem of food inflation, which has hurt the poor.

Inflation has been particularly acute in non-cereal items

where demand has exceeded supply. The WPI data

shows a high level of volatility in food categories such as

fruits, vegetables, eggs, meat and fish. The graph shows

that any permanent reduction in food inflation has not

been achieved, despite some moderation from time to

time. The NFSO could potentially aggravate this

problem by further moving resources away from non-

cereals. Thus while the poor would get access to

cheaper food grain, they would have to pay more for

non-grain items.

3. Rise in Food Inflation

Food Inflation – WPI & CPI

Source: Ministry of Commerce and Ministry of Statistics

y-o-y%

0

-5

5

10

15

20

25

Jan-

10

Mar

-10

May

-10

Jul-1

0

Sep

-10

Nov

-10

Jan-

11

Mar

-11

May

-11

Jul-1

1

Sep

-11

Nov

-11

Jan-

12

Mar

-12

May

-12

Jul-1

2

Sep

-12

Nov

-12

Jan-

13

Mar

-13

May

-13

WPI - Primary Food articles CPI - Food, Beverages and Tobacco

29 JULY 2013

4. Possibility of Triggering

Imports

Conclusion

Since there will now be a legal entitlement to food, the

government will be forced to import grains if there is a

shortfall in domestic production. Of course, this is not an

immediate concern since food grain stocks are now

more than adequate to meet the requirement. The

Ministry has estimated an annual requirement of 61.2

million tons for food security while the FCI is currently

carrying a stock of over 70 million tons. The government

is currently procuring almost one-third of total

production, amounting to about 65 million tons every

year. However, given the high level of dependence of

Indian agriculture on the monsoon, the possibility of a

decline in production in a drought year is quite high. As

we have experienced earlier, when India enters the

global market for either rice or wheat, it has an adverse

impact on the price.

Implementation of the NFSO will be a real challenge in

terms of distribution and logistics. Currently, the

government is not able to distribute all the grain that it

procures, resulting in a large pile up of stocks with the

Food Corporation of India (FCI). As against a buffer stock

norm of 31.9 million tons of grain (rice & wheat) on 31

July of each year, total stock with the FCI was 73.9 million

tons as on 31 July 2013. This excess stock of over 40

million tons has resulted in higher carrying cost for the

FCI and a higher outgo on food subsidy. The FCI is also

facing an acute shortage of storage space, resulting in

high level of wastage. Investment in storage and

warehousing facilities has not kept up with the

requirement.

Given the difficulties in efficiently moving large

quantities of grain, this would have been a good time to

move away from physical distribution of food to income

transfers in the form of either conditional cash transfers

or food coupons. With the rollout of the Unique Identity/

Aadhar Numbers, the government could have

introduced direct transfer of income to beneficiaries

rather than move ahead with an enlargement of the

current procurement and distribution of grain. Such

experiments have proved to be successful in other parts

of the world, such as Latin America and East Asia, while

pilot projects in India have shown a reduction in

leakages.

The management of the food economy over the last few

years has had its consequences for the entire economy.

With food inflation remaining high, the central bank has

refused to ease monetary policy and industry has had to

pay a price. The process of growth has slowed down,

taking a toll on job creation and income generation. Even

as GDP growth slowed down to a decadal low of 5.0 per

cent in 2012-13 with industrial growth at 2.0 per cent,

inflation remained high due to the existence of supply-

side bottlenecks in the agricultural sector.

The failure to reform agriculture is now having an impact

on the entire economy. It is likely that the poor have

been hit the hardest by the rise in prices of essential

commodities together with a failure to create adequate

work opportunities.

28ECONOMY MATTERS JUNE 2013

Production of Food grains

Million Tones

270

250

230

210

190

170

150

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

2000

-01

Creals Foodgrain

Source: Ministry of Agriculture

While current production of cereals is just adequate to

meet the demands of the NFSO, future production will

have to keep increasing to meet the increasing

entitlements under the law. With the government

providing incentives by increasing the MSP of wheat and

rice, production of non-cereal crops as well as

diversification into farm-related activities such as dairy,

horticulture and poultry may suffer.

What is required is a strategy to encourage crop

diversification that would match the increasing demand

for non-cereal food items such as fruits and vegetables,

pulses, edible oils and protein-based foods. NSS data

shows that while per capita consumption of cereals is

falling, the reverse is true for non-cereal food items. This

change in dietary pattern is in line with the overall rise in

per capita incomes and is expected to continue. Without

adequate diversification into non-cereals, we may not

be able to meet the nutritional needs of our growing

population.

For the last few years, the country has been plagued by

the problem of food inflation, which has hurt the poor.

Inflation has been particularly acute in non-cereal items

where demand has exceeded supply. The WPI data

shows a high level of volatility in food categories such as

fruits, vegetables, eggs, meat and fish. The graph shows

that any permanent reduction in food inflation has not

been achieved, despite some moderation from time to

time. The NFSO could potentially aggravate this

problem by further moving resources away from non-

cereals. Thus while the poor would get access to

cheaper food grain, they would have to pay more for

non-grain items.

3. Rise in Food Inflation

Food Inflation – WPI & CPI

Source: Ministry of Commerce and Ministry of Statistics

y-o-y%

0

-5

5

10

15

20

25

Jan-

10

Mar

-10

May

-10

Jul-1

0

Sep

-10

Nov

-10

Jan-

11

Mar

-11

May

-11

Jul-1

1

Sep

-11

Nov

-11

Jan-

12

Mar

-12

May

-12

Jul-1

2

Sep

-12

Nov

-12

Jan-

13

Mar

-13

May

-13

WPI - Primary Food articles CPI - Food, Beverages and Tobacco

30ECONOMY MATTERS

ECONOMY MONITORGLOBAL GDP (y-o-y%)

DOMESTIC 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

-0.1-0.5 -0.7 -0.9 -1.1

1Q12 2Q12 3Q12 4Q12 1Q13

Euro Area GDP Growth

3.23.9

0.2 0.4 0.4

1Q12 2Q12 3Q12 4Q12 1Q13

China GDP Growth

5.1

5.45.2

4.7 4.8

4QFY12 1QFY13 2QFY13 3QFY13 4QFY13

2.0

2.9

1.7 1.81.4

4QFY12 1QFY13 2QFY13 3QFY13 4QFY13

Agriculture

2.1

1.8

1.3

2.52.7

4QFY12 1QFY13 2QFY13 3QFY13 4QFY13

7.3

7.7 7.6

6.7 6.6

4QFY12 1QFY13 2QFY13 3QFY13 4QFY13

Services

Primary Fuel Manufacturing

General Manufacturing Electricity Mining

-2.2

3.4

1.9

Feb-13 Mar-13 Apr-13 Jun-13May-13 Feb-13 Mar-13 Apr-13 Jun-13May-13 Feb-13 Mar-13 Apr-13 Jun-13May-13 Feb-13 Mar-13 Apr-13 Jun-13May-13

2.1

4.3

2.3

-3.6

-3.2

3.5 4.2

6.2

-7.7

-2.1

-3.3

-4.1

-5.9

2.8 3.12.0

1.3 1.4

2Q12 3Q12 4Q12 1Q13 2Q13

7.6 7.4 7.9 7.7 7.5

2Q12 3Q12 4Q12 1Q13 2Q13

7.3

5.74.8 4.7 4.9

Feb-13 Mar-13 Apr-13 May-13 Jun-13

10.5

7.4

5.1

6.7

8.1

Feb-13 Mar-13 Apr-13 May-13 Jun-13Feb-13 Mar-13 Apr-13 May-13 Jun-13

10.6

7.88.3

7.3 7.14.8

4.33.7

3.12.8

Feb-13 Mar-13 Apr-13 May-13 Jun-13

31 JULY 2013

10.3

17.820.1

12.312.2

Exports (%) Imports (%) Trade Deficit (US$ Bn)

21.7

17.121.1

31.8

18.2

4QFY12 1QFY13 2QFY13 3QFY13 4QFY13

Current Account Deficit (US$ Bn) Avg Exchange Rate (Rs/US$)

EXTERNAL ACCOUNT

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%)

Feb-13 Mar-13 Apr-13 Jun-13May-13

Non-Food Credit Growth (y-o-y%) M3 Growth (y-o-y%) Repo Rate (%) Cash Reserve Ratio (%)

4.00 4.00 4.00 4.00

Net FII Flows Net FDI Flows Forex Reserves ECB flows

2.3

0.5

1.0

2.8

4QFY12 2QFY13 3QFY13

4.00

4.2

4QFY131QFY13

Core Sector Growth Cement Production Growth Steel Production GrowthCommercial VehiclesProduction Growth

-2.4

6.9

1.7

-1.1-2.9

11.0

6.9

Mar-13 Apr-13 May-13 Jul-13Jun-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13

16.114.0 14.7 15.5 14.6

Apr-13 Jun-13May-13Feb-13 Mar-13

12.4 12.512.1

12.812.5

Apr-13 Jul-13Jun-13May-13Mar-13

7.50 7.25 7.25 7.25 7.25

Mar-13 Apr-13 May-13 Jun-13 Jul-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13

2.7 2.05.2

-7.5

-3.0

Mar-13 Apr-13 May-13 Jun-13 Jul-13

2.6

1.3

2.82.12.0

292.6296.4

287.9284.6

277.2

Mar-13 Apr-13 May-13 Jun-13 Jul-13

3.22.3 2.3

0.1

Feb-13 Mar-13 Apr-13 May-13 Jun-13

3.1

8.3

5.2

2.4 2.3

Feb-13 Mar-13 Apr-13 May-13 Jun-13

0.5

6.6

1.9

4.03.4

Feb-13 Mar-13 Apr-13 May-13 Jun-13

-23.6

-7.8

11.5

2.5

-15.4

Feb-13 Mar-13 Apr-13 May-13 Jun-13

54.4 54.455.0

58.4

59.8

0.6

-1.6-2.2

0.0

-4.6

-0.4

11.6

-6.2

30ECONOMY MATTERS

ECONOMY MONITORGLOBAL GDP (y-o-y%)

DOMESTIC 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

-0.1-0.5 -0.7 -0.9 -1.1

1Q12 2Q12 3Q12 4Q12 1Q13

Euro Area GDP Growth

3.23.9

0.2 0.4 0.4

1Q12 2Q12 3Q12 4Q12 1Q13

China GDP Growth

5.1

5.45.2

4.7 4.8

4QFY12 1QFY13 2QFY13 3QFY13 4QFY13

2.0

2.9

1.7 1.81.4

4QFY12 1QFY13 2QFY13 3QFY13 4QFY13

Agriculture

2.1

1.8

1.3

2.52.7

4QFY12 1QFY13 2QFY13 3QFY13 4QFY13

7.3

7.7 7.6

6.7 6.6

4QFY12 1QFY13 2QFY13 3QFY13 4QFY13

Services

Primary Fuel Manufacturing

General Manufacturing Electricity Mining

-2.2

3.4

1.9

Feb-13 Mar-13 Apr-13 Jun-13May-13 Feb-13 Mar-13 Apr-13 Jun-13May-13 Feb-13 Mar-13 Apr-13 Jun-13May-13 Feb-13 Mar-13 Apr-13 Jun-13May-13

2.1

4.3

2.3

-3.6

-3.2

3.5 4.2

6.2

-7.7

-2.1

-3.3

-4.1

-5.9

2.8 3.12.0

1.3 1.4

2Q12 3Q12 4Q12 1Q13 2Q13

7.6 7.4 7.9 7.7 7.5

2Q12 3Q12 4Q12 1Q13 2Q13

7.3

5.74.8 4.7 4.9

Feb-13 Mar-13 Apr-13 May-13 Jun-13

10.5

7.4

5.1

6.7

8.1

Feb-13 Mar-13 Apr-13 May-13 Jun-13Feb-13 Mar-13 Apr-13 May-13 Jun-13

10.6

7.88.3

7.3 7.14.8

4.33.7

3.12.8

Feb-13 Mar-13 Apr-13 May-13 Jun-13

31 JULY 2013

10.3

17.820.1

12.312.2

Exports (%) Imports (%) Trade Deficit (US$ Bn)

21.7

17.121.1

31.8

18.2

4QFY12 1QFY13 2QFY13 3QFY13 4QFY13

Current Account Deficit (US$ Bn) Avg Exchange Rate (Rs/US$)

EXTERNAL ACCOUNT

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%)

Feb-13 Mar-13 Apr-13 Jun-13May-13

Non-Food Credit Growth (y-o-y%) M3 Growth (y-o-y%) Repo Rate (%) Cash Reserve Ratio (%)

4.00 4.00 4.00 4.00

Net FII Flows Net FDI Flows Forex Reserves ECB flows

2.3

0.5

1.0

2.8

4QFY12 2QFY13 3QFY13

4.00

4.2

4QFY131QFY13

Core Sector Growth Cement Production Growth Steel Production GrowthCommercial VehiclesProduction Growth

-2.4

6.9

1.7

-1.1-2.9

11.0

6.9

Mar-13 Apr-13 May-13 Jul-13Jun-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13

16.114.0 14.7 15.5 14.6

Apr-13 Jun-13May-13Feb-13 Mar-13

12.4 12.512.1

12.812.5

Apr-13 Jul-13Jun-13May-13Mar-13

7.50 7.25 7.25 7.25 7.25

Mar-13 Apr-13 May-13 Jun-13 Jul-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13

2.7 2.05.2

-7.5

-3.0

Mar-13 Apr-13 May-13 Jun-13 Jul-13

2.6

1.3

2.82.12.0

292.6296.4

287.9284.6

277.2

Mar-13 Apr-13 May-13 Jun-13 Jul-13

3.22.3 2.3

0.1

Feb-13 Mar-13 Apr-13 May-13 Jun-13

3.1

8.3

5.2

2.4 2.3

Feb-13 Mar-13 Apr-13 May-13 Jun-13

0.5

6.6

1.9

4.03.4

Feb-13 Mar-13 Apr-13 May-13 Jun-13

-23.6

-7.8

11.5

2.5

-15.4

Feb-13 Mar-13 Apr-13 May-13 Jun-13

54.4 54.455.0

58.4

59.8

0.6

-1.6-2.2

0.0

-4.6

-0.4

11.6

-6.2

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: info@cii.in; Web: www.cii.in

Notes

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: info@cii.in; Web: www.cii.in

Notes

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Keeps readers abreast of global & domestic

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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 Research

The 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 ecoresearch@cii.in