Only 1 Vacancy

ECONOMY MATTERSVolume 19 No. 02February 2014

Inside This Issue

Cover Story

UK Economy Growing at Fastest Rate Since 2007

Review of GDP, IIP, Inflation, Trade & BoP data

Investment Tracker

Article on Youth Unemployment by Planning Commission Officials

Article on Employment Challenges in India & Beyond by Dr. Sher S. Verick, ILO

Special Feature: Pushing Infrastructure Projects, Mr. Nirav Shah, HDFC Bank

The Employment Conundrum

Global headwinds are slowly receding, paving the way for a much better 2014 than was

earlier expected. The US economy has hit a weak spot at the beginning of 2014 probably

due to weather related disturbances but this could prove to be temporary and we could

expect it to lead the front as far as revival in global growth is concerned, going forward.

UK economy is also showing signs of posting a strong pull-back. China on the other hand

is facing the prospects of a slower growth this year. The latest government

manufacturing PMI data showed that industrial activity slipped to eight month low of

50.2 in February 2014. Going forward, the pace of recovery in China will be crucial in

lifting the global economic prospects out of the doldrums.

On the domestic front, GDP growth for the third quarter of the current fiscal came at a

subdued 4.7 per cent, eroding some of the cautious optimism that was starting to

become visible over the last two months. With elections being announced, no new

legislation or significant policy decisions can be expected due to code of conduct.

However, this is an opportune time to take care of procedural simplifications, which

would improve the ease of doing business in India and make the environment

investment friendly in order to provide a fillip to growth. Industrial output meanwhile

continued to remain in the negative territory for the third consecutive month in

December 2013. We are especially concerned about the performance of the

manufacturing sector, which continues to be in red. Negative growth of capital goods

and consumer durables sector reinforces the view that escalating interest costs have

been adversely impacting investment. Hence, we urge the Central Bank to start cutting

interest rates at the earliest.

In order to take advantage of India's demographic dividend, job opportunities have to

be created on a large scale. Further, as the share of agriculture in GDP shrinks, so should

its share in employment. Labour being rendered surplus from agriculture needs to be

absorbed in either industry or services. However, the experience so far has not been

encouraging in that employment has not increased to the extent it should have, given

the high growth rates experienced in the last decade. Hence, one of the key challenges thfor the 12 Five Year Plan will be to create employment in the non-agricultural sectors so

that the share of employment in agriculture declines in line with its share in

GDP.

Chandrajit Banerjee

Director-General, CII

1

FOREWORD

FEBRUARY 2014

Global headwinds are slowly receding, paving the way for a much better 2014 than was

earlier expected. The US economy has hit a weak spot at the beginning of 2014 probably

due to weather related disturbances but this could prove to be temporary and we could

expect it to lead the front as far as revival in global growth is concerned, going forward.

UK economy is also showing signs of posting a strong pull-back. China on the other hand

is facing the prospects of a slower growth this year. The latest government

manufacturing PMI data showed that industrial activity slipped to eight month low of

50.2 in February 2014. Going forward, the pace of recovery in China will be crucial in

lifting the global economic prospects out of the doldrums.

On the domestic front, GDP growth for the third quarter of the current fiscal came at a

subdued 4.7 per cent, eroding some of the cautious optimism that was starting to

become visible over the last two months. With elections being announced, no new

legislation or significant policy decisions can be expected due to code of conduct.

However, this is an opportune time to take care of procedural simplifications, which

would improve the ease of doing business in India and make the environment

investment friendly in order to provide a fillip to growth. Industrial output meanwhile

continued to remain in the negative territory for the third consecutive month in

December 2013. We are especially concerned about the performance of the

manufacturing sector, which continues to be in red. Negative growth of capital goods

and consumer durables sector reinforces the view that escalating interest costs have

been adversely impacting investment. Hence, we urge the Central Bank to start cutting

interest rates at the earliest.

In order to take advantage of India's demographic dividend, job opportunities have to

be created on a large scale. Further, as the share of agriculture in GDP shrinks, so should

its share in employment. Labour being rendered surplus from agriculture needs to be

absorbed in either industry or services. However, the experience so far has not been

encouraging in that employment has not increased to the extent it should have, given

the high growth rates experienced in the last decade. Hence, one of the key challenges thfor the 12 Five Year Plan will be to create employment in the non-agricultural sectors so

that the share of employment in agriculture declines in line with its share in

GDP.

Chandrajit Banerjee

Director-General, CII

1

FOREWORD

FEBRUARY 2014

Only 1 Vacancy

The Employment Conundrum

CO

NT

EN

T

Focus of the Month

In order to take advantage of

India's demographic dividend, job

opportunities have to be created

on a large scale. Further, as the

share of agriculture in GDP shrinks,

so should its share in employment.

Labour being rendered surplus

from agriculture needs to be

absorbed in either industry or

services. However, the experience

so far has not been encouraging in

t h a t e m p l o y m e n t h a s n o t

increased to the extent it should

have. In the 'Focus of the Month',

we provide an analysis of the

employment problem facing India

currently.

Inside This Issue

1 FEBRUARY 2014

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

Global Trends

04UK Economy Growing at Fastest Rate since 2007

Domestic TrendsVote-on-Account, GDP, IIP, Inflation, Trade, BoP 07

Investment Tracker

19

Economy Monitor ................................................... 47

Focus of the Month

29

Sector in FocusTravel & Tourism

23

Special Feature

45

New Investment Proposals Move Up

Youth Unemployment in India

Employment Challenges in India and Beyond

Challenge of Employment in India

Declining Participation of Women in the

Workforce: An Overview

Sunita Sanghi & A. Srija, Planning Commission

Sher S. Verick, International Labour Organisation

Alakh N. Sharma, Institute of Human Development

Sharmila Kantha, CII

Pushing Infrastructure Projects Nirav Shah, HDFC Bank

The Employment Conundrum

Only 1 Vacancy

The Employment Conundrum

CO

NT

EN

T

Focus of the Month

In order to take advantage of

India's demographic dividend, job

opportunities have to be created

on a large scale. Further, as the

share of agriculture in GDP shrinks,

so should its share in employment.

Labour being rendered surplus

from agriculture needs to be

absorbed in either industry or

services. However, the experience

so far has not been encouraging in

t h a t e m p l o y m e n t h a s n o t

increased to the extent it should

have. In the 'Focus of the Month',

we provide an analysis of the

employment problem facing India

currently.

Inside This Issue

1 FEBRUARY 2014

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

Global Trends

04UK Economy Growing at Fastest Rate since 2007

Domestic TrendsVote-on-Account, GDP, IIP, Inflation, Trade, BoP 07

Investment Tracker

19

Economy Monitor ................................................... 47

Focus of the Month

29

Sector in FocusTravel & Tourism

23

Special Feature

45

New Investment Proposals Move Up

Youth Unemployment in India

Employment Challenges in India and Beyond

Challenge of Employment in India

Declining Participation of Women in the

Workforce: An Overview

Sunita Sanghi & A. Srija, Planning Commission

Sher S. Verick, International Labour Organisation

Alakh N. Sharma, Institute of Human Development

Sharmila Kantha, CII

Pushing Infrastructure Projects Nirav Shah, HDFC Bank

The Employment Conundrum

Global Trends

Domestic Trends

Investment Tracker

UK real GDP growth was kept unchanged at 0.7 per

cent on q-o-q basis in the fourth quarter of 2013 (Q4

2013 henceforth), marking the fourth consecutive

quarterly positive growth. Accordingly, UK real GDP

grew by 1.8 per cent in 2013, its strongest rate since

2007, supported by a sharp drawdown in savings.

Meanwhile, China is facing headwinds, with the latest

government manufacturing PMI (seasonally-adjusted)

slipping to eight month low of 50.2 in February 2014

from 50.5 in January 2014. A preliminary reading of the

HSBC manufacturing PMI, a competing index too fell to

48.3 in January 2014, well into contractionary territory,

raising red flags for the economy.

GDP growth in the third quarter of the current fiscal

came at 4.7 per cent as compared to 4.4 per cent in the

previous quarter. Revival of agriculture and services

was nullified by a de-growing industry with near static

construction sector as an added worry. Adding to the

worries was the performance by the industrial sector,

whose output contracted for the third consecutive

month in December 2013, despite a supportive base

effect. Industrial output declined to 0.6 per cent in

December 2013, albeit the magnitude of decline

reduced from the -1.3 per cent print seen in the

previous month. WPI based inflation, meanwhile,

moderated to 8-month low of 5.05 per cent in January

2014 as compared to 6.2 per cent in the previous month

on the back of fall in food prices and subdued

manufacturing inflation. However, the rise in core

inflation to 3 per cent, close to the RBI's comfort

threshold, is a cause for concern.

Some positive news comes from the figures on new

investment proposals for the third quarter

(Q3FY2014), which recorded the highest level in

previous five quarters. From a level of Rs 93 thousand

crore in second quarter (Q2FY14), the new investment

proposals jumped to Rs. 146 thousand crore in Q3.

Combined with positive signals emerging from other

indicators such as improving export prospects,

declining current account deficit, reduction in

exchange rate volatility and downward trend in

inflation, jump in value of new investment proposals in

Q3 lends support to the beginning of improvement in

business sentiments. There is, however, a case for

cautious optimism, as recovery still remains fragile and

lopsided.

The travel and tourism sector holds strategic

importance in the Indian economy providing several

socio economic benefits. Provision of employment,

income and foreign exchange, development or

expansion of other industries such as agriculture,

construction, handicrafts etc. are some of the

important economic benefits provided by the tourism

sector. In addition, investments in infrastructural

facilities such as transportation, accommodation and

other tourism related services lead to an overall

development of infrastructure in the economy. India

has been witnessing steady growth in its travel and

tourism sector over the past few years. Total tourist

visits have increased at a rate of 16.3 per cent per

annum from 577 million tourists in 2008 to 1057 million

tourists in 2012. However, there are issues facing the

sector such as lack of skilled & trained manpower, lack

of focus on safety & security of tourists, provision of

adequate healthcare facilities for tourist and lack of

adequate infrastructure in the country.

Accelerating growth and expanding employment

opportunities are the goals of economic policy.

However, the growth process in the past decade has

brought about significant changes in the structure of

the Indian economy. Defying somewhat the

conventional paradigm of development, the share of

services in output has touched close to 60 per cent, a

sharp rise from the 42 per cent in early 1990s. However,

the employment shift has lagged behind shift in output.

The share of services in employment is close to only 25

per cent. In contrast, share of agriculture in

employment has remained high at around 50 per cent,

while its share in GDP has moderated sharply. Hence, thone of the key challenges for the 12 Five Year Plan will

be to create employment in the non-agricultural

sectors so that the share of employment in agriculture

declines in line with its share in GDP.

Sector in Focus: Travel & Tourism

Focus of the Month: The

Employment Conundrum

EXECUTIVE SUMMARY

3 FEBRUARY 2014

ECONOMY MATTERS

n

n

n

Keeps readers abreast of global & domestic

economic developments

Monthly Journal of top management of 8000

companies

Read by CII Members, Thought Leaders,

Diplomats, Policy Makers, MPs and other

decision makers

The Facts

n

n

n

n

n

n

n

Global Trends

Domestic Trends

Corporate Performance

Sector in Focus

Focus of the Month

Special Feature

Economy Monitor

The Coverage

CII invites full-page* Advertisements for

this flagship document at an attractive rate

of Rs 60,000 per issue and Rs 6 lakh for 12

issues.

For details and other feedback on the publication, please contact: Dr. Danish, Director- Economic ResearchConfederation of Indian Industry

The Mantosh Sondhi Centre, 23, Institutional Area, Lodi Road, New Delhi- 110003 (INDIA)Tel : +91 9650446625, Fax: +91-011-24626149; Email: danish.hashim@cii.in

Global Trends

Domestic Trends

Investment Tracker

UK real GDP growth was kept unchanged at 0.7 per

cent on q-o-q basis in the fourth quarter of 2013 (Q4

2013 henceforth), marking the fourth consecutive

quarterly positive growth. Accordingly, UK real GDP

grew by 1.8 per cent in 2013, its strongest rate since

2007, supported by a sharp drawdown in savings.

Meanwhile, China is facing headwinds, with the latest

government manufacturing PMI (seasonally-adjusted)

slipping to eight month low of 50.2 in February 2014

from 50.5 in January 2014. A preliminary reading of the

HSBC manufacturing PMI, a competing index too fell to

48.3 in January 2014, well into contractionary territory,

raising red flags for the economy.

GDP growth in the third quarter of the current fiscal

came at 4.7 per cent as compared to 4.4 per cent in the

previous quarter. Revival of agriculture and services

was nullified by a de-growing industry with near static

construction sector as an added worry. Adding to the

worries was the performance by the industrial sector,

whose output contracted for the third consecutive

month in December 2013, despite a supportive base

effect. Industrial output declined to 0.6 per cent in

December 2013, albeit the magnitude of decline

reduced from the -1.3 per cent print seen in the

previous month. WPI based inflation, meanwhile,

moderated to 8-month low of 5.05 per cent in January

2014 as compared to 6.2 per cent in the previous month

on the back of fall in food prices and subdued

manufacturing inflation. However, the rise in core

inflation to 3 per cent, close to the RBI's comfort

threshold, is a cause for concern.

Some positive news comes from the figures on new

investment proposals for the third quarter

(Q3FY2014), which recorded the highest level in

previous five quarters. From a level of Rs 93 thousand

crore in second quarter (Q2FY14), the new investment

proposals jumped to Rs. 146 thousand crore in Q3.

Combined with positive signals emerging from other

indicators such as improving export prospects,

declining current account deficit, reduction in

exchange rate volatility and downward trend in

inflation, jump in value of new investment proposals in

Q3 lends support to the beginning of improvement in

business sentiments. There is, however, a case for

cautious optimism, as recovery still remains fragile and

lopsided.

The travel and tourism sector holds strategic

importance in the Indian economy providing several

socio economic benefits. Provision of employment,

income and foreign exchange, development or

expansion of other industries such as agriculture,

construction, handicrafts etc. are some of the

important economic benefits provided by the tourism

sector. In addition, investments in infrastructural

facilities such as transportation, accommodation and

other tourism related services lead to an overall

development of infrastructure in the economy. India

has been witnessing steady growth in its travel and

tourism sector over the past few years. Total tourist

visits have increased at a rate of 16.3 per cent per

annum from 577 million tourists in 2008 to 1057 million

tourists in 2012. However, there are issues facing the

sector such as lack of skilled & trained manpower, lack

of focus on safety & security of tourists, provision of

adequate healthcare facilities for tourist and lack of

adequate infrastructure in the country.

Accelerating growth and expanding employment

opportunities are the goals of economic policy.

However, the growth process in the past decade has

brought about significant changes in the structure of

the Indian economy. Defying somewhat the

conventional paradigm of development, the share of

services in output has touched close to 60 per cent, a

sharp rise from the 42 per cent in early 1990s. However,

the employment shift has lagged behind shift in output.

The share of services in employment is close to only 25

per cent. In contrast, share of agriculture in

employment has remained high at around 50 per cent,

while its share in GDP has moderated sharply. Hence, thone of the key challenges for the 12 Five Year Plan will

be to create employment in the non-agricultural

sectors so that the share of employment in agriculture

declines in line with its share in GDP.

Sector in Focus: Travel & Tourism

Focus of the Month: The

Employment Conundrum

EXECUTIVE SUMMARY

3 FEBRUARY 2014

ECONOMY MATTERS

n

n

n

Keeps readers abreast of global & domestic

economic developments

Monthly Journal of top management of 8000

companies

Read by CII Members, Thought Leaders,

Diplomats, Policy Makers, MPs and other

decision makers

The Facts

n

n

n

n

n

n

n

Global Trends

Domestic Trends

Corporate Performance

Sector in Focus

Focus of the Month

Special Feature

Economy Monitor

The Coverage

CII invites full-page* Advertisements for

this flagship document at an attractive rate

of Rs 60,000 per issue and Rs 6 lakh for 12

issues.

For details and other feedback on the publication, please contact: Dr. Danish, Director- Economic ResearchConfederation of Indian Industry

The Mantosh Sondhi Centre, 23, Institutional Area, Lodi Road, New Delhi- 110003 (INDIA)Tel : +91 9650446625, Fax: +91-011-24626149; Email: danish.hashim@cii.in

5

was agriculture, forestry and fishing, where output fell

by 0.1 per cent, revised down from a previously

estimated 0.5 per cent increase.

The Bank of England (BoE), in its latest Inflation Report,

revised UK GDP growth forecast from 2.9 per cent to 3.4

per cent in 2014. In 2013, majority of private

consumption expenditure (PCE) growth was supported

by a sharp drawdown in savings. In case incomes don't

grow, households will find it difficult to maintain PCE

growth, which will have an adverse impact on GDP

growth. Moreover, recent gains in employment have

been due to subdued growth in productivity and lower

wage growth, which does not bode well from a longer-

term perspective.

On the output side of the economy, industrial

production growth was revised down to 0.5 per cent in

the fourth quarter from an earlier estimate of 0.7 per

cent, dragged down by falling North Sea oil and gas

output. Manufacturing sector output growth too was

revised downwards to 0.7 per cent from 0.9 per cent as

originally estimated. Mining and quarrying output too

shrank by 1.9 per cent. However, there was better news

from the construction sector, with fourth-quarter

output revised up to show growth of 0.2 per cent, rather

than the 0.3 per cent fall in last month's estimate.

The UK's service sector - which makes up more than

three-quarters of economic output - rose by 0.8 per cent

in the fourth quarter, matching its performance in the

previous quarter. The only "top level" industry to suffer

China PMI Falls to 50.2 in Latest Sign of Persisting Slowdown

February 2014 from 50.5 in January 2014, where any

number of more than 50 indicates expansion. A

preliminary reading of the HSBC manufacturing PMI, a

competing index, fell to 48.3 in January 2014, well into

contractionary territory.

A closely watched gauge of China's manufacturing

activity dropped to an eight-month low in February

2014, the latest sign of a slowdown in the country's

factory sector. The government's official purchasing

manager's index (seasonally-adjusted) fell to 50.2 in

GLOBAL TRENDS

attempts to compensate for it.

But the weaker number also points to doubts about the

strength of China's economy at a time when other

emerging markets are suffering from capital flight and

China's economic data are muddled in the first few

weeks of the year due to the Lunar New Year holiday,

when factories shut down and consumers withdraw

extra cash from the banking system. The holiday moves

around from year to year, confounding statisticians'

4ECONOMY MATTERS

GLOBAL TRENDS

UK Economy Growing at Fastest Rate since 2007

a rise in exports and business investments, was good

news for UK policymakers seeking a move away from an

economy reliant on debt-fuelled household spending.

As per the sectoral details available, consumer spending

grew by 0.4 per cent in the final three months of the

year, which was slower than the 0.9 per cent growth in

the third quarter. However, with annual growth in

consumer spending of 2.4 per cent, it was still the fastest

rate of growth since 2007. On the external front, UK's

trade position improved in the fourth quarter with the

trade deficit narrowing to £6.6 billion from £8.2 billion in

the third quarter after exports rose 0.4 per cent but

imports fell 0.9 per cent. Over 2013 as a whole, export

growth of 0.8 per cent outpaced a 0.4 per cent growth in

UK real GDP growth was kept unchanged at 0.7 per

cent on q-o-q basis in the fourth quarter of 2013

(Q4 2013 henceforth), marking the fourth consecutive

quarterly positive growth. Accordingly, UK real GDP

grew by 1.8 per cent in 2013, its strongest rate since 2007,

according to the Office for National Statistics (ONS).

Details showed a lesser dependence on consumer

spending than previous quarters, which, combined with

FEBRUARY 2014

China's Manufacturing PMI (Seasonally-Adjusted)

50.4

50.1

50.9

50.6

50.8

50.1

50.3

51.051.1

51.4 51.4

51.0

50.5

50.2

Jan/1

3

Feb/13

Mar/13

Apr/13

May/13

Jun/1

3Ju

l/13

Aug/13

Sep/13

Oct/13

Nov/13

Dec/13

Jan/1

4

Feb/14

Source: National Bureau of Statistics

Source : Office for National Statistics (ONS)

2012 2013 Q3 2013 Q4 2013

Private Consumption Expenditure 1.5 2.3 1.1 0.11

General Consumption Expenditure 1.6 0.9 0.6 0.31

Gross Capital Formation (GCF) -0.5 1.4 7.9 1.09

- Exports 1.1 0.8 -2.8 0.42

- Imports 3.1 0.4 0.7 -0.9

GDP 0.3 1.8 0.8 0.7

Major Contributors to Real GDP Growth

5

was agriculture, forestry and fishing, where output fell

by 0.1 per cent, revised down from a previously

estimated 0.5 per cent increase.

The Bank of England (BoE), in its latest Inflation Report,

revised UK GDP growth forecast from 2.9 per cent to 3.4

per cent in 2014. In 2013, majority of private

consumption expenditure (PCE) growth was supported

by a sharp drawdown in savings. In case incomes don't

grow, households will find it difficult to maintain PCE

growth, which will have an adverse impact on GDP

growth. Moreover, recent gains in employment have

been due to subdued growth in productivity and lower

wage growth, which does not bode well from a longer-

term perspective.

On the output side of the economy, industrial

production growth was revised down to 0.5 per cent in

the fourth quarter from an earlier estimate of 0.7 per

cent, dragged down by falling North Sea oil and gas

output. Manufacturing sector output growth too was

revised downwards to 0.7 per cent from 0.9 per cent as

originally estimated. Mining and quarrying output too

shrank by 1.9 per cent. However, there was better news

from the construction sector, with fourth-quarter

output revised up to show growth of 0.2 per cent, rather

than the 0.3 per cent fall in last month's estimate.

The UK's service sector - which makes up more than

three-quarters of economic output - rose by 0.8 per cent

in the fourth quarter, matching its performance in the

previous quarter. The only "top level" industry to suffer

China PMI Falls to 50.2 in Latest Sign of Persisting Slowdown

February 2014 from 50.5 in January 2014, where any

number of more than 50 indicates expansion. A

preliminary reading of the HSBC manufacturing PMI, a

competing index, fell to 48.3 in January 2014, well into

contractionary territory.

A closely watched gauge of China's manufacturing

activity dropped to an eight-month low in February

2014, the latest sign of a slowdown in the country's

factory sector. The government's official purchasing

manager's index (seasonally-adjusted) fell to 50.2 in

GLOBAL TRENDS

attempts to compensate for it.

But the weaker number also points to doubts about the

strength of China's economy at a time when other

emerging markets are suffering from capital flight and

China's economic data are muddled in the first few

weeks of the year due to the Lunar New Year holiday,

when factories shut down and consumers withdraw

extra cash from the banking system. The holiday moves

around from year to year, confounding statisticians'

4ECONOMY MATTERS

GLOBAL TRENDS

UK Economy Growing at Fastest Rate since 2007

a rise in exports and business investments, was good

news for UK policymakers seeking a move away from an

economy reliant on debt-fuelled household spending.

As per the sectoral details available, consumer spending

grew by 0.4 per cent in the final three months of the

year, which was slower than the 0.9 per cent growth in

the third quarter. However, with annual growth in

consumer spending of 2.4 per cent, it was still the fastest

rate of growth since 2007. On the external front, UK's

trade position improved in the fourth quarter with the

trade deficit narrowing to £6.6 billion from £8.2 billion in

the third quarter after exports rose 0.4 per cent but

imports fell 0.9 per cent. Over 2013 as a whole, export

growth of 0.8 per cent outpaced a 0.4 per cent growth in

UK real GDP growth was kept unchanged at 0.7 per

cent on q-o-q basis in the fourth quarter of 2013

(Q4 2013 henceforth), marking the fourth consecutive

quarterly positive growth. Accordingly, UK real GDP

grew by 1.8 per cent in 2013, its strongest rate since 2007,

according to the Office for National Statistics (ONS).

Details showed a lesser dependence on consumer

spending than previous quarters, which, combined with

FEBRUARY 2014

China's Manufacturing PMI (Seasonally-Adjusted)

50.4

50.1

50.9

50.6

50.8

50.1

50.3

51.051.1

51.4 51.4

51.0

50.5

50.2

Jan/1

3

Feb/13

Mar/13

Apr/13

May/13

Jun/1

3Ju

l/13

Aug/13

Sep/13

Oct/13

Nov/13

Dec/13

Jan/1

4

Feb/14

Source: National Bureau of Statistics

Source : Office for National Statistics (ONS)

2012 2013 Q3 2013 Q4 2013

Private Consumption Expenditure 1.5 2.3 1.1 0.11

General Consumption Expenditure 1.6 0.9 0.6 0.31

Gross Capital Formation (GCF) -0.5 1.4 7.9 1.09

- Exports 1.1 0.8 -2.8 0.42

- Imports 3.1 0.4 0.7 -0.9

GDP 0.3 1.8 0.8 0.7

Major Contributors to Real GDP Growth

7

Source : Union Budget 2014-15

Fiscal Consolidation Achieve target of 3 per cent of GDP by FY17 and always remain below that.

Current Account Deficit No room for aversion to foreign investment.

Price Stability & Growth RBI must strike balance between price stability & growth.

Financial Sector Reforms Recommendations of the Financial Sector Legislative Reforms Commission that require no change in legislation must be implemented immediately.

Infrastructure Use PPP model widely and create new financing structures.

Manufacturing Focus on manufacturing and especially on manufacturing for export. In order to achieve this waive off or rebate all taxes that go into an exported product.

Subsidies Choose subsidies that are absolutely necessary and give them only to the absolutely deserving.

Urbanisation Use new model of governance for rebuilding cities.

Skill Development Skill development must rank alongside secondary education, university education, total sanitation and universal health care in the priorities of the Government.

Centre & State Relations States should bear proportionate costs of implementing flagship programmes so that Centre can allocate more resources to central subjects.

10 Commandments of the Finance Minister

the holiday effect and persistent doubts about the

quality of China's trade data.

The PMI for large companies fell to 50.7 from 51.4 the

previous month. The gauges for small and medium-

sized enterprises showed a contraction, in line with the

preliminary reading of a separate manufacturing gauge

released on 20th February, 2014 by HSBC Holdings Plc

and Markit Economics. HSBC's Flash PMI, which is

weighted more toward smaller companies, fell to 48.3

from January's final reading of 49.5.

concerns about China's domestic financial system are

building. The central bank has been gradually moving to

tighten credit conditions, amid fears of a mounting debt

load that could destabilize the economy.

The PMI subindex for new export orders fell to 48.2

from 49.3, casting doubt on the strength of global

demand for Chinese goods. China's exports in January

rose 10.6 per cent from the same month of 2013, a

strong performance that was nevertheless muddied by

6ECONOMY MATTERS

Other Global Developments During the Month

v

v

v

v

v

v

The entire growth in real GDP in Q4 2013 was driven by higher exports, which grew at the fastest pace in three

years. Imports, on the other hand, grew more slowly, due to which net exports (exports less imports)

contributed 1.1 percentage points to real GDP growth in Q4 2013. Almost half of this positive contribution from

net exports was offset by a decline in PCE and sharp draw down in inventories.

The Consumer Price Index (CPI) in the UK grew 1.9 per cent on y-o-y basis in the first month of 2014, lower than

that in December 2013. After easing dramatically in the last quarter of 2013, inflation is unlikely to diverge

sharply from the official target this year. The largest negative contribution came from 'recreation & culture',

wherein inflation halved to 0.4 per cent last month, marking its lowest level since June 2012. On the other hand,

the contribution of 'miscellaneous items'-especially personal care products and a range of insurance products-

to inflation increased in January 2014.

As per flash estimates, headline inflation in Euro Zone was stable at 0.8 per cent on y-o-y basis in February 2014,

marking the same level for third consecutive month. While inflation in volatile items such as-food & energy-

eased further last month, inflation in non-volatile items such as services and non-energy industrial goods picked

up. Consequently, core inflation moved up from 0.8 per cent in January to 1.0 per cent in February 2014, the

highest level in six months.

US real GDP for the fourth quarter of 2013 was revised downwards to 2.4 per cent from the 3.2 per cent advance

estimate released in January 2014.

Fed Chairperson Yellen, in her testimony to the US Senate, reiterated that the Fed is likely to continue tapering

asset purchases at a "measured" pace. She added that if there's a significant weakening of economic

conditions, the Fed would be "open to reconsidering" the pace of taper.

China's inflation rate remained subdued in January 2014, despite rising food prices during the New Year

celebrations. Consumer prices held steady at 2.5 per cent on y-o-y basis from a year earlier. The National Bureau

of Statistics said there was a 3.7 per cent rise in food prices during the month, which included both the Western

and Chinese New Years. China's inflation has slowed markedly since 2011, when the annual consumer price

index spiked to 5.4 per cent.

German real GDP grew 0.4 per cent on q-o-q basis in Q4 2013, higher than the market consensus of 0.3 per cent.

FEBRUARY 2014

Vote-on-Account Analysis

is down and inflation is above the comfort zone. Under

these circumstances, the Finance Minister attempted a

fine balance to provide a fillip to economy and

manufacturing, revive the 'feel good factor', while

keeping the fiscal deficit under check. What is also

commendable is the 10-point vision (see below table)

laid out by the Finance Minister, which besides dwelling

on the reduction in the twin deficits, provides emphasis

to a balanced monetary policy, implementation of

infrastructure projects and development of cities.

The Vote-on-Account, which was presented by the thFinance Minister in the Parliament on 17 February

2014, came at a time when the economy continues to be

in the midst of a slowdown, the manufacturing sector is

showing a subdued performance, investment sentiment

DOMESTIC TRENDSGLOBAL TRENDS

7

Source : Union Budget 2014-15

Fiscal Consolidation Achieve target of 3 per cent of GDP by FY17 and always remain below that.

Current Account Deficit No room for aversion to foreign investment.

Price Stability & Growth RBI must strike balance between price stability & growth.

Financial Sector Reforms Recommendations of the Financial Sector Legislative Reforms Commission that require no change in legislation must be implemented immediately.

Infrastructure Use PPP model widely and create new financing structures.

Manufacturing Focus on manufacturing and especially on manufacturing for export. In order to achieve this waive off or rebate all taxes that go into an exported product.

Subsidies Choose subsidies that are absolutely necessary and give them only to the absolutely deserving.

Urbanisation Use new model of governance for rebuilding cities.

Skill Development Skill development must rank alongside secondary education, university education, total sanitation and universal health care in the priorities of the Government.

Centre & State Relations States should bear proportionate costs of implementing flagship programmes so that Centre can allocate more resources to central subjects.

10 Commandments of the Finance Minister

the holiday effect and persistent doubts about the

quality of China's trade data.

The PMI for large companies fell to 50.7 from 51.4 the

previous month. The gauges for small and medium-

sized enterprises showed a contraction, in line with the

preliminary reading of a separate manufacturing gauge

released on 20th February, 2014 by HSBC Holdings Plc

and Markit Economics. HSBC's Flash PMI, which is

weighted more toward smaller companies, fell to 48.3

from January's final reading of 49.5.

concerns about China's domestic financial system are

building. The central bank has been gradually moving to

tighten credit conditions, amid fears of a mounting debt

load that could destabilize the economy.

The PMI subindex for new export orders fell to 48.2

from 49.3, casting doubt on the strength of global

demand for Chinese goods. China's exports in January

rose 10.6 per cent from the same month of 2013, a

strong performance that was nevertheless muddied by

6ECONOMY MATTERS

Other Global Developments During the Month

v

v

v

v

v

v

The entire growth in real GDP in Q4 2013 was driven by higher exports, which grew at the fastest pace in three

years. Imports, on the other hand, grew more slowly, due to which net exports (exports less imports)

contributed 1.1 percentage points to real GDP growth in Q4 2013. Almost half of this positive contribution from

net exports was offset by a decline in PCE and sharp draw down in inventories.

The Consumer Price Index (CPI) in the UK grew 1.9 per cent on y-o-y basis in the first month of 2014, lower than

that in December 2013. After easing dramatically in the last quarter of 2013, inflation is unlikely to diverge

sharply from the official target this year. The largest negative contribution came from 'recreation & culture',

wherein inflation halved to 0.4 per cent last month, marking its lowest level since June 2012. On the other hand,

the contribution of 'miscellaneous items'-especially personal care products and a range of insurance products-

to inflation increased in January 2014.

As per flash estimates, headline inflation in Euro Zone was stable at 0.8 per cent on y-o-y basis in February 2014,

marking the same level for third consecutive month. While inflation in volatile items such as-food & energy-

eased further last month, inflation in non-volatile items such as services and non-energy industrial goods picked

up. Consequently, core inflation moved up from 0.8 per cent in January to 1.0 per cent in February 2014, the

highest level in six months.

US real GDP for the fourth quarter of 2013 was revised downwards to 2.4 per cent from the 3.2 per cent advance

estimate released in January 2014.

Fed Chairperson Yellen, in her testimony to the US Senate, reiterated that the Fed is likely to continue tapering

asset purchases at a "measured" pace. She added that if there's a significant weakening of economic

conditions, the Fed would be "open to reconsidering" the pace of taper.

China's inflation rate remained subdued in January 2014, despite rising food prices during the New Year

celebrations. Consumer prices held steady at 2.5 per cent on y-o-y basis from a year earlier. The National Bureau

of Statistics said there was a 3.7 per cent rise in food prices during the month, which included both the Western

and Chinese New Years. China's inflation has slowed markedly since 2011, when the annual consumer price

index spiked to 5.4 per cent.

German real GDP grew 0.4 per cent on q-o-q basis in Q4 2013, higher than the market consensus of 0.3 per cent.

FEBRUARY 2014

Vote-on-Account Analysis

is down and inflation is above the comfort zone. Under

these circumstances, the Finance Minister attempted a

fine balance to provide a fillip to economy and

manufacturing, revive the 'feel good factor', while

keeping the fiscal deficit under check. What is also

commendable is the 10-point vision (see below table)

laid out by the Finance Minister, which besides dwelling

on the reduction in the twin deficits, provides emphasis

to a balanced monetary policy, implementation of

infrastructure projects and development of cities.

The Vote-on-Account, which was presented by the thFinance Minister in the Parliament on 17 February

2014, came at a time when the economy continues to be

in the midst of a slowdown, the manufacturing sector is

showing a subdued performance, investment sentiment

DOMESTIC TRENDSGLOBAL TRENDS

9

expenditure compression needs to be kept in mind.

Capital expenditure needs to be kept robust in order to

revive the sagging investor sentiments while aiming for

a compression on the revenue front. Encouragingly, in

2014-15, capital expenditure is budgeted to grow at 11.7

per cent as compared to 10.8 per cent growth in revenue

expenditure. However, the share of revenue

expenditure in total expenditure is still dominant as

compared to that of capital expenditure.

Plan expenditure is budgeted to rise by 16.8 per cent in

2014-15, led by increase in both plan revenue and capital

components. Plan revenue expenditure is expected to

grow by 18.9 per cent whereas plan capital expenditure

would register a growth of 9.0 per cent in 2014-15.

Though, the fiscal deficit as a per cent of GDP is

budgeted to moderate in 2014-15 underpinned by a

moderation in non-plan expenditure, the nature of

Source : Union Budget 2014-15

2013-14 (RE) over 2013-14 (BE) 2014-15 (BE) over 2013-14 (RE)

Food Subsidy 2.2 25.0

Fertiliser Subsidy 3.0 0.0

Petroleum Subsidy 31.5 -25.8

Other Subsidy -7.9 -55.2

Total Subsides 10.6 0.1

Subsides Outgo (%)

Source: Union Budget 2014-15

2013-14 (RE) over 2013-14 (BE) 2014-15 (BE) over 2013-14 (RE)

NON-PLAN EXPENDITURE 0.4 8.3

Revenue Account 3.5 7.8

Capital Account -25.5 14.8

PLAN EXPENDITURE -14.4 16.8

On Revenue Account -16.1 18.9

On Capital Account -7.5 9.0

Total Capital Expenditure -16.7 11.7

Total Revenue Expenditure -2.6 10.8

Total Expenditure -4.5 10.9

Expenditure of Government (%)

on the other hand was almost half that of the budgeted

levels. Under gross tax revenue, corporation tax growth

contracted by 6.2 per cent, while excise duty growth

also contracted, albeit by a smaller clip as per revised

estimates of 2013-14 over the budgeted estimates.

Customs duty growth declined by 6.5 per cent over the

same period. Sluggish macroeconomic growth, global

headwinds and lower corporate profitability all resulted

in muted tax collections in 2013-14.

As far as the revenue side is concerned, economic

downturn has dented government's revenue flow quite

severely. Revenue receipts declined by 2.6 per cent in

2013-14 as compared to the budget estimates

underpinned by 6.2 per cent contraction in tax revenue.

It's pertinent to note however that non-tax revenue

increased by 12.2 per cent due to the money garnered

from the recent spectrum sales. Disinvestment revenue

8ECONOMY MATTERS

compared to the budgeted estimate of 4.8 per cent. We

are however worried by the nature of this deficit

compression. The fine-print of the budget reveals that

bulk of the reduction in fiscal deficit has been achieved

by cutting of plan expenditure, which is inimical for the

pickup in growth. Moreover, as per the recently released

data by CGA, fiscal deficit has touched 101.6 percent of

the full year target during April-January FY14 compared

with 89.4 percent at the same point a year ago. This has

made the probability of the FM compressing the plan

expenditure in order to meet his budget commitment of

keeping the deficit at 4.6 per cent of GDP more

probable.

Presenting the last budget of the current incumbent

UPA government, Finance Minister, while refrained

from announcing any major changes in direct tax rates,

tinkered with the indirect tax rates in order to prop up

the growth of certain ailing sectors. CII is happy with the

announcement of cutting of the excise duty on various

segments of automobile, capital and consumer non-

durables sectors. This is expected to help these sectors

get back on the growth track in months to come.

The fiscal deficit of the central government for 2013-14

has been re-estimated at 4.6 per cent of GDP as

1.3

3.04.2 3.7

5.2 4.9 5.2 5.32.5

5.4

6.5

4.8

5.7

4.9

4.6

5.1

7

6

5

4

3

2

1

0

FY08 FY09 FY10 FY11 FY12 FY13 FY14 (RE)

FY15 (BE)

Gross Fiscal Deficit (Rs Trillion) Fiscal Deficit/GDP (%)

Fiscal Deficit

Source: Union Budget 2014-15 Note: BE- Budget Estimates, RE – Revised Estimates

rollover in fertilizer and petroleum subsidies to the tune

of about Rs 650 billion. Under subsides, the biggest

breach came on the fuel subsidy front, as it grew by 31.5

per cent in 2013-14 as compared to a decline budgeted to

the tune of 33 per cent. For 2014-15, non-plan

expenditure is budgeted to grow by 8.3 per cent; bulk of

increase will come from food subsidy, which is budgeted

to record the maximum jump to the tune of 25 per cent,

in order to account for the implementation of the

National Food Security Act throughout the country. In

contrast, fuel subsidy is budgeted to decline by 25.8 per

cent over the revised estimates of 2013-14.

According to the revised estimates for 2013-14, total

expenditure recorded a decline to the tune of 4.5 per

cent as per the revised estimates of 2013-14 compared

with the budgeted estimates. Bulk of the decline in total

expenditure was due to contraction in plan expenditure

to the tune of 14.4 per cent. Continuous reduction in

plan expenditure (by Rs 2.1 trillion vis-à-vis budgeted

levels over the past 3 years) can dent the country's

growth potential. In contrast, non-plan expenditure

grew by 0.4 per cent as per the revised estimates of 2013-

14 over the budgeted estimates. Out of the non-plan

expenditure, total subsidies rose to 2.3 per cent of GDP

compared to budgeted 2 per cent. This was despite the

DOMESTIC TRENDS

FEBRUARY 2014

DOMESTIC TRENDS

9

expenditure compression needs to be kept in mind.

Capital expenditure needs to be kept robust in order to

revive the sagging investor sentiments while aiming for

a compression on the revenue front. Encouragingly, in

2014-15, capital expenditure is budgeted to grow at 11.7

per cent as compared to 10.8 per cent growth in revenue

expenditure. However, the share of revenue

expenditure in total expenditure is still dominant as

compared to that of capital expenditure.

Plan expenditure is budgeted to rise by 16.8 per cent in

2014-15, led by increase in both plan revenue and capital

components. Plan revenue expenditure is expected to

grow by 18.9 per cent whereas plan capital expenditure

would register a growth of 9.0 per cent in 2014-15.

Though, the fiscal deficit as a per cent of GDP is

budgeted to moderate in 2014-15 underpinned by a

moderation in non-plan expenditure, the nature of

Source : Union Budget 2014-15

2013-14 (RE) over 2013-14 (BE) 2014-15 (BE) over 2013-14 (RE)

Food Subsidy 2.2 25.0

Fertiliser Subsidy 3.0 0.0

Petroleum Subsidy 31.5 -25.8

Other Subsidy -7.9 -55.2

Total Subsides 10.6 0.1

Subsides Outgo (%)

Source: Union Budget 2014-15

2013-14 (RE) over 2013-14 (BE) 2014-15 (BE) over 2013-14 (RE)

NON-PLAN EXPENDITURE 0.4 8.3

Revenue Account 3.5 7.8

Capital Account -25.5 14.8

PLAN EXPENDITURE -14.4 16.8

On Revenue Account -16.1 18.9

On Capital Account -7.5 9.0

Total Capital Expenditure -16.7 11.7

Total Revenue Expenditure -2.6 10.8

Total Expenditure -4.5 10.9

Expenditure of Government (%)

on the other hand was almost half that of the budgeted

levels. Under gross tax revenue, corporation tax growth

contracted by 6.2 per cent, while excise duty growth

also contracted, albeit by a smaller clip as per revised

estimates of 2013-14 over the budgeted estimates.

Customs duty growth declined by 6.5 per cent over the

same period. Sluggish macroeconomic growth, global

headwinds and lower corporate profitability all resulted

in muted tax collections in 2013-14.

As far as the revenue side is concerned, economic

downturn has dented government's revenue flow quite

severely. Revenue receipts declined by 2.6 per cent in

2013-14 as compared to the budget estimates

underpinned by 6.2 per cent contraction in tax revenue.

It's pertinent to note however that non-tax revenue

increased by 12.2 per cent due to the money garnered

from the recent spectrum sales. Disinvestment revenue

8ECONOMY MATTERS

compared to the budgeted estimate of 4.8 per cent. We

are however worried by the nature of this deficit

compression. The fine-print of the budget reveals that

bulk of the reduction in fiscal deficit has been achieved

by cutting of plan expenditure, which is inimical for the

pickup in growth. Moreover, as per the recently released

data by CGA, fiscal deficit has touched 101.6 percent of

the full year target during April-January FY14 compared

with 89.4 percent at the same point a year ago. This has

made the probability of the FM compressing the plan

expenditure in order to meet his budget commitment of

keeping the deficit at 4.6 per cent of GDP more

probable.

Presenting the last budget of the current incumbent

UPA government, Finance Minister, while refrained

from announcing any major changes in direct tax rates,

tinkered with the indirect tax rates in order to prop up

the growth of certain ailing sectors. CII is happy with the

announcement of cutting of the excise duty on various

segments of automobile, capital and consumer non-

durables sectors. This is expected to help these sectors

get back on the growth track in months to come.

The fiscal deficit of the central government for 2013-14

has been re-estimated at 4.6 per cent of GDP as

1.3

3.04.2 3.7

5.2 4.9 5.2 5.32.5

5.4

6.5

4.8

5.7

4.9

4.6

5.1

7

6

5

4

3

2

1

0

FY08 FY09 FY10 FY11 FY12 FY13 FY14 (RE)

FY15 (BE)

Gross Fiscal Deficit (Rs Trillion) Fiscal Deficit/GDP (%)

Fiscal Deficit

Source: Union Budget 2014-15 Note: BE- Budget Estimates, RE – Revised Estimates

rollover in fertilizer and petroleum subsidies to the tune

of about Rs 650 billion. Under subsides, the biggest

breach came on the fuel subsidy front, as it grew by 31.5

per cent in 2013-14 as compared to a decline budgeted to

the tune of 33 per cent. For 2014-15, non-plan

expenditure is budgeted to grow by 8.3 per cent; bulk of

increase will come from food subsidy, which is budgeted

to record the maximum jump to the tune of 25 per cent,

in order to account for the implementation of the

National Food Security Act throughout the country. In

contrast, fuel subsidy is budgeted to decline by 25.8 per

cent over the revised estimates of 2013-14.

According to the revised estimates for 2013-14, total

expenditure recorded a decline to the tune of 4.5 per

cent as per the revised estimates of 2013-14 compared

with the budgeted estimates. Bulk of the decline in total

expenditure was due to contraction in plan expenditure

to the tune of 14.4 per cent. Continuous reduction in

plan expenditure (by Rs 2.1 trillion vis-à-vis budgeted

levels over the past 3 years) can dent the country's

growth potential. In contrast, non-plan expenditure

grew by 0.4 per cent as per the revised estimates of 2013-

14 over the budgeted estimates. Out of the non-plan

expenditure, total subsidies rose to 2.3 per cent of GDP

compared to budgeted 2 per cent. This was despite the

DOMESTIC TRENDS

FEBRUARY 2014

DOMESTIC TRENDS

in April-December 2013. Private consumption

expenditure growth moderated to 2.5 per cent in the

third quarter from 3.0 per cent in the previous quarter.

Mirroring the rise in government expenditure,

government consumption growth accelerated to 4.0

per cent from low of 1.5 per cent.

Demand side measure of GDP growth at 4.6 per cent

matched that of supply side measure. Oddly this was

supported largely by government spending.

Investment continued to be weak and gross fixed

capital formation contracted by an average of 1 per cent

11

manufacturing and came out with strong steps in the

interim budget. For industry, the two issues of concern

were revival in growth, particularly manufacturing, and

fiscal consolidation. The interim budget delivers on both

fronts. It also sets a solid foundation for the next

government's finances.

In an election year, where the regular budget is to be

presented by a new Government, Vote-on-Account was

not expected to come out with any major policy

announcements. That said, however, industry is pleased

that the Finance Minister took note of the urgent need

to counter slowdown in growth, investments and

10ECONOMY MATTERS

per cent for the full year, the fourth quarter growth

should come above 5 per cent. And if it happens, it will

be the first above 5 per cent quarterly growth rate in

seven consecutive quarters. As per the advance

estimates, agriculture growth is expected to come at

4.6 per cent, while industrial sector growth will be

lacklustre at 0.7 per cent in 2013-14. Services sector

growth will remain almost unchanged from last year at

6.9 per cent.

GDP growth in the third quarter of the current fiscal

came at 4.7 per cent as compared to 4.4 per cent in the

previous quarter. Revival of agriculture and services was

nullified by a de-growing industry with near static

construction sector as an added worry. With this, the

GDP growth in the first three quarters (April-December

2013) stands at 4.5 per cent. Interestingly, in order to

match the recently released advance estimates of 4.9

FY 13 FY14 (AE)

(-1.6 per cent), manufacturing (-1.9 per cent) and

electricity (5 per cent) are broadly in line with the IIP

estimates seen so far. Services sector growth increased

to 7.6 per cent in the third quarter as compared to 6.0

per cent in the previous quarter driven by robust growth

in its 'financing, insurance, real estate & business

services' sub sectors. Community, social & personal

services sector growth also galloped to 7.0 per cent due

to rise in government consumption expenditure.

In the third quarter, agricultural growth came lower-

than-expected at 3.6 per cent, despite a low base of last

year and the fact that third quarter is usually a strong

farm growth quarter as most of the Kharif crop comes

on stream then. This implies the fourth quarter would

have to register very strong growth for the annual target

to be met, which looks unlikely at the moment. Within

industry, the trajectory of construction is worrying at 0.6

per cent. Other components of industry, namely, mining

DOMESTIC TRENDS

FEBRUARY 2014

Source : CSO

(y-o-y%) Q3FY13 Q1FY14 Q2FY14 Q3FY14

GDP at factor cost 4.4 4.4 4.4 4.7

Agriculture 0.8 2.7 4.6 3.6

Industry 1.7 0.2 2.3 -0.7

Services 6.9 6.7 6.0 7.6

Mining & quarrying -2.0 -2.8 -0.4 -1.6

Manufacturing 2.5 -1.2 1.0 -1.9

Construction 1.0 2.8 4.3 0.6

Electricity, gas & water supply 2.6 3.7 7.7 5.0

Trade, hotels, transport & communication 5.9 3.9 4.0 4.3

Financing, insurance, real estate & 10.2 8.9 10.0 12.5business services

Community, social & personal services 4.0 9.4 4.2 7.0

Supply-Side of Real GDP

Source : CSO

(y-o-y%) Q3FY13 Q1FY14 Q2FY14 Q3FY14

GDP at market prices 5.3 2.4 5.6 4.6

Private Consumption 5.1 1.9 3.0 2.5

Govt. Consumption 4.5 9.6 1.5 4.0

Fixed Investment 4.4 -3.7 1.8 -1.1

Exports -1.7 -1.2 14.8 11.4

Imports 3.6 2.6 2.1 -3.8

Demand-Side of Real GDP

DOMESTIC TRENDS

Source: Union Budget 2014-15

2013-14 (RE) over 2013-14 (BE) 2014-15 (BE) over 2013-14 (RE)

Revenue Receipts -2.6 13.4

-Tax Revenue -6.2 19.0

Corporate Tax -6.2 14.6

Income Tax -2.4 26.8

Customs Duty -6.5 15.0

Union Excise Duties 1.7 11.7

Service Tax -8.4 30.7

- Non-Tax Revenue 12.1 -6.5

Growth in Government Receipts (%)

GDP Growth Remains Weak in 3QFY14

4.54.9

1.4

4.6

1.00.7

7.0 6.9

FY 13 FY14 (AE) FY 13 FY14 (AE) FY 13 FY14 (AE)

Total GDP Agriculture Industry Services

y-o-y%

GDP Expected at 4.9 per cent in 2013-14

Source : CSO

in April-December 2013. Private consumption

expenditure growth moderated to 2.5 per cent in the

third quarter from 3.0 per cent in the previous quarter.

Mirroring the rise in government expenditure,

government consumption growth accelerated to 4.0

per cent from low of 1.5 per cent.

Demand side measure of GDP growth at 4.6 per cent

matched that of supply side measure. Oddly this was

supported largely by government spending.

Investment continued to be weak and gross fixed

capital formation contracted by an average of 1 per cent

11

manufacturing and came out with strong steps in the

interim budget. For industry, the two issues of concern

were revival in growth, particularly manufacturing, and

fiscal consolidation. The interim budget delivers on both

fronts. It also sets a solid foundation for the next

government's finances.

In an election year, where the regular budget is to be

presented by a new Government, Vote-on-Account was

not expected to come out with any major policy

announcements. That said, however, industry is pleased

that the Finance Minister took note of the urgent need

to counter slowdown in growth, investments and

10ECONOMY MATTERS

per cent for the full year, the fourth quarter growth

should come above 5 per cent. And if it happens, it will

be the first above 5 per cent quarterly growth rate in

seven consecutive quarters. As per the advance

estimates, agriculture growth is expected to come at

4.6 per cent, while industrial sector growth will be

lacklustre at 0.7 per cent in 2013-14. Services sector

growth will remain almost unchanged from last year at

6.9 per cent.

GDP growth in the third quarter of the current fiscal

came at 4.7 per cent as compared to 4.4 per cent in the

previous quarter. Revival of agriculture and services was

nullified by a de-growing industry with near static

construction sector as an added worry. With this, the

GDP growth in the first three quarters (April-December

2013) stands at 4.5 per cent. Interestingly, in order to

match the recently released advance estimates of 4.9

FY 13 FY14 (AE)

(-1.6 per cent), manufacturing (-1.9 per cent) and

electricity (5 per cent) are broadly in line with the IIP

estimates seen so far. Services sector growth increased

to 7.6 per cent in the third quarter as compared to 6.0

per cent in the previous quarter driven by robust growth

in its 'financing, insurance, real estate & business

services' sub sectors. Community, social & personal

services sector growth also galloped to 7.0 per cent due

to rise in government consumption expenditure.

In the third quarter, agricultural growth came lower-

than-expected at 3.6 per cent, despite a low base of last

year and the fact that third quarter is usually a strong

farm growth quarter as most of the Kharif crop comes

on stream then. This implies the fourth quarter would

have to register very strong growth for the annual target

to be met, which looks unlikely at the moment. Within

industry, the trajectory of construction is worrying at 0.6

per cent. Other components of industry, namely, mining

DOMESTIC TRENDS

FEBRUARY 2014

Source : CSO

(y-o-y%) Q3FY13 Q1FY14 Q2FY14 Q3FY14

GDP at factor cost 4.4 4.4 4.4 4.7

Agriculture 0.8 2.7 4.6 3.6

Industry 1.7 0.2 2.3 -0.7

Services 6.9 6.7 6.0 7.6

Mining & quarrying -2.0 -2.8 -0.4 -1.6

Manufacturing 2.5 -1.2 1.0 -1.9

Construction 1.0 2.8 4.3 0.6

Electricity, gas & water supply 2.6 3.7 7.7 5.0

Trade, hotels, transport & communication 5.9 3.9 4.0 4.3

Financing, insurance, real estate & 10.2 8.9 10.0 12.5business services

Community, social & personal services 4.0 9.4 4.2 7.0

Supply-Side of Real GDP

Source : CSO

(y-o-y%) Q3FY13 Q1FY14 Q2FY14 Q3FY14

GDP at market prices 5.3 2.4 5.6 4.6

Private Consumption 5.1 1.9 3.0 2.5

Govt. Consumption 4.5 9.6 1.5 4.0

Fixed Investment 4.4 -3.7 1.8 -1.1

Exports -1.7 -1.2 14.8 11.4

Imports 3.6 2.6 2.1 -3.8

Demand-Side of Real GDP

DOMESTIC TRENDS

Source: Union Budget 2014-15

2013-14 (RE) over 2013-14 (BE) 2014-15 (BE) over 2013-14 (RE)

Revenue Receipts -2.6 13.4

-Tax Revenue -6.2 19.0

Corporate Tax -6.2 14.6

Income Tax -2.4 26.8

Customs Duty -6.5 15.0

Union Excise Duties 1.7 11.7

Service Tax -8.4 30.7

- Non-Tax Revenue 12.1 -6.5

Growth in Government Receipts (%)

GDP Growth Remains Weak in 3QFY14

4.54.9

1.4

4.6

1.00.7

7.0 6.9

FY 13 FY14 (AE) FY 13 FY14 (AE) FY 13 FY14 (AE)

Total GDP Agriculture Industry Services

y-o-y%

GDP Expected at 4.9 per cent in 2013-14

Source : CSO

13

WPI Inflation Slips to 8-month Low in January 2014

months, moderated sharply to 16.6 per cent in January

2014 after it hit record high of 97.7 per cent in

November-2013. The momentum indicator indicated by

the seasonally-adjusted month-on-month series slipped

into the negative territory during the reporting month.

To be sure, consumer prices based inflation (CPI) too

eased sharply to 2-year low of 8.8 per cent in January

2014 as compared to 9.9 per cent in the previous month.

WPI based inflation moderated to 8-month low of 5.05

per cent in January 2014 as compared to 6.2 per cent in

the previous month on the back of fall in food prices and

subdued manufacturing inflation. However, the rise in

core inflation to 3 per cent, close to the RBI's comfort

threshold, is a cause for concern. Amongst the food

prices, vegetable prices which have been the main

driver behind pushing overall WPI higher in the last few

has now remained in red since the starting of the current

fiscal. Such a poor performance by the sector is a

matter of concern as it is widely regarded as a proxy for

consumption growth. Non-durables on the other hand

remained in the positive territory, albeit showing a

downward trend in December 2013 as compared to

November 2013. Going ahead, we expect recovery in

this component as good agricultural GDP this year will

support rural demand, which will prop up non-durables

even if urban demand remains weak.

On the use based front, the consistently volatile capital

goods segment output declined by 3.0 per cent during

the month. Consumer goods remain a drag on overall IP

growth primarily led by the continuing weakness in the

durables goods sector. During the reporting month,

consumer goods output declined for the third

consecutive month to 5.3 per cent in December 2013 as

compared to -8.8 per cent in the previous month. It's

pertinent to note here that output of consumer

durables, one of the sub-sectors of consumer goods,

manufacturing, capital and consumer goods. However,

on a positive note, the sequential momentum as

indicated by the movement in the seasonally-adjusted

month-on-month series moved into the positive

territory in during the month. On a cumulative basis, for

the first nine months of the fiscal, industrial output has

now contracted by 0.1 per cent as compared with a

growth of 0.7 per cent during the same period last year.

Industrial sector output contracted for the third

consecutive month in December 2013, despite a

supportive base effect. Industrial output declined to 0.6

per cent in December 2013, albeit the magnitude of

decline reduced from the -1.3 per cent print seen in the

previous month. The decline in IIP during the month was

underpinned by contraction in its sub-sectors such as

12ECONOMY MATTERS

equipment & apparatus' showed the highest negative

growth of (-) 35.7 per cent, followed by (-) 26.1 per cent

in 'Furniture; manufacturing' and (-) 22.1 per cent in

'Office, accounting & computing machinery'. Mining

sector output which has declined by 1.8 per cent in the

year till date so far, remained in the positive territory for

the second consecutive month, growing by 0.4 per cent

in December 2013 as compared to contraction of 3.1 per

cent in the previous month. Barring a few intermittent

months, electricity sector growth has remained on a

strong footing this fiscal, growing at an average 5.6 per

cent in April-December 2013.

On the sectoral front, manufacturing sector, which

constitutes over 75 per cent of the index, declined by 1.6

per cent in December 2013 as against a contraction of

0.8 per cent a year ago. This is the sixth negative data

print of manufacturing output so far in this fiscal and has

elevated the upside risks to growth. In terms of

industries, eight (8) out of the twenty two (22) industry

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

sector showed negative growth during the month of

December 2013 as compared to the corresponding

month of the previous year of manufacturing sector.

The industry group 'Radio, TV and communication

Industrial Production Continues to Remain in a Weak Zone

DOMESTIC TRENDS

FEBRUARY 2014

Apr-Dec

Weight Dec-12 Oct-13 Nov-13 Dec-13 FY13 FY14

General 1000.0 -0.6 -1.6 -1.3 -0.6 0.7 -0.1

Manufacturing 755.3 -0.8 -1.8 -2.7 -1.6 0.7 -0.6

Mining 141.6 -3.1 -3.2 1.7 0.4 -1.8 -1.8

Electricity 103.2 5.2 1.3 6.3 7.5 4.5 5.6

Use-Based

Basic 456.8 2.2 -1.4 2.7 2.4 2.7 1.3

Capital 88.3 -1.1 2.4 -0.1 -3.0 -10.1 -0.5

Intermediates 156.9 -0.2 2.2 3.4 4.5 1.6 3.0

Consumer Goods 298.1 -3.6 -4.9 -8.8 -5.3 2.7 -3.0

-Durables 84.6 -8.1 -12.1 -21.5 -16.2 3.7 -12.9

-Non durables 213.5 -0.5 2.2 2.1 1.6 1.8 5.7

Sectoral Growth

Source: CSO

Negative growth of 0.6 per cent for the third consecutive month, over the negative base of December 2012,

continues to disappoint. CII is especially concerned about the performance of the manufacturing sector, which

continues to be in red. Negative growth of capital goods and consumer durables sectors reinforces the view that

escalating interest costs are adversely impacting investment. CII anticipates a pick-up in industrial production,

going forward, as downside risks are gradually receding on account of anticipated global recovery.

Outlook

OutlookWeak third quarter GDP numbers will erode some of the cautious optimism that was starting to become visible over

the last two months. With the country heading for general elections, passages of key economic legislations would

have to wait till the formation of new government at the Centre. However, this is an opportune time to take care of

procedural simplifications, which would improve the ease of doing business in India and make the environment

investment friendly in order to provide a fillip to growth.

DOMESTIC TRENDS

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

Aug

-12

Oct

-12

Dec

-12

Feb

-13

Apr

-13

Jun-

13

Aug

-13

Oct

-13

Dec

-13

10

5

0

-5

2.0

-0.6

IIP Contracts for Third Consecutive Month

Source: CSO

13

WPI Inflation Slips to 8-month Low in January 2014

months, moderated sharply to 16.6 per cent in January

2014 after it hit record high of 97.7 per cent in

November-2013. The momentum indicator indicated by

the seasonally-adjusted month-on-month series slipped

into the negative territory during the reporting month.

To be sure, consumer prices based inflation (CPI) too

eased sharply to 2-year low of 8.8 per cent in January

2014 as compared to 9.9 per cent in the previous month.

WPI based inflation moderated to 8-month low of 5.05

per cent in January 2014 as compared to 6.2 per cent in

the previous month on the back of fall in food prices and

subdued manufacturing inflation. However, the rise in

core inflation to 3 per cent, close to the RBI's comfort

threshold, is a cause for concern. Amongst the food

prices, vegetable prices which have been the main

driver behind pushing overall WPI higher in the last few

has now remained in red since the starting of the current

fiscal. Such a poor performance by the sector is a

matter of concern as it is widely regarded as a proxy for

consumption growth. Non-durables on the other hand

remained in the positive territory, albeit showing a

downward trend in December 2013 as compared to

November 2013. Going ahead, we expect recovery in

this component as good agricultural GDP this year will

support rural demand, which will prop up non-durables

even if urban demand remains weak.

On the use based front, the consistently volatile capital

goods segment output declined by 3.0 per cent during

the month. Consumer goods remain a drag on overall IP

growth primarily led by the continuing weakness in the

durables goods sector. During the reporting month,

consumer goods output declined for the third

consecutive month to 5.3 per cent in December 2013 as

compared to -8.8 per cent in the previous month. It's

pertinent to note here that output of consumer

durables, one of the sub-sectors of consumer goods,

manufacturing, capital and consumer goods. However,

on a positive note, the sequential momentum as

indicated by the movement in the seasonally-adjusted

month-on-month series moved into the positive

territory in during the month. On a cumulative basis, for

the first nine months of the fiscal, industrial output has

now contracted by 0.1 per cent as compared with a

growth of 0.7 per cent during the same period last year.

Industrial sector output contracted for the third

consecutive month in December 2013, despite a

supportive base effect. Industrial output declined to 0.6

per cent in December 2013, albeit the magnitude of

decline reduced from the -1.3 per cent print seen in the

previous month. The decline in IIP during the month was

underpinned by contraction in its sub-sectors such as

12ECONOMY MATTERS

equipment & apparatus' showed the highest negative

growth of (-) 35.7 per cent, followed by (-) 26.1 per cent

in 'Furniture; manufacturing' and (-) 22.1 per cent in

'Office, accounting & computing machinery'. Mining

sector output which has declined by 1.8 per cent in the

year till date so far, remained in the positive territory for

the second consecutive month, growing by 0.4 per cent

in December 2013 as compared to contraction of 3.1 per

cent in the previous month. Barring a few intermittent

months, electricity sector growth has remained on a

strong footing this fiscal, growing at an average 5.6 per

cent in April-December 2013.

On the sectoral front, manufacturing sector, which

constitutes over 75 per cent of the index, declined by 1.6

per cent in December 2013 as against a contraction of

0.8 per cent a year ago. This is the sixth negative data

print of manufacturing output so far in this fiscal and has

elevated the upside risks to growth. In terms of

industries, eight (8) out of the twenty two (22) industry

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

sector showed negative growth during the month of

December 2013 as compared to the corresponding

month of the previous year of manufacturing sector.

The industry group 'Radio, TV and communication

Industrial Production Continues to Remain in a Weak Zone

DOMESTIC TRENDS

FEBRUARY 2014

Apr-Dec

Weight Dec-12 Oct-13 Nov-13 Dec-13 FY13 FY14

General 1000.0 -0.6 -1.6 -1.3 -0.6 0.7 -0.1

Manufacturing 755.3 -0.8 -1.8 -2.7 -1.6 0.7 -0.6

Mining 141.6 -3.1 -3.2 1.7 0.4 -1.8 -1.8

Electricity 103.2 5.2 1.3 6.3 7.5 4.5 5.6

Use-Based

Basic 456.8 2.2 -1.4 2.7 2.4 2.7 1.3

Capital 88.3 -1.1 2.4 -0.1 -3.0 -10.1 -0.5

Intermediates 156.9 -0.2 2.2 3.4 4.5 1.6 3.0

Consumer Goods 298.1 -3.6 -4.9 -8.8 -5.3 2.7 -3.0

-Durables 84.6 -8.1 -12.1 -21.5 -16.2 3.7 -12.9

-Non durables 213.5 -0.5 2.2 2.1 1.6 1.8 5.7

Sectoral Growth

Source: CSO

Negative growth of 0.6 per cent for the third consecutive month, over the negative base of December 2012,

continues to disappoint. CII is especially concerned about the performance of the manufacturing sector, which

continues to be in red. Negative growth of capital goods and consumer durables sectors reinforces the view that

escalating interest costs are adversely impacting investment. CII anticipates a pick-up in industrial production,

going forward, as downside risks are gradually receding on account of anticipated global recovery.

Outlook

OutlookWeak third quarter GDP numbers will erode some of the cautious optimism that was starting to become visible over

the last two months. With the country heading for general elections, passages of key economic legislations would

have to wait till the formation of new government at the Centre. However, this is an opportune time to take care of

procedural simplifications, which would improve the ease of doing business in India and make the environment

investment friendly in order to provide a fillip to growth.

DOMESTIC TRENDS

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

Aug

-12

Oct

-12

Dec

-12

Feb

-13

Apr

-13

Jun-

13

Aug

-13

Oct

-13

Dec

-13

10

5

0

-5

2.0

-0.6

IIP Contracts for Third Consecutive Month

Source: CSO

15

per cent. This target looks difficult to be met in the

current circumstances.

Imports during February 2014 were valued at US$33.8

billion, posting a decline to the tune of 17.1 per cent over

the same month last year, as weak domestic demand

and restrictions on gold imports lowered non-oil

imports by nearly 24.5 per cent on year-on-year basis.

India imports almost all of the gold it consumes. The

yellow metal is the country's second-biggest import

after oil and was an important reason for driving the

country's current account gap to a record high last year,

pushing the rupee sharply lower. Oil imports contracted

by 3.1 per cent during the month. Going forward,

consumption goods import may pick up as household

consumption improves. A revival in household demand

would be supported by higher farm incomes due to a

good monsoon.

Exports contracted for the first time in eight months in

February 2014 although a sharp decline in imports led by

a fall in gold imports helped narrow trade deficit and

ease the pressure on the external sector. Exports fell 3.7

per cent in February 2014 as compared to growth of 3.8

per cent in the previous month, dragged down by sector

such as petroleum, engineering and pharmaceuticals.

Exports had been growing at a double-digit rate until

October but lost momentum in the last four months,

signalling that the worst might not be all over as yet for

the Indian economy. Cumulative value of exports for the

first eleven months of the current fiscal (Apr-Feb) were

valued at US$282.7 billion as against US$269.8 billion a

year ago, thus registering a year-on-year growth of 4.8

per cent. Finance Minister in his Budget Speech for 2014-

15 highlighted that merchandise exports are expected to

end the current fiscal with estimated merchandise

exports of US$326 billion, indicating a growth rate of 6.3

was significant, with its inflation slipping to 21.9 per cent

after having scaled a peak of 61 per cent in November-

2013.

Food inflation, with 50 per cent weight contribution to

CPI slipped to 9.9 per cent for the first time since April-

2012. While there was an across the board decline in

inflation in food items, the contribution from vegetables

14ECONOMY MATTERS

speed diesel inflation rose to 14.0 per cent during the

month as compared to 17.0 per cent in the previous

month. Going forward, we expect fuel inflation to

moderate due to stabilisation witnessed in global crude

prices and the recent strengthening of the Rupee.

Manufacturing inflation remained subdued and broadly

unchanged at 2.8 per cent in January 2014, led by across

the board correction in prices. Non-food manufacturing

or core inflation which is widely regarded as the proxy

for demand-side pressures in the economy, however,

increased to 3.0 per cent during the month as compared

to 2.8 per cent in December 2013. In the coming months,

we expect core WPI to remain at sub 3 per cent, RBI's

comfort level for this inflation measure. Mirroring the

sharp deceleration in primary food inflation,

manufactured food products inflation also slowed

down to 1.5 per cent in January 2014 from 1.8 per cent in

the previous month.

Primary inflation slipped to 6.8 per cent in January 2014

from 10.8 per cent in the previous month and average of

13.7 per cent seen in the last 4-months. This was mainly

attributable to the sharp slowing down of food inflation

to single-digits at 8.8 per cent as compared to high of

almost 20 per cent in November 2013. Amongst primary

food inflation, vegetable prices moderated to 16.6 per

cent after it hit record high of 97.7 per cent in November-

2013. Encouragingly, the decline in food inflation was

broad-based, with prices of cereals and eggs, meat & fish

too witnessing downward pressure during the month.

Non-food inflation too moderated to 4.4 per cent as

against 6.0 per cent in the previous month. Inflation in

minerals declined to 0.2 per cent from 2.1 per cent in the

previous month.

Fuel inflation slowed down to 10.0 per cent in January

2014 as compared to 11.0 per cent in the previous month.

Though on month-on-month basis, it did show a 0.7 per

cent increase, driven by rise in prices LPG coupled with

hike in prices for kerosene and high speed diesel. High-

DOMESTIC TRENDS

FEBRUARY 2014

General 100.0 7.3 7.5 6.2 5.05 7.5 6.0

Primary 20.1 11.4 15.3 10.8 6.8 10.0 10.5

- Food 14.3 12.3 19.7 13.1 8.8 9.9 13.5

- Non-Food 4.3 13.0 7.4 6.0 4.4 10.6 5.7

- Minerals 1.5 4.0 2.3 2.1 -0.2 9.9 0.3

Fuel 14.9 9.3 11.1 11.0 10.0 10.6 10.2

- Petrol 1.1 3.4 4.4 5.4 7.2 7.0 2.7

- High Speed Diesel 4.7 18.5 15.7 17.0 14.0 9.7 20.5

Manufacturing 65.0 4.9 2.9 2.6 2.8 5.6 2.8

- Food 10.0 8.7 2.4 1.8 1.5 8.1 3.6

- Non-food 55.0 4.2 3.0 2.8 3.0 5.1 2.7

April-Jan

Weight Jan-13 Nov-13 Dec-13 Jan-14 FY13 FY14

Sectoral Components of Inflation

Source: Office of Economic Advisor

January month's inflation data print both at retail and wholesale level has been reassuring and conforms to RBI's

expectation of a notable correction on account of decline in vegetable prices. Moreover, the lagged effects of

effective monetary tightening since September 2013 would also exert an opposite force on inflation in the coming

months. Consequently, we expect the RBI to cut rates in its forthcoming monetary policy review, in order to provide

a fillip to falling growth.

Outlook

Trade Deficit Narrows as Imports Contraction Intensifies

DOMESTIC TRENDS

7.5

5.05

10.4

8.8

12

10

8

6

4

2

May

-12

Jul-1

2

Sep

-12

Nov

-12

Jan-

13

Mar

-13

May

-13

Jul-1

3

Sep

-13

Nov

-13

Jan-

14

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

Both WPI & CPI Inflation Moderate

Source : Office of Economic Advisor

15

per cent. This target looks difficult to be met in the

current circumstances.

Imports during February 2014 were valued at US$33.8

billion, posting a decline to the tune of 17.1 per cent over

the same month last year, as weak domestic demand

and restrictions on gold imports lowered non-oil

imports by nearly 24.5 per cent on year-on-year basis.

India imports almost all of the gold it consumes. The

yellow metal is the country's second-biggest import

after oil and was an important reason for driving the

country's current account gap to a record high last year,

pushing the rupee sharply lower. Oil imports contracted

by 3.1 per cent during the month. Going forward,

consumption goods import may pick up as household

consumption improves. A revival in household demand

would be supported by higher farm incomes due to a

good monsoon.

Exports contracted for the first time in eight months in

February 2014 although a sharp decline in imports led by

a fall in gold imports helped narrow trade deficit and

ease the pressure on the external sector. Exports fell 3.7

per cent in February 2014 as compared to growth of 3.8

per cent in the previous month, dragged down by sector

such as petroleum, engineering and pharmaceuticals.

Exports had been growing at a double-digit rate until

October but lost momentum in the last four months,

signalling that the worst might not be all over as yet for

the Indian economy. Cumulative value of exports for the

first eleven months of the current fiscal (Apr-Feb) were

valued at US$282.7 billion as against US$269.8 billion a

year ago, thus registering a year-on-year growth of 4.8

per cent. Finance Minister in his Budget Speech for 2014-

15 highlighted that merchandise exports are expected to

end the current fiscal with estimated merchandise

exports of US$326 billion, indicating a growth rate of 6.3

was significant, with its inflation slipping to 21.9 per cent

after having scaled a peak of 61 per cent in November-

2013.

Food inflation, with 50 per cent weight contribution to

CPI slipped to 9.9 per cent for the first time since April-

2012. While there was an across the board decline in

inflation in food items, the contribution from vegetables

14ECONOMY MATTERS

speed diesel inflation rose to 14.0 per cent during the

month as compared to 17.0 per cent in the previous

month. Going forward, we expect fuel inflation to

moderate due to stabilisation witnessed in global crude

prices and the recent strengthening of the Rupee.

Manufacturing inflation remained subdued and broadly

unchanged at 2.8 per cent in January 2014, led by across

the board correction in prices. Non-food manufacturing

or core inflation which is widely regarded as the proxy

for demand-side pressures in the economy, however,

increased to 3.0 per cent during the month as compared

to 2.8 per cent in December 2013. In the coming months,

we expect core WPI to remain at sub 3 per cent, RBI's

comfort level for this inflation measure. Mirroring the

sharp deceleration in primary food inflation,

manufactured food products inflation also slowed

down to 1.5 per cent in January 2014 from 1.8 per cent in

the previous month.

Primary inflation slipped to 6.8 per cent in January 2014

from 10.8 per cent in the previous month and average of

13.7 per cent seen in the last 4-months. This was mainly

attributable to the sharp slowing down of food inflation

to single-digits at 8.8 per cent as compared to high of

almost 20 per cent in November 2013. Amongst primary

food inflation, vegetable prices moderated to 16.6 per

cent after it hit record high of 97.7 per cent in November-

2013. Encouragingly, the decline in food inflation was

broad-based, with prices of cereals and eggs, meat & fish

too witnessing downward pressure during the month.

Non-food inflation too moderated to 4.4 per cent as

against 6.0 per cent in the previous month. Inflation in

minerals declined to 0.2 per cent from 2.1 per cent in the

previous month.

Fuel inflation slowed down to 10.0 per cent in January

2014 as compared to 11.0 per cent in the previous month.

Though on month-on-month basis, it did show a 0.7 per

cent increase, driven by rise in prices LPG coupled with

hike in prices for kerosene and high speed diesel. High-

DOMESTIC TRENDS

FEBRUARY 2014

General 100.0 7.3 7.5 6.2 5.05 7.5 6.0

Primary 20.1 11.4 15.3 10.8 6.8 10.0 10.5

- Food 14.3 12.3 19.7 13.1 8.8 9.9 13.5

- Non-Food 4.3 13.0 7.4 6.0 4.4 10.6 5.7

- Minerals 1.5 4.0 2.3 2.1 -0.2 9.9 0.3

Fuel 14.9 9.3 11.1 11.0 10.0 10.6 10.2

- Petrol 1.1 3.4 4.4 5.4 7.2 7.0 2.7

- High Speed Diesel 4.7 18.5 15.7 17.0 14.0 9.7 20.5

Manufacturing 65.0 4.9 2.9 2.6 2.8 5.6 2.8

- Food 10.0 8.7 2.4 1.8 1.5 8.1 3.6

- Non-food 55.0 4.2 3.0 2.8 3.0 5.1 2.7

April-Jan

Weight Jan-13 Nov-13 Dec-13 Jan-14 FY13 FY14

Sectoral Components of Inflation

Source: Office of Economic Advisor

January month's inflation data print both at retail and wholesale level has been reassuring and conforms to RBI's

expectation of a notable correction on account of decline in vegetable prices. Moreover, the lagged effects of

effective monetary tightening since September 2013 would also exert an opposite force on inflation in the coming

months. Consequently, we expect the RBI to cut rates in its forthcoming monetary policy review, in order to provide

a fillip to falling growth.

Outlook

Trade Deficit Narrows as Imports Contraction Intensifies

DOMESTIC TRENDS

7.5

5.05

10.4

8.8

12

10

8

6

4

2

May

-12

Jul-1

2

Sep

-12

Nov

-12

Jan-

13

Mar

-13

May

-13

Jul-1

3

Sep

-13

Nov

-13

Jan-

14

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

Both WPI & CPI Inflation Moderate

Source : Office of Economic Advisor

17 FEBRUARY 2014

35

30

25

20

15

10

5

0

8

7

6

5

4

3

2

1

0

31.9

18.1

21.8

5.2 4.2

6.7

3.6

4.9

1.2 0.9

3QFY13 4QFY13 1QFY14 2QFY14 3QFY14

CAD (US$ BN) CAD (as a % of GDP)- RHS

Current Account Deficit Narrows Sharply

Source: RBI

billion as compared to US$17.8 billion in Q3 of 2012-13 and

US$3.9 billion in Q2 of 2013-14. As a result, the

merchandise trade deficit (BoP basis) contracted by

around 43 per cent to US$33.2 billion in Q3 of 2013-14

from US$58.4 billion a year ago. Within the invisible

category, net services receipts improved during Q3 of

2013-14, essentially reflecting a decline in payments on

account of services imports. Net services at US$18.1

billion recorded a growth of 8.9 per cent in Q3 of 2013-14

(y-o-y).

On a BoP basis, merchandise exports increased by 7.5

per cent to US$79.8 billion in Q3 of 2013-14 (3.9 per cent

in Q3 of 2012-13) on the back of significant growth

especially in the exports of engineering goods,

readymade garments, iron ore, marine products and

chemicals. On the other hand, merchandise imports at

US$112.9 billion, recorded a decline of 14.8 per cent in Q3

of 2013-14 as against an increase of 10.4 per cent in Q3 of

2012-13. Decline in imports in Q3 was primarily led by a

steep decline in gold imports, which amounted to US$3.1

Current Account Deficit Narrows in 3QFY14

(US$ billion) Q3FY13 Q2FY14 Q3FY14

Trade Balance -58.4 -33.3 -33.1

- Exports 74.2 81.2 79.8

- Imports 132.6 114.5 112.9

Invisibles 26.7 28.1 29.1

- Services 16.7 18.4 18.1

- Transfers 15.8 16.1 16.4

- Income -5.8 -6.3 -5.4

Current Account -31.8 -5.2 -4.2

CAB as a % of GDP -6.7 -1.2 -0.9

Source: RBI

of equity. On net basis, capital inflows during the quarter

stood at US$23.8 billion, which were mainly buffered by

US$21.4 billion of inflows under foreign currency non-

resident (FCNR) deposits. Correspondingly, balance of

payments witnessed a huge US$19.1 billion surplus in Q3 -

the highest since March 2008.

In the capital account, on net basis, both foreign direct

investment and portfolio investment recorded inflows

of US$6.1 billion and US$2.4 billion, respectively in Q3 of

2013-14. Within portfolio investment, the debt segment

showed net outflow in Q3 which, however, was offset by

higher net inflows of US$6.2 billion under the category

16ECONOMY MATTERS

year stands at US$128 billion; significantly lower than

US$180 billion in the corresponding period in FY2013.

The trade deficit narrowed to US$8.1 billion in February

2014 as against US$9.9 billion in the previous month. The

trade deficit during the first eleven months of the fiscal

DOMESTIC TRENDS

External Sector Performance (y-o-y %)

Source: Ministry of Commerce

OutlookThe economic conditions in the U.S. and the Euro Zone are not very favorable for exports and we hope the Indian

government will help the exporters by providing help by way of including more products and countries for Focus

Product Scheme and Focus market Scheme, where we have a comparative advantage. Also we need to relook at the

duty drawback rates. These measures, if announced at the earliest will give the necessary push to the industry which

can then benefit the industry and help them reach the export target.

led to significant amount of capital inflows during the

quarter. Consequently, on a BoP basis, there was a net

accretion of US$19.1 billion to India's foreign exchange

reserves in Q3 of 2013-14 as compared to a drawdown of

US$10.4 billion in the preceding quarter. Though the CAD

has improved significantly in the last one year, the

quality of adjustment is debatable. Bulk of the

compression has been achieved due to reduction in gold

imports rather than from the much desirable pick up in

exports and invisibles.

The latest data released for the third quarter of 2013-14

shows that current account deficit (CAD) narrowed

sharply to US$4.2 billion (0.9 per cent of GDP) in third

quarter (Q3) of 2013-14 from US$31.9 billion (6.5 per cent

of GDP) in same quarter of 2012-13 which is also lower

than US$5.2 billion (1.2 per cent of GDP) in second

quarter (Q2) of 2013-14. The lower CAD was primarily on

account of a decline in the trade deficit as merchandise

exports picked up and imports moderated, particularly

gold imports. On the capital account, the reversal of

portfolio flows and the policy induced FCNR (B) flows

DOMESTIC TRENDS

Decline in Trade Deficit Narrows Current Account

Deficit in 3QFY14

20

10

0

-10

-20

-3.7

-17.1

Jun/

12

Aug

/12

Oct

/12

Dec

/12

Feb

/13

Apr

/13

Jun/

13

Aug

/13

Oct

/13

Dec

/13

Feb

/14

Exports Imports

17 FEBRUARY 2014

35

30

25

20

15

10

5

0

8

7

6

5

4

3

2

1

0

31.9

18.1

21.8

5.2 4.2

6.7

3.6

4.9

1.2 0.9

3QFY13 4QFY13 1QFY14 2QFY14 3QFY14

CAD (US$ BN) CAD (as a % of GDP)- RHS

Current Account Deficit Narrows Sharply

Source: RBI

billion as compared to US$17.8 billion in Q3 of 2012-13 and

US$3.9 billion in Q2 of 2013-14. As a result, the

merchandise trade deficit (BoP basis) contracted by

around 43 per cent to US$33.2 billion in Q3 of 2013-14

from US$58.4 billion a year ago. Within the invisible

category, net services receipts improved during Q3 of

2013-14, essentially reflecting a decline in payments on

account of services imports. Net services at US$18.1

billion recorded a growth of 8.9 per cent in Q3 of 2013-14

(y-o-y).

On a BoP basis, merchandise exports increased by 7.5

per cent to US$79.8 billion in Q3 of 2013-14 (3.9 per cent

in Q3 of 2012-13) on the back of significant growth

especially in the exports of engineering goods,

readymade garments, iron ore, marine products and

chemicals. On the other hand, merchandise imports at

US$112.9 billion, recorded a decline of 14.8 per cent in Q3

of 2013-14 as against an increase of 10.4 per cent in Q3 of

2012-13. Decline in imports in Q3 was primarily led by a

steep decline in gold imports, which amounted to US$3.1

Current Account Deficit Narrows in 3QFY14

(US$ billion) Q3FY13 Q2FY14 Q3FY14

Trade Balance -58.4 -33.3 -33.1

- Exports 74.2 81.2 79.8

- Imports 132.6 114.5 112.9

Invisibles 26.7 28.1 29.1

- Services 16.7 18.4 18.1

- Transfers 15.8 16.1 16.4

- Income -5.8 -6.3 -5.4

Current Account -31.8 -5.2 -4.2

CAB as a % of GDP -6.7 -1.2 -0.9

Source: RBI

of equity. On net basis, capital inflows during the quarter

stood at US$23.8 billion, which were mainly buffered by

US$21.4 billion of inflows under foreign currency non-

resident (FCNR) deposits. Correspondingly, balance of

payments witnessed a huge US$19.1 billion surplus in Q3 -

the highest since March 2008.

In the capital account, on net basis, both foreign direct

investment and portfolio investment recorded inflows

of US$6.1 billion and US$2.4 billion, respectively in Q3 of

2013-14. Within portfolio investment, the debt segment

showed net outflow in Q3 which, however, was offset by

higher net inflows of US$6.2 billion under the category

16ECONOMY MATTERS

year stands at US$128 billion; significantly lower than

US$180 billion in the corresponding period in FY2013.

The trade deficit narrowed to US$8.1 billion in February

2014 as against US$9.9 billion in the previous month. The

trade deficit during the first eleven months of the fiscal

DOMESTIC TRENDS

External Sector Performance (y-o-y %)

Source: Ministry of Commerce

OutlookThe economic conditions in the U.S. and the Euro Zone are not very favorable for exports and we hope the Indian

government will help the exporters by providing help by way of including more products and countries for Focus

Product Scheme and Focus market Scheme, where we have a comparative advantage. Also we need to relook at the

duty drawback rates. These measures, if announced at the earliest will give the necessary push to the industry which

can then benefit the industry and help them reach the export target.

led to significant amount of capital inflows during the

quarter. Consequently, on a BoP basis, there was a net

accretion of US$19.1 billion to India's foreign exchange

reserves in Q3 of 2013-14 as compared to a drawdown of

US$10.4 billion in the preceding quarter. Though the CAD

has improved significantly in the last one year, the

quality of adjustment is debatable. Bulk of the

compression has been achieved due to reduction in gold

imports rather than from the much desirable pick up in

exports and invisibles.

The latest data released for the third quarter of 2013-14

shows that current account deficit (CAD) narrowed

sharply to US$4.2 billion (0.9 per cent of GDP) in third

quarter (Q3) of 2013-14 from US$31.9 billion (6.5 per cent

of GDP) in same quarter of 2012-13 which is also lower

than US$5.2 billion (1.2 per cent of GDP) in second

quarter (Q2) of 2013-14. The lower CAD was primarily on

account of a decline in the trade deficit as merchandise

exports picked up and imports moderated, particularly

gold imports. On the capital account, the reversal of

portfolio flows and the policy induced FCNR (B) flows

DOMESTIC TRENDS

Decline in Trade Deficit Narrows Current Account

Deficit in 3QFY14

20

10

0

-10

-20

-3.7

-17.1

Jun/

12

Aug

/12

Oct

/12

Dec

/12

Feb

/13

Apr

/13

Jun/

13

Aug

/13

Oct

/13

Dec

/13

Feb

/14

Exports Imports

New Investment Proposals Move Up

315.9353.8

304.9

222.3192.7

239.0 229.0

92.254.5

99.8 93.7 93.0

145.5

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

Jun-13

Sep-13

Dec-13

Source: Calculated from Capex, CMIE

INVESTMENT TRACKER

19 FEBRUARY 2014

crore in second quarter (Q2FY14), the new investment

proposals jumped to Rs. 146 thousand crore in Q3

(Figure 1). Combined with positive signals emerging

from other indicators such as improving export

prospects, declining current account deficit, reduction

in exchange rate volatility and downward trend in

inflation, jump in value of new investment proposals in

Q3 lends support to the beginning of improvement in

business sentiments. There is, however, a case for

cautious optimism, as recovery remains fragile and

lopsided.

At a time when various indicators are being

keenly securitized to trace some signs of

economic recovery, positive news comes from

the figures on new investment proposals for the third

quarter (Q3FY2014), recording the highest level in

previous five quarters. From a level of Rs 93 thousand

Figure 1: New Investment Proposals (Rs '000 crore)

18ECONOMY MATTERS

DOMESTIC TRENDS

The government's expenditure is divided under two broad heads-plan and non-plan. Non-plan expenditure

constitutes bulk of the government's expenditure. According to estimates, it is expected to be 68.5 per cent of the

government's total expenditure in the next financial year. In the current financial year, the proportion is estimated

to be at over 70 per cent of the total expenditure. The plan expenditure of the government is normally associated

with productive expenditure, which helps increase the productive capacity of the economy. It includes outlays for

different sectors such as rural development and education. Non-plan expenditure, on the other hand, includes

expenses on heads such as interest payment on government debt, subsidies, defence, pensions and other

establishment costs of the government. A large part of this is obligatory in nature. For example, the government

may cut allocation towards rural development or education if it falls short of funds, but it cannot cut interest

payments on borrowed funds. Lower plan expenditure adversely impacts the growth prospects of the economy.

So, it is important that government rationalizes expenditure on heads such as subsidies in the non-plan segment.

This will help it contain the deficit and allow it to spend on activities that create assets and contribute to

development in the long run.

*Adapted from Mint dated February 21, 2014

OutlookThe narrowing of current account deficit to 0.9 per cent of GDP during October-December 2013 quarter from 1.2 per

cent in the last quarter is essentially on account of the decline in trade deficit and pick up in capital flows. However,

this fall in CAD, looks transitory. The bulk of compression in trade deficit was driven by reduction in gold imports.

Once these restrictions are lifted coupled with expected jump in non-oil and non-gold imports due to pick up in

economic growth, we can see some rise in CAD in 2014-15. The bigger challenge then will be to attract inflows

sufficient to finance the bulging CAD.

Capital Account Records a Huge Jump in Inflows

Source: RBI

(US$ billion) Q3FY13 Q2FY14 Q3FY14

- Direct Investment 2.1 8.1 6.1

- Portfolio Investment 9.8 -6.6 2.4

Loans 10.8 -0.5 3.0

Banking Capital 5.2 1.2 15.8

Other Capital 3.5 -7.0 -3.0

Capital Account 31.5 -4.8 23.8

Overall BoP 0.7 -10.4 19.1

Know Your Facts: Plan & Non-Plan Expenditure *

New Investment Proposals Move Up

315.9353.8

304.9

222.3192.7

239.0 229.0

92.254.5

99.8 93.7 93.0

145.5

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

Jun-13

Sep-13

Dec-13

Source: Calculated from Capex, CMIE

INVESTMENT TRACKER

19 FEBRUARY 2014

crore in second quarter (Q2FY14), the new investment

proposals jumped to Rs. 146 thousand crore in Q3

(Figure 1). Combined with positive signals emerging

from other indicators such as improving export

prospects, declining current account deficit, reduction

in exchange rate volatility and downward trend in

inflation, jump in value of new investment proposals in

Q3 lends support to the beginning of improvement in

business sentiments. There is, however, a case for

cautious optimism, as recovery remains fragile and

lopsided.

At a time when various indicators are being

keenly securitized to trace some signs of

economic recovery, positive news comes from

the figures on new investment proposals for the third

quarter (Q3FY2014), recording the highest level in

previous five quarters. From a level of Rs 93 thousand

Figure 1: New Investment Proposals (Rs '000 crore)

18ECONOMY MATTERS

DOMESTIC TRENDS

The government's expenditure is divided under two broad heads-plan and non-plan. Non-plan expenditure

constitutes bulk of the government's expenditure. According to estimates, it is expected to be 68.5 per cent of the

government's total expenditure in the next financial year. In the current financial year, the proportion is estimated

to be at over 70 per cent of the total expenditure. The plan expenditure of the government is normally associated

with productive expenditure, which helps increase the productive capacity of the economy. It includes outlays for

different sectors such as rural development and education. Non-plan expenditure, on the other hand, includes

expenses on heads such as interest payment on government debt, subsidies, defence, pensions and other

establishment costs of the government. A large part of this is obligatory in nature. For example, the government

may cut allocation towards rural development or education if it falls short of funds, but it cannot cut interest

payments on borrowed funds. Lower plan expenditure adversely impacts the growth prospects of the economy.

So, it is important that government rationalizes expenditure on heads such as subsidies in the non-plan segment.

This will help it contain the deficit and allow it to spend on activities that create assets and contribute to

development in the long run.

*Adapted from Mint dated February 21, 2014

OutlookThe narrowing of current account deficit to 0.9 per cent of GDP during October-December 2013 quarter from 1.2 per

cent in the last quarter is essentially on account of the decline in trade deficit and pick up in capital flows. However,

this fall in CAD, looks transitory. The bulk of compression in trade deficit was driven by reduction in gold imports.

Once these restrictions are lifted coupled with expected jump in non-oil and non-gold imports due to pick up in

economic growth, we can see some rise in CAD in 2014-15. The bigger challenge then will be to attract inflows

sufficient to finance the bulging CAD.

Capital Account Records a Huge Jump in Inflows

Source: RBI

(US$ billion) Q3FY13 Q2FY14 Q3FY14

- Direct Investment 2.1 8.1 6.1

- Portfolio Investment 9.8 -6.6 2.4

Loans 10.8 -0.5 3.0

Banking Capital 5.2 1.2 15.8

Other Capital 3.5 -7.0 -3.0

Capital Account 31.5 -4.8 23.8

Overall BoP 0.7 -10.4 19.1

Know Your Facts: Plan & Non-Plan Expenditure *

Consequently, the share of private sector in total new

investment proposals, which usually runs higher than

the share of government, has worryingly not only fallen

short of government share in recent quarters but has

also been widening in the gap (Figure 5). Given the

necessity of large investments needed to take the

economy out of the current rock bottom slowdown,

new investment by private sector will be equally critical

for economic revival.

Analyzing the performance of new investment

proposals in terms of ownership, it is interesting to note

that the increase in new investment proposals has been

led by the government; private sector continues to

witness downward momentum (Figure 4). The

government's new investment proposals, which wore a

declining trend until Q3FY2013, have been picking up

momentum in recent quarters, helping to mitigate the

loss on account of fall in private investments.

longer term, we prepared the ranking using the data

from Q3FY2011 (Figure 7). In this list Gujarat, Andhra

Pradesh, Karnataka, and Maharashtra, accounting for

nearly 40 per cent of countries new investment

proposals since Q3FY2011, emerged as the 4 largest

investing states. In the current financial year, however,

these four states have been pushed down in the ranking

by many smaller states and the Maharashtra doesn't

even appear in the top 10.

State-wise analysis of the new investment proposals

reveal that the major investing states continue to

perform poorly. In previous three quarters of current

fiscal so far, the list of top 10 states, accounting for over

80 per cent of the total new investment proposals, has

the major investing states either lying low in ranking or

missing from the list (Figure 6). In order arrive at the list

of major states with largest new investment proposals in

INVESTMENT TRACKER

Figure 4: Trend in Government and Private Sectors New Investment Proposals (Rs '000 crore)

300

250

200

150

100

50

0

Dec

-10

Mar

-11

Jun-

11

Sep

-11

Dec

-11

Mar

-12

Jun-

12

Sep

-12

Dec

-12

Mar

-13

Jun-

13

Sep

-13

Dec

-13

Government Private sector

Source: Calculated from Capex, CMIE.

Figure 5: Trend in Shares of Government and Private Sector in New Investment Proposals (%)

100

80

60

40

20

0

Dec

-10

Mar

-11

Jun-

11

Sep

-11

Dec

-11

Mar

-12

Jun-

12

Sep

-12

Dec

-12

Mar

-13

Jun-

13

Sep

-13

Dec

-13

Government Private sector

Source: Calculated from Capex, CMIE.

21 FEBRUARY 2014

investment proposals rising from 40 per cent in Q2 to 44

per cent in Q3FY2014, much higher than the average of

24 per cent since Q3FY2011.

In contrast to manufacturing and electricity sectors,

non-financial services (like hotel & tourism, trading,

transport services, communication services,

information technology etc) and construction & real

estate are the two sectors that have continued to hold

back the interest in overall new proposals. Services

sector saw its share in new investment proposals

shrinking from 18 per cent in Q2 to mere 6 per cent in

Q3FY14, much below the average of 25 per cent since

Q3FY2011. Even greater concern is that its share has

persistently declined since Q2FY2012. Similarly,

construction & real estate sector experienced

contraction in its share to 5 per cent in Q3FY2014,

dropping from 6 per cent in Q2, much below the average

of 10 per cent since Q3FY2011. The poor performance of

non-financial services and construction sectors can

largely be linked to slowdown in overall economic

growth and rising interest rates.

An analysis of sectoral (non-financial) performance of

new investment proposals reveal that despite the sharp

slowdown in manufacturing production in the current

fiscal so far, the sector has managed to pull in an

impressive performance in Q3FY2014 (Figure 2). This is

evident from the fact that the share of new investment

proposals in Q3FY14 stood at 41 per cent, up from 31 per

cent in Q2 and much higher than the average of 35 per

cent since Q3FY11. Further, the new investment

proposals in manufacturing have shown a mild uptrend

over the last several quarters, albeit with wide

fluctuations (Figure 3). In view of the fact that growth in

manufacturing production remains muted for the last

many years even as the sector is desired to grow in the

range of 10-12 per cent per annum, there is need for

strengthening of uptrend by way of introducing various

policy measures such as softer monetary policy, fast

tracking clearances of held up projects and encouraging

new investments by Central government, state

government, local bodies and RBI. Electricity is the other

sector witnessing jump in new investment proposals in

previous quarter, resulting in its share in total new

INVESTMENT TRACKER

31

40

18

6

41

48

6 5

35

24 25

10

Manufacturing Electricity Services (other thanfinancial)

Construction & real estate

Sep-13 Dec-13 Avg since Dec 10

Figure 2: Change in New Investment Proposals between Q2FY14 and Q3FY14

Source: Calculated from Capex, CMIE.

70

60

50

40

30

20

10

0

XX X X X

X

XX X

X

X X X

Dec

-10

Mar

-11

Jun-

11

Sep

-11

Dec

-11

Mar

-12

Jun-

12

Sep

-12

Dec

-12

Mar

-13

Jun-

13

Sep

-13

Dec

-13

Electricity Services (other than financial) Manufacturing Construction & real estate

Figure 3: Trend in Sectoral Shares of New Investment Proposal (%)

Source: Calculated from Capex, CMIE.

20ECONOMY MATTERS

Consequently, the share of private sector in total new

investment proposals, which usually runs higher than

the share of government, has worryingly not only fallen

short of government share in recent quarters but has

also been widening in the gap (Figure 5). Given the

necessity of large investments needed to take the

economy out of the current rock bottom slowdown,

new investment by private sector will be equally critical

for economic revival.

Analyzing the performance of new investment

proposals in terms of ownership, it is interesting to note

that the increase in new investment proposals has been

led by the government; private sector continues to

witness downward momentum (Figure 4). The

government's new investment proposals, which wore a

declining trend until Q3FY2013, have been picking up

momentum in recent quarters, helping to mitigate the

loss on account of fall in private investments.

longer term, we prepared the ranking using the data

from Q3FY2011 (Figure 7). In this list Gujarat, Andhra

Pradesh, Karnataka, and Maharashtra, accounting for

nearly 40 per cent of countries new investment

proposals since Q3FY2011, emerged as the 4 largest

investing states. In the current financial year, however,

these four states have been pushed down in the ranking

by many smaller states and the Maharashtra doesn't

even appear in the top 10.

State-wise analysis of the new investment proposals

reveal that the major investing states continue to

perform poorly. In previous three quarters of current

fiscal so far, the list of top 10 states, accounting for over

80 per cent of the total new investment proposals, has

the major investing states either lying low in ranking or

missing from the list (Figure 6). In order arrive at the list

of major states with largest new investment proposals in

INVESTMENT TRACKER

Figure 4: Trend in Government and Private Sectors New Investment Proposals (Rs '000 crore)

300

250

200

150

100

50

0

Dec

-10

Mar

-11

Jun-

11

Sep

-11

Dec

-11

Mar

-12

Jun-

12

Sep

-12

Dec

-12

Mar

-13

Jun-

13

Sep

-13

Dec

-13

Government Private sector

Source: Calculated from Capex, CMIE.

Figure 5: Trend in Shares of Government and Private Sector in New Investment Proposals (%)

100

80

60

40

20

0

Dec

-10

Mar

-11

Jun-

11

Sep

-11

Dec

-11

Mar

-12

Jun-

12

Sep

-12

Dec

-12

Mar

-13

Jun-

13

Sep

-13

Dec

-13

Government Private sector

Source: Calculated from Capex, CMIE.

21 FEBRUARY 2014

investment proposals rising from 40 per cent in Q2 to 44

per cent in Q3FY2014, much higher than the average of

24 per cent since Q3FY2011.

In contrast to manufacturing and electricity sectors,

non-financial services (like hotel & tourism, trading,

transport services, communication services,

information technology etc) and construction & real

estate are the two sectors that have continued to hold

back the interest in overall new proposals. Services

sector saw its share in new investment proposals

shrinking from 18 per cent in Q2 to mere 6 per cent in

Q3FY14, much below the average of 25 per cent since

Q3FY2011. Even greater concern is that its share has

persistently declined since Q2FY2012. Similarly,

construction & real estate sector experienced

contraction in its share to 5 per cent in Q3FY2014,

dropping from 6 per cent in Q2, much below the average

of 10 per cent since Q3FY2011. The poor performance of

non-financial services and construction sectors can

largely be linked to slowdown in overall economic

growth and rising interest rates.

An analysis of sectoral (non-financial) performance of

new investment proposals reveal that despite the sharp

slowdown in manufacturing production in the current

fiscal so far, the sector has managed to pull in an

impressive performance in Q3FY2014 (Figure 2). This is

evident from the fact that the share of new investment

proposals in Q3FY14 stood at 41 per cent, up from 31 per

cent in Q2 and much higher than the average of 35 per

cent since Q3FY11. Further, the new investment

proposals in manufacturing have shown a mild uptrend

over the last several quarters, albeit with wide

fluctuations (Figure 3). In view of the fact that growth in

manufacturing production remains muted for the last

many years even as the sector is desired to grow in the

range of 10-12 per cent per annum, there is need for

strengthening of uptrend by way of introducing various

policy measures such as softer monetary policy, fast

tracking clearances of held up projects and encouraging

new investments by Central government, state

government, local bodies and RBI. Electricity is the other

sector witnessing jump in new investment proposals in

previous quarter, resulting in its share in total new

INVESTMENT TRACKER

31

40

18

6

41

48

6 5

35

24 25

10

Manufacturing Electricity Services (other thanfinancial)

Construction & real estate

Sep-13 Dec-13 Avg since Dec 10

Figure 2: Change in New Investment Proposals between Q2FY14 and Q3FY14

Source: Calculated from Capex, CMIE.

70

60

50

40

30

20

10

0

XX X X X

X

XX X

X

X X X

Dec

-10

Mar

-11

Jun-

11

Sep

-11

Dec

-11

Mar

-12

Jun-

12

Sep

-12

Dec

-12

Mar

-13

Jun-

13

Sep

-13

Dec

-13

Electricity Services (other than financial) Manufacturing Construction & real estate

Figure 3: Trend in Sectoral Shares of New Investment Proposal (%)

Source: Calculated from Capex, CMIE.

20ECONOMY MATTERS

Travel & Tourism

Global Tourism Sector

The travel and tourism industry has emerged as one of

the largest and fastest growing economic sectors

globally. According to the United Nations World Tourism

Organization's (UNWTO) report "Tourism Highlights

2013", tourism's total contribution to worldwide GDP is

approximately 9 per cent. Tourism exports in 2012

amounted to US$1.3 trillion, accounting for 6 per cent of

the world's exports. New tourist destinations, especially

those in the emerging markets, have started gaining

prominence with traditional markets reaching maturity.

Asia Pacific recorded the highest growth in the number

of international tourist arrivals in 2012 at 7 per cent,

followed by Africa at 6 per cent. International tourist

arrivals are set to increase at a growth rate of 3.3 per

cent per annum and amount to approximately 1.4 billion

by 2020 and 1.8 billion by 2030, implying an increase of 43

million international tourist arrivals each year.

The present section reviews the travel & tourism

sector based largely on the Report "Travel &

Tourism: Potential, Opportunities and Enabling

Framework for Sustainable Growth" prepared by the

Confederation of Indian Industry (CII) and KPMG. The

report discusses the potential of the travel & tourism

sector in general, performance of tourism sector in

various states of India, benefits of seamless, main issues

in the tourism sector and key recommendations for the

sector.

SECTOR IN FOCUS

23 FEBRUARY 2014

Figure 6: Average Share of States in Investment Proposal During Q1, Q2 and Q3 FY2014 (%)

Kerala14%

Jammu & Kashmir 13%

West Bengal11%

Rajasthan10%Gujarat

8%

Orissa8%

Jharkhand5%

Karnataka5%

Tamil Nadu4%

Andhra Pradesh4%

Others18%

Source: Calculated from Capex, CMIE.

Figure 7: Average Share of States in New Investment Proposal from Q3FY2010

Karnataka9%

Others32%

Gujarat10%

Rajasthan4%

Madhya Pradesh5%

West Bengal4%

Andhra Pradesh10%

Maharashtra9%

Orissa7%

Tamil Nadu6%

Kerala4%

Source: Calculated from Capex, CMIE.

financial services along with real estate sectors are not

showing any sign of reversal in downward trend. In

order to help strengthen the early signs of economy

recovery and make it sustainable, the pick in

government's new investment proposals must be

increasingly complimented with private sector

investments, which, in turn, would require rigorous and

continuing policy interventions by the government as

well as RBI.

Conclusion

Pick up in new investment proposals, led by government

owned projects, during third quarter of current fiscal is a

welcome sign, especially as it owes its origin in

manufacturing and electricity sectors. Maintaining the

momentum, however, is crucial at a time when overall

economic growth continues to remain tepid and non-

INVESTMENT TRACKER

22ECONOMY MATTERS

Travel & Tourism

Global Tourism Sector

The travel and tourism industry has emerged as one of

the largest and fastest growing economic sectors

globally. According to the United Nations World Tourism

Organization's (UNWTO) report "Tourism Highlights

2013", tourism's total contribution to worldwide GDP is

approximately 9 per cent. Tourism exports in 2012

amounted to US$1.3 trillion, accounting for 6 per cent of

the world's exports. New tourist destinations, especially

those in the emerging markets, have started gaining

prominence with traditional markets reaching maturity.

Asia Pacific recorded the highest growth in the number

of international tourist arrivals in 2012 at 7 per cent,

followed by Africa at 6 per cent. International tourist

arrivals are set to increase at a growth rate of 3.3 per

cent per annum and amount to approximately 1.4 billion

by 2020 and 1.8 billion by 2030, implying an increase of 43

million international tourist arrivals each year.

The present section reviews the travel & tourism

sector based largely on the Report "Travel &

Tourism: Potential, Opportunities and Enabling

Framework for Sustainable Growth" prepared by the

Confederation of Indian Industry (CII) and KPMG. The

report discusses the potential of the travel & tourism

sector in general, performance of tourism sector in

various states of India, benefits of seamless, main issues

in the tourism sector and key recommendations for the

sector.

SECTOR IN FOCUS

23 FEBRUARY 2014

Figure 6: Average Share of States in Investment Proposal During Q1, Q2 and Q3 FY2014 (%)

Kerala14%

Jammu & Kashmir 13%

West Bengal11%

Rajasthan10%Gujarat

8%

Orissa8%

Jharkhand5%

Karnataka5%

Tamil Nadu4%

Andhra Pradesh4%

Others18%

Source: Calculated from Capex, CMIE.

Figure 7: Average Share of States in New Investment Proposal from Q3FY2010

Karnataka9%

Others32%

Gujarat10%

Rajasthan4%

Madhya Pradesh5%

West Bengal4%

Andhra Pradesh10%

Maharashtra9%

Orissa7%

Tamil Nadu6%

Kerala4%

Source: Calculated from Capex, CMIE.

financial services along with real estate sectors are not

showing any sign of reversal in downward trend. In

order to help strengthen the early signs of economy

recovery and make it sustainable, the pick in

government's new investment proposals must be

increasingly complimented with private sector

investments, which, in turn, would require rigorous and

continuing policy interventions by the government as

well as RBI.

Conclusion

Pick up in new investment proposals, led by government

owned projects, during third quarter of current fiscal is a

welcome sign, especially as it owes its origin in

manufacturing and electricity sectors. Maintaining the

momentum, however, is crucial at a time when overall

economic growth continues to remain tepid and non-

INVESTMENT TRACKER

22ECONOMY MATTERS

2524ECONOMY MATTERS

CAGR of 12 per cent from the estimated Rs 2,222 billion in 4the year 2013 to Rs 6,818 billion by 2023 . The travel and

tourism sector supported 25 million jobs in 2012, directly

related to the tourism sector. Constituting 4.9 per cent

of the total employment in the country in 2012, this is 5expected to amount to 31 million jobs by 2023 .

Impact of Tourism Sector on

GDP & Employment

The travel and tourism sector directly contributed Rs

1,920 billion to India's GDP in 2012, reflecting a CAGR of

14 per cent since 2007. This is forecasted to rise at a

SECTOR IN FOCUS

FEBRUARY 2014

1160 1228

1437

1674

1920

2222

2008 2009 2010 2011 2012 2013E

Travel and Tourism Direct Contribution to GDP, Rs Billion

Source: WTTC travel and tourism Economic Impact 2013- India, Data taken at Nominal Prices

investments lead to social development of an economy

as infrastructure created for tourism purposes in areas

of transportation, accommodation etc. can also be

utilised by the community in general.

Capital investment in the travel and tourism sector in

2012 was estimated at Rs 1,761.4 billion amounting to

approximately 6.2 per cent of total investment in the

Indian economy. It is expected to increase by 14.2 per

cent in 2013, and witness further annual growth rate of 610.5 per cent by 2023 amounting to Rs 5,459 billion .

Capital Investment in Tourism

Sector

Capital investments in the tourism sector include

spending by all sectors directly involved in the travel and

tourism industry. Spending by other industries on

specific tourism assets such as new visitor

accommodation and passenger transport equipment,

as well as restaurants and leisure facilities for specific

tourism use also form part of capital investments. Such

1556

11281319

1545

1761

2012

2008 2009 2010 2011 2012 2013E

Capital Investment in Travel & Tourism Sector, Rs billion

Source: WTTC travel and tourism Economic Impact 2013- India, Data taken at Nominal Prices

4. WTTC travel and tourism Economic Impact 2013- India, Data taken at Nominal Prices 5. A multiplier measures total change throughout the economy from one unit change for a given sector6. WTTC travel and tourism Economic Impact 2013- India, Data taken at Nominal Prices

Competitiveness Index. India has been witnessing

steady growth in its travel and tourism sector over the

past few years. Total tourist visits have increased at a

rate of 16.3 per cent per annum from 577 million tourists 1 2in 2008 to 1057 million tourists in 2012 .

With the international tourist arrivals in India (pegged at

7.5 million in 2013) expected to witness an annual

growth rate of 6.2 per cent over the next decade, visitor

exports (expenditure generated by foreign tourists) are

expected to amount to Rs 2,958 billion by 2023, growing 3at 9.6 per cent per annum . This growth can mainly be

attributed to the rising income levels and changing

lifestyles, diverse tourism offerings and policy &

infrastructural support by the government such as

simplification of visa procedures and tax holidays for

hotels.

Indian Tourism Sector

The travel and tourism sector holds strategic

importance in the Indian economy, providing several

socio-economic benefits. Provision of employment,

earnings of foreign exchange, and expansion of other

industries such as agriculture, construction, handicrafts

etc. are some of the important economic benefits

provided by the tourism sector. In addition, investments

in infrastructural facilities such as transportation,

accommodation and other tourism related services lead

to an overall development of infrastructure in the

economy. According to the World Economic Forum's

Travel and Tourism Competitiveness Report 2013, India th thranked 11 in the Asia pacific region and 65 globally out

of 140 economies ranked on travel and tourism

SECTOR IN FOCUS

Europe Asia Pacific Americas Africa Middle East

486 516534

205 218 234

150 156 163

50 49 5258 55 52

2010 2011 2012

International Tourists Arrival (in millions)

Source: UNWTO Tourism Highlights, 2013

563669

748865

1036

1414

18

19

21

2008 2009 2010 2011 2012

Domestic Foreign

Tourist Visits in India (in millions)

Source: India Tourism Statistics 2008, 2009, 2010, 2011, Ministry of Tourism

1. India Tourism Statistics 2008, Ministry of Tourism2. http://tourism.gov.in/writereaddata/CMSPagePicture/file/marketresearch/New/2012%20Data.pdf3. WTTC travel and tourism Economic Impact 2013- India, Data taken at Nominal Prices

2524ECONOMY MATTERS

CAGR of 12 per cent from the estimated Rs 2,222 billion in 4the year 2013 to Rs 6,818 billion by 2023 . The travel and

tourism sector supported 25 million jobs in 2012, directly

related to the tourism sector. Constituting 4.9 per cent

of the total employment in the country in 2012, this is 5expected to amount to 31 million jobs by 2023 .

Impact of Tourism Sector on

GDP & Employment

The travel and tourism sector directly contributed Rs

1,920 billion to India's GDP in 2012, reflecting a CAGR of

14 per cent since 2007. This is forecasted to rise at a

SECTOR IN FOCUS

FEBRUARY 2014

1160 1228

1437

1674

1920

2222

2008 2009 2010 2011 2012 2013E

Travel and Tourism Direct Contribution to GDP, Rs Billion

Source: WTTC travel and tourism Economic Impact 2013- India, Data taken at Nominal Prices

investments lead to social development of an economy

as infrastructure created for tourism purposes in areas

of transportation, accommodation etc. can also be

utilised by the community in general.

Capital investment in the travel and tourism sector in

2012 was estimated at Rs 1,761.4 billion amounting to

approximately 6.2 per cent of total investment in the

Indian economy. It is expected to increase by 14.2 per

cent in 2013, and witness further annual growth rate of 610.5 per cent by 2023 amounting to Rs 5,459 billion .

Capital Investment in Tourism

Sector

Capital investments in the tourism sector include

spending by all sectors directly involved in the travel and

tourism industry. Spending by other industries on

specific tourism assets such as new visitor

accommodation and passenger transport equipment,

as well as restaurants and leisure facilities for specific

tourism use also form part of capital investments. Such

1556

11281319

1545

1761

2012

2008 2009 2010 2011 2012 2013E

Capital Investment in Travel & Tourism Sector, Rs billion

Source: WTTC travel and tourism Economic Impact 2013- India, Data taken at Nominal Prices

4. WTTC travel and tourism Economic Impact 2013- India, Data taken at Nominal Prices 5. A multiplier measures total change throughout the economy from one unit change for a given sector6. WTTC travel and tourism Economic Impact 2013- India, Data taken at Nominal Prices

Competitiveness Index. India has been witnessing

steady growth in its travel and tourism sector over the

past few years. Total tourist visits have increased at a

rate of 16.3 per cent per annum from 577 million tourists 1 2in 2008 to 1057 million tourists in 2012 .

With the international tourist arrivals in India (pegged at

7.5 million in 2013) expected to witness an annual

growth rate of 6.2 per cent over the next decade, visitor

exports (expenditure generated by foreign tourists) are

expected to amount to Rs 2,958 billion by 2023, growing 3at 9.6 per cent per annum . This growth can mainly be

attributed to the rising income levels and changing

lifestyles, diverse tourism offerings and policy &

infrastructural support by the government such as

simplification of visa procedures and tax holidays for

hotels.

Indian Tourism Sector

The travel and tourism sector holds strategic

importance in the Indian economy, providing several

socio-economic benefits. Provision of employment,

earnings of foreign exchange, and expansion of other

industries such as agriculture, construction, handicrafts

etc. are some of the important economic benefits

provided by the tourism sector. In addition, investments

in infrastructural facilities such as transportation,

accommodation and other tourism related services lead

to an overall development of infrastructure in the

economy. According to the World Economic Forum's

Travel and Tourism Competitiveness Report 2013, India th thranked 11 in the Asia pacific region and 65 globally out

of 140 economies ranked on travel and tourism

SECTOR IN FOCUS

Europe Asia Pacific Americas Africa Middle East

486 516534

205 218 234

150 156 163

50 49 5258 55 52

2010 2011 2012

International Tourists Arrival (in millions)

Source: UNWTO Tourism Highlights, 2013

563669

748865

1036

1414

18

19

21

2008 2009 2010 2011 2012

Domestic Foreign

Tourist Visits in India (in millions)

Source: India Tourism Statistics 2008, 2009, 2010, 2011, Ministry of Tourism

1. India Tourism Statistics 2008, Ministry of Tourism2. http://tourism.gov.in/writereaddata/CMSPagePicture/file/marketresearch/New/2012%20Data.pdf3. WTTC travel and tourism Economic Impact 2013- India, Data taken at Nominal Prices

26ECONOMY MATTERS 27

reach out to the young tech savvy global

population.

lFocused websites, exhaustive in content, user

friendly and attractive in visual appeal may be

developed in multiple languages of target

countries.

lParticipation in international events may be

increased and a greater number of domestic

tourism events and road shows may be

organized in order to offset seasonality of

tourist inflow. Events may be based on

innovative themes of music, dance, sports,

food, fruits, handicrafts, Indian culture and

traditions, Indian villages, festivals etc.

lCustomised tour packages may be developed

keeping in mind the profile of visitors, budget

and travel requirements. Comparative pricing of

tourism products may also need to be

considered after analysis of other tourism

packages and products available.

8). Differentiated tourism offerings for repeat

travellers: Customized packages with different tourism

products and discounts may be provided to repeat

travelers in order to provide a different and enriching

experience on each visit.

9). Partnership oriented marketing: Travel trade

partnerships may be extended beyond tour operators,

guides etc. to partners from other industries such as

international hotel chains, airlines or credit card

companies.

10). Human resource development: Provision of

additional training institutes, enhancing capacity of

existing ones along with introduction of short term

courses providing specific skills directed at hospitality

and travel trade sector employees may be required for

catering to the increased manpower and skill

requirements.

11). Inclusive growth: There is a need to spread

education and awareness on the importance of tourism

sector and increase stakeholder participation involving

the government, private sector and the community at

large. Marketing campaigns like 'Atithidevo Bhava' may

be implemented at regular intervals.

4). Development of tourism destinations: An extensive

market research and evaluation exercise may be

undertaken in order to identify desired tourist

destination attributes and major markets and

segments. Identified tourist destinations may then be

developed through flagship projects involving state

governments and private sector players. These may be

developed either as 'products' such as religious,

wellness, adventure, nature, rural or agriculture

tourisms or as 'experiences' such as the Rama trail

planned in Gujarat or the Spice Route Tourism planned

in Kerala.

5). Development of tourist circuits across states: Key

tourism circuits across the country may be identified

basis discussions with key stakeholders such as state

governments, local travel trade partners etc. Key

attributes, tourism potential, current and future

connectivity and synergy within destinations may be

studied.

6). Seamless travel within circuits: Steps may be taken

in order to enhance travel experience for visitors across

states. Payment of road tax, toll etc. while entering each

state may be replaced by an integrated taxation regime.

This may further be augmented by development of an

integrated public transport system at a national level on

lines of the Eurail network in Europe.

7). Joint marketing programs: With tourist circuits

spanning across various states, collaborative marketing

efforts may be required for promotion of the same:

Focused branding and promotional campaigns

may be designed.

Marketing material like brochures, print

creative, audio video presentations, short films,

radio jingles, creation of web-sites, online

creatives, advertisements over media channels

like print, radio or internet etc. may be utilised.

Involvement of local travel trade partners may

be encouraged. Trips to involved destinations,

informative sessions, financial support and

incentives may be provided.

Direct and intensive reach marketing programs

may be executed through social networking

sites such as twitter, facebook etc. in order to

l

l

l

l

SECTOR IN FOCUS

FEBRUARY 2014

The growth of the Indian travel and tourism industry is

being impacted by several industry drivers. Some of

these drivers are as follows:

Growth of Tourism in India - Key

Drivers & Trends

Key Issues and Suggestions

Further, some of the key issues facing the sector include

lack of skilled & trained manpower, lack of focus on

safety & security of tourists, provision of adequate

healthcare facilities for tourist and lack of adequate

infrastructure in the country.

In order to address these key issues faced by the sector,

some of the key recommendations for boosting the

sector's growth are summarised below:

1). Projection of India's image as a safe and secure

tourist destination: Tourist Police Task Force has been

established by various state governments for ensuring

safety and security for tourists. Special sensitisation

campaigns may be implemented for women tourists

and to publicise these campaigns on global platforms.

Health concerns for tourists visiting India also needs to

be mitigated.

2). Attract private investment: Private sector players

may be encouraged to participate in development of

tourism infrastructure by provision of fiscal as well as

non fiscal incentives. PPP projects and formation of

Special Purpose Vehicles for mega tourism projects may

be required.

3). Infrastructural development: Investments in

tourism infrastructure may include development of

both tourism as well as civic infrastructure. This may

also involve provision of way side amenities, tourist

information bureaus and websites for providing

requisite tourist information. Efforts towards

enhancement of overall transport infrastructure in the

form of good quality roads, rail network, airports,

helipads, availability of tourist vehicles etc. may also be

strengthened in order to improve the overall

infrastructure.

SECTOR IN FOCUS

Growth of Tourism in India - Key Drivers & Trends

Source: Report on 'Travel & Tourism: Potential, Opportunities and Enabling Framework for Sustainable aGrowth', published by CII & KPMG

Domestic Tourism

Inbound Tourism

Outbound Tourism

lHealthy economic growth and rising income levels

lChanging consumer lifestyles

lAvailability of low cost airlines

lDiverse product offerings

lEasy finance availability

l

lAttractive tour packages

lHealthy economic growth

lEasy finance availability

lInternational events and increased business travel

Rising disposable incomes with Indian consumers

l

lRich natural/cultural resources and geograohical diversity

lGovernment inititiatives & policy support

lMultiple marketing and promotion activities

lHealthy economic growth levels

lHost nation for major international events

New product offerings

26ECONOMY MATTERS 27

reach out to the young tech savvy global

population.

lFocused websites, exhaustive in content, user

friendly and attractive in visual appeal may be

developed in multiple languages of target

countries.

lParticipation in international events may be

increased and a greater number of domestic

tourism events and road shows may be

organized in order to offset seasonality of

tourist inflow. Events may be based on

innovative themes of music, dance, sports,

food, fruits, handicrafts, Indian culture and

traditions, Indian villages, festivals etc.

lCustomised tour packages may be developed

keeping in mind the profile of visitors, budget

and travel requirements. Comparative pricing of

tourism products may also need to be

considered after analysis of other tourism

packages and products available.

8). Differentiated tourism offerings for repeat

travellers: Customized packages with different tourism

products and discounts may be provided to repeat

travelers in order to provide a different and enriching

experience on each visit.

9). Partnership oriented marketing: Travel trade

partnerships may be extended beyond tour operators,

guides etc. to partners from other industries such as

international hotel chains, airlines or credit card

companies.

10). Human resource development: Provision of

additional training institutes, enhancing capacity of

existing ones along with introduction of short term

courses providing specific skills directed at hospitality

and travel trade sector employees may be required for

catering to the increased manpower and skill

requirements.

11). Inclusive growth: There is a need to spread

education and awareness on the importance of tourism

sector and increase stakeholder participation involving

the government, private sector and the community at

large. Marketing campaigns like 'Atithidevo Bhava' may

be implemented at regular intervals.

4). Development of tourism destinations: An extensive

market research and evaluation exercise may be

undertaken in order to identify desired tourist

destination attributes and major markets and

segments. Identified tourist destinations may then be

developed through flagship projects involving state

governments and private sector players. These may be

developed either as 'products' such as religious,

wellness, adventure, nature, rural or agriculture

tourisms or as 'experiences' such as the Rama trail

planned in Gujarat or the Spice Route Tourism planned

in Kerala.

5). Development of tourist circuits across states: Key

tourism circuits across the country may be identified

basis discussions with key stakeholders such as state

governments, local travel trade partners etc. Key

attributes, tourism potential, current and future

connectivity and synergy within destinations may be

studied.

6). Seamless travel within circuits: Steps may be taken

in order to enhance travel experience for visitors across

states. Payment of road tax, toll etc. while entering each

state may be replaced by an integrated taxation regime.

This may further be augmented by development of an

integrated public transport system at a national level on

lines of the Eurail network in Europe.

7). Joint marketing programs: With tourist circuits

spanning across various states, collaborative marketing

efforts may be required for promotion of the same:

Focused branding and promotional campaigns

may be designed.

Marketing material like brochures, print

creative, audio video presentations, short films,

radio jingles, creation of web-sites, online

creatives, advertisements over media channels

like print, radio or internet etc. may be utilised.

Involvement of local travel trade partners may

be encouraged. Trips to involved destinations,

informative sessions, financial support and

incentives may be provided.

Direct and intensive reach marketing programs

may be executed through social networking

sites such as twitter, facebook etc. in order to

l

l

l

l

SECTOR IN FOCUS

FEBRUARY 2014

The growth of the Indian travel and tourism industry is

being impacted by several industry drivers. Some of

these drivers are as follows:

Growth of Tourism in India - Key

Drivers & Trends

Key Issues and Suggestions

Further, some of the key issues facing the sector include

lack of skilled & trained manpower, lack of focus on

safety & security of tourists, provision of adequate

healthcare facilities for tourist and lack of adequate

infrastructure in the country.

In order to address these key issues faced by the sector,

some of the key recommendations for boosting the

sector's growth are summarised below:

1). Projection of India's image as a safe and secure

tourist destination: Tourist Police Task Force has been

established by various state governments for ensuring

safety and security for tourists. Special sensitisation

campaigns may be implemented for women tourists

and to publicise these campaigns on global platforms.

Health concerns for tourists visiting India also needs to

be mitigated.

2). Attract private investment: Private sector players

may be encouraged to participate in development of

tourism infrastructure by provision of fiscal as well as

non fiscal incentives. PPP projects and formation of

Special Purpose Vehicles for mega tourism projects may

be required.

3). Infrastructural development: Investments in

tourism infrastructure may include development of

both tourism as well as civic infrastructure. This may

also involve provision of way side amenities, tourist

information bureaus and websites for providing

requisite tourist information. Efforts towards

enhancement of overall transport infrastructure in the

form of good quality roads, rail network, airports,

helipads, availability of tourist vehicles etc. may also be

strengthened in order to improve the overall

infrastructure.

SECTOR IN FOCUS

Growth of Tourism in India - Key Drivers & Trends

Source: Report on 'Travel & Tourism: Potential, Opportunities and Enabling Framework for Sustainable aGrowth', published by CII & KPMG

Domestic Tourism

Inbound Tourism

Outbound Tourism

lHealthy economic growth and rising income levels

lChanging consumer lifestyles

lAvailability of low cost airlines

lDiverse product offerings

lEasy finance availability

l

lAttractive tour packages

lHealthy economic growth

lEasy finance availability

lInternational events and increased business travel

Rising disposable incomes with Indian consumers

l

lRich natural/cultural resources and geograohical diversity

lGovernment inititiatives & policy support

lMultiple marketing and promotion activities

lHealthy economic growth levels

lHost nation for major international events

New product offerings

28ECONOMY MATTERS

The Employment Conundrum

Accelerating growth and expanding employment

opportunities are the goals of economic policy.

However, the growth process in the past decade has

brought about significant changes in the structure of the

Indian economy and thereby on employment creation.

Defying somewhat the conventional paradigm of

transition, the share of services in output has touched

close to 60 per cent, a sharp rise from the 42 per cent in

early 1990s. However, the employment shift in the

sector has lagged behind the shift in output. The share of

services in employment is close to only 25 per cent. In

contrast, share of agriculture in employment has

remained high at around 50 per cent, while its share in

GDP has moderated sharply from 29.5 per cent in 1991 to

around 14 per cent in FY13. Hence, one of the key

challenges for the 12th Five Year Plan and beyond is to

create employment in the non-agricultural sectors so

that the share of employment in agriculture declines in

line with its share in GDP. This article seeks to evaluate

the most recent data on employment-unemployment

survey (EUS) released by the 68th round of NSSO in June

last year.

EUS surveys are usually conducted every five years, but

the EUS 2011-12 was carried out two years after the EUS

2009-10 (66th round) as the latter had shown some

contentious results in terms of low employment growth.

It has been speculated but never officially admitted that

this unusual decision to have a second survey, in 2011-12,

within two years of the previous one was because 2009-

10 was a drought year and that this may have affected

the results of the survey, which painted a less than

positive picture of the economy. Hence, in this article,

we would do a comparison of survey results of 2004-05

and 2011-12.

Total employment in 2011-12 in the country, according to

the latest 68th round of survey by the National Sample

Survey Office (NSSO), stood at 473 million, up from 359

Trends in Employment &

Unemployment

FOCUS OF THE MONTH

29 FEBRUARY 2014

SECTOR IN FOCUS

states and shortfall of adequately trained and skilled

manpower. While several plans and programmes have

already been devised for tackling these challenges,

successful implementation would be critical to

accelerate growth. Concerted efforts by all

stakeholders such as the central and state

governments, private sector and the community at

large are pertinent for sustainable development and

maintenance of the travel and tourism sector in the

country.

Conclusion

The travel and tourism industry has emerged as one of

the largest and fastest growing economic sectors

globally. Its contribution to the global Gross Domestic

Product (GDP) and employment has increased

significantly. However, the sector is facing challenges

such as lack of good quality tourism infrastructure,

global concerns regarding health and safety of tourists,

disparate passenger/road tax structures across various

28ECONOMY MATTERS

The Employment Conundrum

Accelerating growth and expanding employment

opportunities are the goals of economic policy.

However, the growth process in the past decade has

brought about significant changes in the structure of the

Indian economy and thereby on employment creation.

Defying somewhat the conventional paradigm of

transition, the share of services in output has touched

close to 60 per cent, a sharp rise from the 42 per cent in

early 1990s. However, the employment shift in the

sector has lagged behind the shift in output. The share of

services in employment is close to only 25 per cent. In

contrast, share of agriculture in employment has

remained high at around 50 per cent, while its share in

GDP has moderated sharply from 29.5 per cent in 1991 to

around 14 per cent in FY13. Hence, one of the key

challenges for the 12th Five Year Plan and beyond is to

create employment in the non-agricultural sectors so

that the share of employment in agriculture declines in

line with its share in GDP. This article seeks to evaluate

the most recent data on employment-unemployment

survey (EUS) released by the 68th round of NSSO in June

last year.

EUS surveys are usually conducted every five years, but

the EUS 2011-12 was carried out two years after the EUS

2009-10 (66th round) as the latter had shown some

contentious results in terms of low employment growth.

It has been speculated but never officially admitted that

this unusual decision to have a second survey, in 2011-12,

within two years of the previous one was because 2009-

10 was a drought year and that this may have affected

the results of the survey, which painted a less than

positive picture of the economy. Hence, in this article,

we would do a comparison of survey results of 2004-05

and 2011-12.

Total employment in 2011-12 in the country, according to

the latest 68th round of survey by the National Sample

Survey Office (NSSO), stood at 473 million, up from 359

Trends in Employment &

Unemployment

FOCUS OF THE MONTH

29 FEBRUARY 2014

SECTOR IN FOCUS

states and shortfall of adequately trained and skilled

manpower. While several plans and programmes have

already been devised for tackling these challenges,

successful implementation would be critical to

accelerate growth. Concerted efforts by all

stakeholders such as the central and state

governments, private sector and the community at

large are pertinent for sustainable development and

maintenance of the travel and tourism sector in the

country.

Conclusion

The travel and tourism industry has emerged as one of

the largest and fastest growing economic sectors

globally. Its contribution to the global Gross Domestic

Product (GDP) and employment has increased

significantly. However, the sector is facing challenges

such as lack of good quality tourism infrastructure,

global concerns regarding health and safety of tourists,

disparate passenger/road tax structures across various

FOCUS OF THE MONTH

31 FEBRUARY 2014

Sectoral Shares in Employment

Comparing the results to the previous two surveys, it is

apparent that employment in agriculture still remains

high at 231 million in 2011-12, though it has declined from

2004-05. Infact, share of agriculture in employment for

the first time fell below 50 per cent in 2011-12 from 56 per

cent in 2004-05. Agricultural employment fell as labour

force migrated from agriculture to industry and services.

As for industry, it has witnessed rise in employment from

83 million in 2004-05 to 115 million in 2011-12. Its share in

employment has also risen from 18.7 per cent to 24.3 per

cent in the comparable period. Services sector on the

other hand has not seen a significant rise in it share in

employment, though its share in GDP has increased

sharply. One of the possible implications of this trend

seen in services sector could be that the sector's

productivity is on the rise.

30ECONOMY MATTERS

FOCUS OF THE MONTH

next three years, (between 2009-10 and 2011-12), when

the economy suffered slowdown in growth momentum,

1 4 m i l l i o n a d d i t i o n a l j o b s w e r e p r o v i d e d .

Unemployment rate (which indicates the proportion of

people in the labour force seeking work but unable to

million in 1991. Despite the high growth witnessed by

economy during the period of 2004-05 to 2009-10, only

one million additional employment was created,

signifying that growth may not necessarily lead to

employment generation. Corroborating this, during the

268

83106

231

115127

Agriculture Industry Services

2004-05 2011-12

Share in Employment (%)All-India Employment (in millions)

thSource: 68 Round of NSS & CII Research

Agriculture 56.6 48.9

Industry 18.7 24.3

Services 24.7 26.8

2004-05 2011-12

359

458 459 473

1999-00 2004-05 2009-10 2011-12

Total Employment (in millions)

thSource: 68 Round of NSS & CII Research

29.4 per cent in 2004-05 to 23.3 per cent in 2009-10 and

then even lower to 22.5 per cent in 2011-12. If fewer

women are joining the labour force, even fewer are

being employed. The worker participation rate (WPR or

workforce to population) fell from 28.7 per cent in 2004-

05 to 22.8 per cent in 2009-10 and then even lower to 21.9

per cent in 2011-12.

But the good news in terms of increase in employment

levels and fall in unemployment rate has been to some

extent marred by decline in the quality of employment.

The NSSO data reiterates the worrying trend about the

diminishing presence of women in the workforce.

Women's labour force participation rate (LFPR or the

proportion of labour force to total population) fell from

Employment Trends, Usual Status (All Ages)

thSource: 68 Round of NSS

(in millions) 2004-05 2011-12

Male 309.3 343.8

Female 148.6 129.1

Total 458.0 472.9

2004-05 to 2011-12. This is indeed a good sign and

indicates that employment opportunities are rising in

the organised sector. Self-employment declined by 13

million over this period - a likely result of a decline in

agriculture employment.

However, as regards to another strand indicating quality

of employment, causalisation of labour, there is some

news to cheer. Contrary to perceptions, more salaried

employment was created (19 million) compared with

casual employment (9.4 million) over the period from

Type of Employment

thSource: 68 Round of NSS & CII Research

(in millions) Self-Employed Salaried Casual Total Employed

2004-05 260 65 132 458

2011-12 247 85 141 473

Change in Employment -14 19 9 15

Amongst the sub-sectors of industry, construction

sector created the largest incremental employment

between 2004-05 and 2011-12. While, manufacturing also

saw a jump, albeit, moderate in employment during the

comparable period. In 2011-12, the services sector

employed more than manufacturing and construction

combined. Among the services sector, trade, hotels and

restaurants were the largest employment generator,

accounting for almost half of total service sector

employment in 2011-12. Between 2004-05 and 2011-12,

education, health and recreation services added even

more employment than the fast growing financial, real

estate, business and IT services sector.

FOCUS OF THE MONTH

31 FEBRUARY 2014

Sectoral Shares in Employment

Comparing the results to the previous two surveys, it is

apparent that employment in agriculture still remains

high at 231 million in 2011-12, though it has declined from

2004-05. Infact, share of agriculture in employment for

the first time fell below 50 per cent in 2011-12 from 56 per

cent in 2004-05. Agricultural employment fell as labour

force migrated from agriculture to industry and services.

As for industry, it has witnessed rise in employment from

83 million in 2004-05 to 115 million in 2011-12. Its share in

employment has also risen from 18.7 per cent to 24.3 per

cent in the comparable period. Services sector on the

other hand has not seen a significant rise in it share in

employment, though its share in GDP has increased

sharply. One of the possible implications of this trend

seen in services sector could be that the sector's

productivity is on the rise.

30ECONOMY MATTERS

FOCUS OF THE MONTH

next three years, (between 2009-10 and 2011-12), when

the economy suffered slowdown in growth momentum,

1 4 m i l l i o n a d d i t i o n a l j o b s w e r e p r o v i d e d .

Unemployment rate (which indicates the proportion of

people in the labour force seeking work but unable to

million in 1991. Despite the high growth witnessed by

economy during the period of 2004-05 to 2009-10, only

one million additional employment was created,

signifying that growth may not necessarily lead to

employment generation. Corroborating this, during the

268

83106

231

115127

Agriculture Industry Services

2004-05 2011-12

Share in Employment (%)All-India Employment (in millions)

thSource: 68 Round of NSS & CII Research

Agriculture 56.6 48.9

Industry 18.7 24.3

Services 24.7 26.8

2004-05 2011-12

359

458 459 473

1999-00 2004-05 2009-10 2011-12

Total Employment (in millions)

thSource: 68 Round of NSS & CII Research

29.4 per cent in 2004-05 to 23.3 per cent in 2009-10 and

then even lower to 22.5 per cent in 2011-12. If fewer

women are joining the labour force, even fewer are

being employed. The worker participation rate (WPR or

workforce to population) fell from 28.7 per cent in 2004-

05 to 22.8 per cent in 2009-10 and then even lower to 21.9

per cent in 2011-12.

But the good news in terms of increase in employment

levels and fall in unemployment rate has been to some

extent marred by decline in the quality of employment.

The NSSO data reiterates the worrying trend about the

diminishing presence of women in the workforce.

Women's labour force participation rate (LFPR or the

proportion of labour force to total population) fell from

Employment Trends, Usual Status (All Ages)

thSource: 68 Round of NSS

(in millions) 2004-05 2011-12

Male 309.3 343.8

Female 148.6 129.1

Total 458.0 472.9

2004-05 to 2011-12. This is indeed a good sign and

indicates that employment opportunities are rising in

the organised sector. Self-employment declined by 13

million over this period - a likely result of a decline in

agriculture employment.

However, as regards to another strand indicating quality

of employment, causalisation of labour, there is some

news to cheer. Contrary to perceptions, more salaried

employment was created (19 million) compared with

casual employment (9.4 million) over the period from

Type of Employment

thSource: 68 Round of NSS & CII Research

(in millions) Self-Employed Salaried Casual Total Employed

2004-05 260 65 132 458

2011-12 247 85 141 473

Change in Employment -14 19 9 15

Amongst the sub-sectors of industry, construction

sector created the largest incremental employment

between 2004-05 and 2011-12. While, manufacturing also

saw a jump, albeit, moderate in employment during the

comparable period. In 2011-12, the services sector

employed more than manufacturing and construction

combined. Among the services sector, trade, hotels and

restaurants were the largest employment generator,

accounting for almost half of total service sector

employment in 2011-12. Between 2004-05 and 2011-12,

education, health and recreation services added even

more employment than the fast growing financial, real

estate, business and IT services sector.

33

FOCUS OF THE MONTH

FEBRUARY 2014

the Indian population would be in the working age

group and India would enjoy the demographic dividend.

Table 1 provides details of youth population in India.

India enjoys a demographic dividend where more than

50 per cent of its population is in the working age group

of 15 to 59 and 28 per cent in age group 15-29. It is

expected that by the year 2020, more than 65 per cent of

Youth Unemployment in India

India is declining, the youth unemployment remains

high. As per the World Bank Report, in India youth

unemployment as a percentage of youth population is

10 per cent for males and 11 per cent for females. The lack

of decent employment opportunities forces youth to

take up self-employment and low paid contractual jobs

with deplorable working conditions. This is evident from

the fact that more than 93 per cent of the workforce is

employed in the informal sector. The youth employment

has been recognised as a priority agenda of the

government and policies are being framed for

enhancing their employability.

The labour market indicators viz. labour force 2participation rates (LFPR) , worker population ratio

3 4 (WPR) and unemployment rate (UR) provides an

important insight into the labour market conditions for

youth in India.

Age Specific Labour Force

Participation Rate

The trend of LFPR in developed economies shows that

LFPR for youth declines with development as more and

more youth enrol themselves in education. Table 2

below presents labour force participation rates for

youth and all age group between 1993-94 and 2011-12.

The demographic dividend offers an economic

opportunity to India to be utilized for fast tracking its

growth, particularly in the manufacturing sector. This thbecomes all the more important when 12 Plan envisions

creation of 50 million non-farm employment

opportunities. However, creating jobs for the youth is a

biggest challenge faced both by developed and

developing economies around the world.

This article focuses on issues of youth employment and

unemployment in India wherein the youth is defined to

include the population in the age group 15 to 29. The

available data shows that poverty and low levels of

education are the biggest barriers for the decent

employment opportunities for the youth. Being

employable in the labour market remains a distant

dream. According to the recent data, youth is one of the

hardest hit segments of the world's population with

high unemployment rates across the globe. Youth

unemployment in US is more than 17 per cent where

youth constitute age group 15 to 24. The situation is

worse in Europe where youth unemployment in Greece

is approaching 60 per cent followed by Spain 55 per cent,

Italy 35 per cent and France 25 per cent. In the Indian

context, as per Census 2011, youth accounts for 28 per

cent of population. Although, the dependency ratio in

Table 1: India's Youth Employment

Source: Census of India 2011

2011 Census 0-14 Years 0-19 Years 15-29 Years

Numbers in million 372.4 492.9 333.3

Share 31% 41 % 28%

1a 1b Labour & Employment, Minorities & Voluntary Action Cell and Labour & Employment2 Labour force participation rate LFPR is defined as the number of persons/person-days in the labour force (which includes both the employed

and unemployed) per 1000 persons /person-days3 Worker Population Ratio (WPR) is defined as the number of persons/person-days employed per 1000 persons/person-days.4 Unemployment Rate (UR is defined as the number of persons/person-days unemployed per 1000 persons/person-days in the labour force)

FOCUS OF THE MONTH

32ECONOMY MATTERS

Unemployment rates too have been declining over the

last decade in all categories, but rural women have been

leaving the labour force and continue to do so. In this

month's Special focus, experts examine these

employment nuances apart from analysing other finer

aspects of employment situation in India.

There are changes taking place in the labour force in

India. More and more people are finding employment in

non-farm activities, both in the industry and service

sectors. Moreover, an increasing number of workers

have been able to find regular/salaried employment.

1aMs. Sunita Sanghi, Adviser &1bMs. A. Srija, Director

Planning Commission, Government of India

In Services (in millions)Sectoral Employment in Industry (in millions)

Source: 68th Round of NSS & CII Research

54

26

4

60

50

5

Manufacturing Construction Mining & Utilities

2004-05 2011-12

Trad

e, H

otel

&

Res

tura

nt

Edu

catio

n, H

ealth

&

Rec

reat

ion

Ser

vice

s

Tran

spor

t, S

tora

ge &

C

omm

unic

atio

ns

Fin

anci

al, R

eal E

stat

e &

Bus

ines

s S

ervi

ces

Pub

lic

Adm

inis

trat

ion

IT S

ervi

ces

46.6

26.9

17.6

6.4 8.10.7

51.8

33.5

20.8

11 7.92.1

2004-05 2011-12

33

FOCUS OF THE MONTH

FEBRUARY 2014

the Indian population would be in the working age

group and India would enjoy the demographic dividend.

Table 1 provides details of youth population in India.

India enjoys a demographic dividend where more than

50 per cent of its population is in the working age group

of 15 to 59 and 28 per cent in age group 15-29. It is

expected that by the year 2020, more than 65 per cent of

Youth Unemployment in India

India is declining, the youth unemployment remains

high. As per the World Bank Report, in India youth

unemployment as a percentage of youth population is

10 per cent for males and 11 per cent for females. The lack

of decent employment opportunities forces youth to

take up self-employment and low paid contractual jobs

with deplorable working conditions. This is evident from

the fact that more than 93 per cent of the workforce is

employed in the informal sector. The youth employment

has been recognised as a priority agenda of the

government and policies are being framed for

enhancing their employability.

The labour market indicators viz. labour force 2participation rates (LFPR) , worker population ratio

3 4 (WPR) and unemployment rate (UR) provides an

important insight into the labour market conditions for

youth in India.

Age Specific Labour Force

Participation Rate

The trend of LFPR in developed economies shows that

LFPR for youth declines with development as more and

more youth enrol themselves in education. Table 2

below presents labour force participation rates for

youth and all age group between 1993-94 and 2011-12.

The demographic dividend offers an economic

opportunity to India to be utilized for fast tracking its

growth, particularly in the manufacturing sector. This thbecomes all the more important when 12 Plan envisions

creation of 50 million non-farm employment

opportunities. However, creating jobs for the youth is a

biggest challenge faced both by developed and

developing economies around the world.

This article focuses on issues of youth employment and

unemployment in India wherein the youth is defined to

include the population in the age group 15 to 29. The

available data shows that poverty and low levels of

education are the biggest barriers for the decent

employment opportunities for the youth. Being

employable in the labour market remains a distant

dream. According to the recent data, youth is one of the

hardest hit segments of the world's population with

high unemployment rates across the globe. Youth

unemployment in US is more than 17 per cent where

youth constitute age group 15 to 24. The situation is

worse in Europe where youth unemployment in Greece

is approaching 60 per cent followed by Spain 55 per cent,

Italy 35 per cent and France 25 per cent. In the Indian

context, as per Census 2011, youth accounts for 28 per

cent of population. Although, the dependency ratio in

Table 1: India's Youth Employment

Source: Census of India 2011

2011 Census 0-14 Years 0-19 Years 15-29 Years

Numbers in million 372.4 492.9 333.3

Share 31% 41 % 28%

1a 1b Labour & Employment, Minorities & Voluntary Action Cell and Labour & Employment2 Labour force participation rate LFPR is defined as the number of persons/person-days in the labour force (which includes both the employed

and unemployed) per 1000 persons /person-days3 Worker Population Ratio (WPR) is defined as the number of persons/person-days employed per 1000 persons/person-days.4 Unemployment Rate (UR is defined as the number of persons/person-days unemployed per 1000 persons/person-days in the labour force)

FOCUS OF THE MONTH

32ECONOMY MATTERS

Unemployment rates too have been declining over the

last decade in all categories, but rural women have been

leaving the labour force and continue to do so. In this

month's Special focus, experts examine these

employment nuances apart from analysing other finer

aspects of employment situation in India.

There are changes taking place in the labour force in

India. More and more people are finding employment in

non-farm activities, both in the industry and service

sectors. Moreover, an increasing number of workers

have been able to find regular/salaried employment.

1aMs. Sunita Sanghi, Adviser &1bMs. A. Srija, Director

Planning Commission, Government of India

In Services (in millions)Sectoral Employment in Industry (in millions)

Source: 68th Round of NSS & CII Research

54

26

4

60

50

5

Manufacturing Construction Mining & Utilities

2004-05 2011-12

Trad

e, H

otel

&

Res

tura

nt

Edu

catio

n, H

ealth

&

Rec

reat

ion

Ser

vice

s

Tran

spor

t, S

tora

ge &

C

omm

unic

atio

ns

Fin

anci

al, R

eal E

stat

e &

Bus

ines

s S

ervi

ces

Pub

lic

Adm

inis

trat

ion

IT S

ervi

ces

46.6

26.9

17.6

6.4 8.10.7

51.8

33.5

20.8

11 7.92.1

2004-05 2011-12

FOCUS OF THE MONTH

35 FEBRUARY 2014

19 age group, the ASWPR has increased for all other age

groups. The decline in WPR among rural females (14.2

percentage points) was steeper than the decline seen

for rural males (12.5 percentage points) and urban

males (3.5 percentage points) in the15-29 age group

during the period from 1999-2000 to 2011-12.

Age Specific Worker Population Ratio

(ASWFPR)

The ASWFPR also shows similar declining trend across

age groups for both rural male and female as well as for

urban males. In case of urban females, except for the 15-

and withdrawal of females from the labour market.

Unemployment Trend among Youth

As per NSSO 2011-12, unemployment rate was 2.4

percent for males and 3.7 percent for females as per

usual status among all age groups, while the

unemployment rate among the youth (15-29 years)

varied between 6.1 percent to 15.6 percent across the

different categories as may be seen in Table-4.

This is quite surprising because during the last twenty

years, when the economic reforms were in progress and

the economy was reaping an average growth rate of

around 6-7 percent per annum, the WPR of the youth

was declining. This could be either due to increasing

participation in the education or disappearance of the

traditional non-farm jobs. The opening up of the

economy led to migration of rural males to distant towns

and cities in search of jobs as construction workers, sales

men, delivery boys, security guards, rickshaw pullers etc

group 1999-2000 2004-2005 2009-2010 2011-2012 1999-2000 2004-2005 2009-2010 2011-2012

Table 3: Age-Specific WPR(ASWPR) among 15-29 and all Population

Rural

Male Female

15-19 503 497 358 303 304 319 186 156

20-24 844 849 768 742 409 410 295 278

25-29 950 966 957 942 491 513 391 357

15-29 741 742 648 616 400 410 288 258

all (0 +) 531 546 547 543 299 327 261 248

Urban

Male Female

15-19 314 335 231 223 105 128 76 78

20-24 658 684 617 594 155 201 160 160

25-29 883 909 906 906 194 229 196 231

15-29 593 623 564 558 149 184 144 157

all (0 +) 518 549 543 546 139 166 138 147

Source: Various Rounds of NSSO Employment and Unemployment Surveys

groups of 15-19 years and the 20-24 years after 2004-05,

there is an upward movement in 25-29 age group from

2009-10. The data suggests steeper decline for rural

females in all age groups. The younger male age groups,

both in the rural and urban areas, have also experienced

a decline. This decline is suggestive of increasing

participation of the youth in the education to enhance

their skills before entering the labour market. It is

expected that when these youngsters eventually join

the labour force, they will be far better skilled than

earlier.

It emerges that a sizeable proportion of male population

is in the labour market both in the rural and urban areas.

In almost last two decades, the LFPR on UPSS basis has

declined for all youth age groups vis- a- vis 1993-94, but

the decline is very steep for the rural females after 2004-

05. The withdrawal of rural females is in keeping with the

national trend and could be attributed to absence of job

opportunities in the rural areas or affected by the social

customs and conditions.

In case of urban females, the LFPR shows an oscillating

trend viz while there is a decline in the younger age

FOCUS OF THE MONTH

34ECONOMY MATTERS

Rural Male

(years) 1993-94 1999-00 2004-05 2009-10 2011-12

15-19 598 532 529 390 333

20-24 902 889 891 813 788

25-29 980 975 982 975 963

All ages 561 540 555 556 553

Rural Female

(years) 1993-94 1999-00 2004-05 2009-10 2011-12

15-19 371 314 331.00 195 164

20-24 469 425 435.00 314 297

25-29 530 498 530.00 404 369

all 330 302 333.00 265 253

Urban Male

(years) 1993-94 1999-00 2004-05 2009-10 2011-12

15-19 404 366 381 263 256

20-24 772 755 769 682 664

25-29 958 951 957 947 951

all 542 542 570 559 563

Urban Female

(years) 1993-94 1999-00 2004-05 2009-10 2011-12

15-19 142 121 144 85 89

20-24 230 191 250 197 197

25-29 248 214 261 222 253

all 164 147 178 146 155

Source: Various Rounds of NSSO Employment and Unemployment Surveys

Table 2: Age specific Labour Force Participation Rates on UPSS Basis

5 UPSS or usual status (ps+ss), workers are those who perform some work activity either in the principal status or in the subsidiary status. Thus, a person who is not a worker in the usual principal status is considered as worker according to the usual status (ps+ss), if the person pursues some subsidiary economic activity for 30 days or more during 365 days preceding the date of survey.

FOCUS OF THE MONTH

35 FEBRUARY 2014

19 age group, the ASWPR has increased for all other age

groups. The decline in WPR among rural females (14.2

percentage points) was steeper than the decline seen

for rural males (12.5 percentage points) and urban

males (3.5 percentage points) in the15-29 age group

during the period from 1999-2000 to 2011-12.

Age Specific Worker Population Ratio

(ASWFPR)

The ASWFPR also shows similar declining trend across

age groups for both rural male and female as well as for

urban males. In case of urban females, except for the 15-

and withdrawal of females from the labour market.

Unemployment Trend among Youth

As per NSSO 2011-12, unemployment rate was 2.4

percent for males and 3.7 percent for females as per

usual status among all age groups, while the

unemployment rate among the youth (15-29 years)

varied between 6.1 percent to 15.6 percent across the

different categories as may be seen in Table-4.

This is quite surprising because during the last twenty

years, when the economic reforms were in progress and

the economy was reaping an average growth rate of

around 6-7 percent per annum, the WPR of the youth

was declining. This could be either due to increasing

participation in the education or disappearance of the

traditional non-farm jobs. The opening up of the

economy led to migration of rural males to distant towns

and cities in search of jobs as construction workers, sales

men, delivery boys, security guards, rickshaw pullers etc

group 1999-2000 2004-2005 2009-2010 2011-2012 1999-2000 2004-2005 2009-2010 2011-2012

Table 3: Age-Specific WPR(ASWPR) among 15-29 and all Population

Rural

Male Female

15-19 503 497 358 303 304 319 186 156

20-24 844 849 768 742 409 410 295 278

25-29 950 966 957 942 491 513 391 357

15-29 741 742 648 616 400 410 288 258

all (0 +) 531 546 547 543 299 327 261 248

Urban

Male Female

15-19 314 335 231 223 105 128 76 78

20-24 658 684 617 594 155 201 160 160

25-29 883 909 906 906 194 229 196 231

15-29 593 623 564 558 149 184 144 157

all (0 +) 518 549 543 546 139 166 138 147

Source: Various Rounds of NSSO Employment and Unemployment Surveys

groups of 15-19 years and the 20-24 years after 2004-05,

there is an upward movement in 25-29 age group from

2009-10. The data suggests steeper decline for rural

females in all age groups. The younger male age groups,

both in the rural and urban areas, have also experienced

a decline. This decline is suggestive of increasing

participation of the youth in the education to enhance

their skills before entering the labour market. It is

expected that when these youngsters eventually join

the labour force, they will be far better skilled than

earlier.

It emerges that a sizeable proportion of male population

is in the labour market both in the rural and urban areas.

In almost last two decades, the LFPR on UPSS basis has

declined for all youth age groups vis- a- vis 1993-94, but

the decline is very steep for the rural females after 2004-

05. The withdrawal of rural females is in keeping with the

national trend and could be attributed to absence of job

opportunities in the rural areas or affected by the social

customs and conditions.

In case of urban females, the LFPR shows an oscillating

trend viz while there is a decline in the younger age

FOCUS OF THE MONTH

34ECONOMY MATTERS

Rural Male

(years) 1993-94 1999-00 2004-05 2009-10 2011-12

15-19 598 532 529 390 333

20-24 902 889 891 813 788

25-29 980 975 982 975 963

All ages 561 540 555 556 553

Rural Female

(years) 1993-94 1999-00 2004-05 2009-10 2011-12

15-19 371 314 331.00 195 164

20-24 469 425 435.00 314 297

25-29 530 498 530.00 404 369

all 330 302 333.00 265 253

Urban Male

(years) 1993-94 1999-00 2004-05 2009-10 2011-12

15-19 404 366 381 263 256

20-24 772 755 769 682 664

25-29 958 951 957 947 951

all 542 542 570 559 563

Urban Female

(years) 1993-94 1999-00 2004-05 2009-10 2011-12

15-19 142 121 144 85 89

20-24 230 191 250 197 197

25-29 248 214 261 222 253

all 164 147 178 146 155

Source: Various Rounds of NSSO Employment and Unemployment Surveys

Table 2: Age specific Labour Force Participation Rates on UPSS Basis

5 UPSS or usual status (ps+ss), workers are those who perform some work activity either in the principal status or in the subsidiary status. Thus, a person who is not a worker in the usual principal status is considered as worker according to the usual status (ps+ss), if the person pursues some subsidiary economic activity for 30 days or more during 365 days preceding the date of survey.

FOCUS OF THE MONTH

37 FEBRUARY 2014

youth shows that unemployment rate is high among the

educated. This strengthens the earlier observation that

with education attainment, the job aspirations increase

and non-availability of jobs matching these aspirations

leads to high educated unemployment.

female labour force participation rate which at present

is below 20 per cent due to non-availability of suitable

job opportunities in rural areas outside of agriculture.

A look at the unemployment rate among the educated

Table 5: Unemployment Rate at usual status (adjusted) as per Education level for 2011-12

General Education Level Unemployment Rate (15-29 years)

Rural Urban

Male Female Male Female

Not literate 2.3 0.8 2.5 1.6

Literate & up to Primary 3.2 0.6 4.8 4.3

Middle school 4.2 4.6 5.1 5.8

Secondary 4.6 8.6 5.5 15.1

Higher Secondary 6.5 13.8 12.0 14.6

Diploma/certificate 15.9 30.0 12.5 17.3

Graduate& above 19.1 29.6 16.3 23.4

All 5.0 4.8 8.1 13.1

General Education Level Unemployment Rate (15-29 years)

Rural Urban

Male Female Male Female

Not literate 0.5 0.2 0.9 0.7

Literate & up to Primary 1.2 0.3 1.9 1.6

Middle school 1.9 2.5 2.2 3.5

Secondary 2.0 6.0 2.3 6.4

Higher Secondary 3.3 8.8 4.6 9.1

Diploma/certificate 8.5 19.7 5.2 10.2

Graduate& above 7.5 18.9 5.3 12.8

All 1.9 10.1 3.1 5.5

Source: NSS Report No.554: Employment and Unemployment Situation in India, 2011-12

especially from Higher Secondary and above.

Employable skills involve communication skills, problem

solving skills apart from the technical skills required for

the job. Expansion of higher education institutions has

taken place at a rapid pace in the last decade but issues

of the curriculum content, course work done, lack of

industry exposure through internship, inexperienced

faculty are causes of concern, requiring immediate

attention.

India faces a paradoxical situation where, on the one

hand, youth is looking for job and on the other hand

industry is suffering from availability of skilled workers.

This skill mismatch makes youth unemployable. This is a

Challenges of Youth Employment

Table-5 shows a comparative scenario of educated

unemployment both among the youth and in the

general population. Among the two demographic

groups, the trend of unemployment is the same,

indicating higher unemployment among the educated

that progressively increases with the level of education.

Further, educated unemployment among females is

higher than the males among both the demographic

groups.

When looking at the educated unemployed, it may be

seen that apart from unemployment level being high

among the formal educated, it is also high among the

vocational qualified labour force i.e. the diploma or

certificate holders. This raises the question of the

employable skills of the courses that are rendered

high among the entry age group 15-19 across all

categories and tend to decline as age advances but

remains higher than the national average. High

unemployment rate in the initial years (15-19) could be

due to the mismatch between job expectations and

availability of jobs.

In terms of sectoral participation, the Labour Bureau

data suggests that proportion of youth engaged in

agriculture was 50 per cent, followed by secondary 20 6per cent and tertiary 29 per cent in 2012-13 . This calls for

need to focus on rural industrialization. The industry

should rethink its strategy of moving to the rural areas

and setting up units aligned to the natural resources of

the region. This could be storage and packaging units,

food processing industries, weaving and craft units,

export oriented garment units etc. Creation of job

opportunities in rural areas would also increase the

The unemployment rates among different age groups

increased significantly with urban female experiencing

the highest unemployment. The above table shows that

during the last decade, while unemployment rate

among the rural male (15-29) increased only marginally

by 1 per cent, among rural females it doubled to reach a

level of 7.8 per cent. In contrast, in the urban areas, while

the unemployment rate of urban males declined by 2.6

per cent that of urban females reduced by 1 per cent. But

it emerges from the above that the unemployment rate

for the urban females is the highest among all the

categories. High unemployment rate among females

may possibly be due to the family support to remain

unemployed for a longer period of time as compared to

that of males, who are considered to be the main

breadwinners.

In different youth age groups, unemployment rate is

Age Group 1999-2000 2004-05 2009-10 2011-12

Table 4: Unemployment Rate among Youth according to usual status

Rural Male

15-19 6.5 7.9 10.0 11.4

20-24 6.2 6.2 6.4 6.9

25-29 3.2 2.3 2.2 2.8

15-29 5.1 5.2 5.5 6.1

Source: NSS Report No.554: Employment and Unemployment Situation in India, 2011-12

Rural Female

15-19 3.1 6.7 7.4 8.0

20-24 4.9 9.3 8.6 9.9

25-29 2.4 5.2 4.5 5.8

15-29 3.7 7.0 6.5 7.8

Urban Male

15-19 15.4 14.0 13.2 14.4

20-24 13.9 12.5 10.1 11.6

25-29 7.5 5.8 4.4 5.3

15-29 11.5 10.0 7.9 8.9

Urban Female

15-19 15.5 15.6 14.3 15.3

20-24 22.6 25.8 21.7 21.9

25-29 11.5 15.8 14.6 10.8

15-29 16.6 19.9 17.2 15.6

6 Report on Employment-Unemployment Survey, Labour Bureau 2012-13

FOCUS OF THE MONTH

36ECONOMY MATTERS

FOCUS OF THE MONTH

37 FEBRUARY 2014

youth shows that unemployment rate is high among the

educated. This strengthens the earlier observation that

with education attainment, the job aspirations increase

and non-availability of jobs matching these aspirations

leads to high educated unemployment.

female labour force participation rate which at present

is below 20 per cent due to non-availability of suitable

job opportunities in rural areas outside of agriculture.

A look at the unemployment rate among the educated

Table 5: Unemployment Rate at usual status (adjusted) as per Education level for 2011-12

General Education Level Unemployment Rate (15-29 years)

Rural Urban

Male Female Male Female

Not literate 2.3 0.8 2.5 1.6

Literate & up to Primary 3.2 0.6 4.8 4.3

Middle school 4.2 4.6 5.1 5.8

Secondary 4.6 8.6 5.5 15.1

Higher Secondary 6.5 13.8 12.0 14.6

Diploma/certificate 15.9 30.0 12.5 17.3

Graduate& above 19.1 29.6 16.3 23.4

All 5.0 4.8 8.1 13.1

General Education Level Unemployment Rate (15-29 years)

Rural Urban

Male Female Male Female

Not literate 0.5 0.2 0.9 0.7

Literate & up to Primary 1.2 0.3 1.9 1.6

Middle school 1.9 2.5 2.2 3.5

Secondary 2.0 6.0 2.3 6.4

Higher Secondary 3.3 8.8 4.6 9.1

Diploma/certificate 8.5 19.7 5.2 10.2

Graduate& above 7.5 18.9 5.3 12.8

All 1.9 10.1 3.1 5.5

Source: NSS Report No.554: Employment and Unemployment Situation in India, 2011-12

especially from Higher Secondary and above.

Employable skills involve communication skills, problem

solving skills apart from the technical skills required for

the job. Expansion of higher education institutions has

taken place at a rapid pace in the last decade but issues

of the curriculum content, course work done, lack of

industry exposure through internship, inexperienced

faculty are causes of concern, requiring immediate

attention.

India faces a paradoxical situation where, on the one

hand, youth is looking for job and on the other hand

industry is suffering from availability of skilled workers.

This skill mismatch makes youth unemployable. This is a

Challenges of Youth Employment

Table-5 shows a comparative scenario of educated

unemployment both among the youth and in the

general population. Among the two demographic

groups, the trend of unemployment is the same,

indicating higher unemployment among the educated

that progressively increases with the level of education.

Further, educated unemployment among females is

higher than the males among both the demographic

groups.

When looking at the educated unemployed, it may be

seen that apart from unemployment level being high

among the formal educated, it is also high among the

vocational qualified labour force i.e. the diploma or

certificate holders. This raises the question of the

employable skills of the courses that are rendered

high among the entry age group 15-19 across all

categories and tend to decline as age advances but

remains higher than the national average. High

unemployment rate in the initial years (15-19) could be

due to the mismatch between job expectations and

availability of jobs.

In terms of sectoral participation, the Labour Bureau

data suggests that proportion of youth engaged in

agriculture was 50 per cent, followed by secondary 20 6per cent and tertiary 29 per cent in 2012-13 . This calls for

need to focus on rural industrialization. The industry

should rethink its strategy of moving to the rural areas

and setting up units aligned to the natural resources of

the region. This could be storage and packaging units,

food processing industries, weaving and craft units,

export oriented garment units etc. Creation of job

opportunities in rural areas would also increase the

The unemployment rates among different age groups

increased significantly with urban female experiencing

the highest unemployment. The above table shows that

during the last decade, while unemployment rate

among the rural male (15-29) increased only marginally

by 1 per cent, among rural females it doubled to reach a

level of 7.8 per cent. In contrast, in the urban areas, while

the unemployment rate of urban males declined by 2.6

per cent that of urban females reduced by 1 per cent. But

it emerges from the above that the unemployment rate

for the urban females is the highest among all the

categories. High unemployment rate among females

may possibly be due to the family support to remain

unemployed for a longer period of time as compared to

that of males, who are considered to be the main

breadwinners.

In different youth age groups, unemployment rate is

Age Group 1999-2000 2004-05 2009-10 2011-12

Table 4: Unemployment Rate among Youth according to usual status

Rural Male

15-19 6.5 7.9 10.0 11.4

20-24 6.2 6.2 6.4 6.9

25-29 3.2 2.3 2.2 2.8

15-29 5.1 5.2 5.5 6.1

Source: NSS Report No.554: Employment and Unemployment Situation in India, 2011-12

Rural Female

15-19 3.1 6.7 7.4 8.0

20-24 4.9 9.3 8.6 9.9

25-29 2.4 5.2 4.5 5.8

15-29 3.7 7.0 6.5 7.8

Urban Male

15-19 15.4 14.0 13.2 14.4

20-24 13.9 12.5 10.1 11.6

25-29 7.5 5.8 4.4 5.3

15-29 11.5 10.0 7.9 8.9

Urban Female

15-19 15.5 15.6 14.3 15.3

20-24 22.6 25.8 21.7 21.9

25-29 11.5 15.8 14.6 10.8

15-29 16.6 19.9 17.2 15.6

6 Report on Employment-Unemployment Survey, Labour Bureau 2012-13

FOCUS OF THE MONTH

36ECONOMY MATTERS

FOCUS OF THE MONTH

39 FEBRUARY 2014

National Sample Survey's Employment and

Unemployment Survey 66th Round (2009-10) revealed

that total employment grew by just 1.1 million from

2004-05 to 2009-10 (UPSS definition), despite an

average annual GDP growth rate of 8.5 per cent over this

five-year period.This implies that high rates of growth in

India were largely achieved through improvements in

labour productivity (which is to be expected to some

extent).

Subsequently, numerous commentators have referred

to this outcome as one of "jobless growth". However,

this conclusion is misleading as it does not recognize the

considerable transitions that took place in the Indian

labour market (and out of the labour force). As argued in

this article, the fundamental employment challenges in

the country are, in fact, more qualitative in nature. Open

unemployment in India is not the paramount dimension

policy-makers should be concerned about, except in the

context of youth in urban areas. In this regard, the

unemployment rate has been relatively stable in India

over the last decade.

Firstly, in terms of structural transformation, there has

been an acceleration of workers leaving agriculture.

From 2004-05 to 2011-12, the number of workers in the

primary sector fell by around 34 million with the share of

workers in the sector dropping to 48.9 per cent in 2011-

12. But where did the new jobs come from? Most of the

growth in employment was generated in the

construction sector (24.6 million), followed by the

service sector (20 mill ion). In contrast, the

manufacturing sector has not been a major driver of job

creation in India over the longer term. However, after

manufacturing employment declined from 2004-05 to

The global financial crisis (GFC) resulted in a shock that

reverberated around the world through its impact on

trade and capital flows, which, in turn, led to widespread

job losses, especially in advanced economies. As

highlighted in ILO's Global Employment Trends 2014

Report, global unemployment rose by 31.8 million from

2007 to 2013, representing an increase in the

unemployment rate from 5.5 to 6.0 per cent. Youth,

temporary workers and those with less education were

most vulnerable to unemployment during the crisis, and

millions have since become long-term unemployed or

have given up and exited the labour force.

In the aftermath of the meltdown of Lehman Brothers in

September 2008 and the dramatic situation facing many

countries across the globe, it was widely expected that

the GFC would deeply affect developing countries, just

as crises had done on regular occasions during the

previous decades. However, as it turned out, most low-

income and many middle-incomes were not hit hard by

the global financial crisis; or if countries did experience a

sharp contraction, recovery in 2010 proved to be swift in

most cases (South Africa is one exception).

The Indian economy proved to be quite resilient to the

GFC due to the dominance of domestic demand in GDP

(and hence, less exposure to the collapse in world trade)

and the positive impact of the government's stimulus

packages. Following on from a "low" of 6.7 per cent in

2008-09, the GDP growth rate quickly returned to pre-

crisis levels, reaching a peak of 9.3 per cent in 2010-11.

It was against this backdrop of positive macroeconomic

news that the employment trends from the latter half of

the 2000s came as such a surprise and puzzle for policy-

makers and academics alike. In particular, data from the

Dr. Sher S. VerickSenior Employment Specialist

International Labour Organization

Employment Challenges in India and Beyond

38ECONOMY MATTERS

FOCUS OF THE MONTH

The National Skill Development Agency has been

mandated to monitor the progress of skilling in the

country, operationalise the National Skill Qualification

Framework, which facilitates both horizontal and

vertical mobility and makes skill aspirational among the

prospective trainees. To incentivise the students and

help the disadvantaged, the government has started

Standard Training & Assessment Reward (STAR)

Scheme, wherein the passed trainee is provided an

incentive of Rs 10,000. Besides this, students are

provided scholarship and other facilities, particularly in

the remote areas. Further, through sector skill councils

an attempt is made to link training with the industry

requirement.

The Government is also working to expand access to

education and vocational training for workers in the

country side, including rural broadband networks to

connect remote areas with educational opportunities as

also using Common Service Centres at the Panchayat

level for training. The role of advocacy to promote

awareness among the youth about various plan

schemes / vocational institutions needs to be initiated. In

addition, there is an urgent need to speed up the setting

up of the Sector Skills Councils and putting in place the

National Occupational Standards to make National Skill

Qualification System operational. This would facilitate

modification of curriculum in tune with the industry's

requirement.

At present, there is no organised and scientific system in

place to provide labour market information in terms of

supply-demand position in the labour market to guide

the labour and training policies, training providers,

prospective labour force and the employers. There is an

urgent need to put in place the same. To make

manufacturing an engine of growth and to generate

employment opportunities, the government has

announced new policies as part of the 12th Five year

Plan, aiming to create 100 million work opportunities by

2022, mainly in labour intensive manufacturing sectors

such as textiles, gems & jewellery, and leather industry.

For those who are engaged in self-employment, hand

holding in terms of credit availability as also market and

technical assistance is provided in the industrial policy thand the 12 Plan focusses on strengthening this further.

To conclude, there should be an integrated policy focus

in the coming years on promoting growth that supports

livelihood.

result of supply driven and not demand driven education

system due to lack of interface among different

stakeholders viz. policy makers, industry, training

providers and educational institutions. The training

institutes need to educate as per industry's

requirements so that demographic dividend can be

tapped fruitfully. It is expected that in a decade, 40 per

cent of the 15-29 age group will enter the labour force,

which needs to be provided with decent employment

opportunities.

Further, the manufacturing employment in India has not

increased to the extent desired. In rural areas, majority

of the labour force is engaged in the agriculture sector,

indicating almost negligible presence of employment

opportunities outside of agriculture. Any movement of

labour force to non-farm sector, as is envisaged in the

12th Plan, implies either no job or low-productivity-low-

paid jobs due to mismatch of skills. There is also a need to

increase formal employment, which presently

constitutes about 8 percent of the labour force to

circumvent more youth joining low paid sector and

remaining working poor. This poses the question: Is

India ready for this challenge?

The challenge of improving the employability of youth

and their accessing decent jobs requires improvement in

quality of education, job training, up gradation of skills,

and interface between industry, policy makers and

training institutions. However, this also requires

creation of adequate decent jobs in the non-farm sector thmainly manufacturing as is envisaged in the 12 Plan.

In the Indian context, to make the youth employable,

the government of India is laying emphasis on skill

development and has set a target of skilling 500 million

by 2022 and 50 million in the 12th plan. To achieve this

target, National Policy on Skill Development focuses on

improving quality, quantity, access and outreach of

training. Different innovative measures have been

followed to reach the difficult areas. Some of the good

examples are in terms of virtual classrooms, mobile

vans, simulation based etc. There are 23 Central

Ministries, which are engaged in skill development. In

order to recognize the prior learning, workers are tested

and given certificates of trained manpower. There are

general programmes, group-specific and region-

specific, for enhancing the employability of the youth.

Way Forward

(Views expressed are personal)

FOCUS OF THE MONTH

39 FEBRUARY 2014

National Sample Survey's Employment and

Unemployment Survey 66th Round (2009-10) revealed

that total employment grew by just 1.1 million from

2004-05 to 2009-10 (UPSS definition), despite an

average annual GDP growth rate of 8.5 per cent over this

five-year period.This implies that high rates of growth in

India were largely achieved through improvements in

labour productivity (which is to be expected to some

extent).

Subsequently, numerous commentators have referred

to this outcome as one of "jobless growth". However,

this conclusion is misleading as it does not recognize the

considerable transitions that took place in the Indian

labour market (and out of the labour force). As argued in

this article, the fundamental employment challenges in

the country are, in fact, more qualitative in nature. Open

unemployment in India is not the paramount dimension

policy-makers should be concerned about, except in the

context of youth in urban areas. In this regard, the

unemployment rate has been relatively stable in India

over the last decade.

Firstly, in terms of structural transformation, there has

been an acceleration of workers leaving agriculture.

From 2004-05 to 2011-12, the number of workers in the

primary sector fell by around 34 million with the share of

workers in the sector dropping to 48.9 per cent in 2011-

12. But where did the new jobs come from? Most of the

growth in employment was generated in the

construction sector (24.6 million), followed by the

service sector (20 mill ion). In contrast, the

manufacturing sector has not been a major driver of job

creation in India over the longer term. However, after

manufacturing employment declined from 2004-05 to

The global financial crisis (GFC) resulted in a shock that

reverberated around the world through its impact on

trade and capital flows, which, in turn, led to widespread

job losses, especially in advanced economies. As

highlighted in ILO's Global Employment Trends 2014

Report, global unemployment rose by 31.8 million from

2007 to 2013, representing an increase in the

unemployment rate from 5.5 to 6.0 per cent. Youth,

temporary workers and those with less education were

most vulnerable to unemployment during the crisis, and

millions have since become long-term unemployed or

have given up and exited the labour force.

In the aftermath of the meltdown of Lehman Brothers in

September 2008 and the dramatic situation facing many

countries across the globe, it was widely expected that

the GFC would deeply affect developing countries, just

as crises had done on regular occasions during the

previous decades. However, as it turned out, most low-

income and many middle-incomes were not hit hard by

the global financial crisis; or if countries did experience a

sharp contraction, recovery in 2010 proved to be swift in

most cases (South Africa is one exception).

The Indian economy proved to be quite resilient to the

GFC due to the dominance of domestic demand in GDP

(and hence, less exposure to the collapse in world trade)

and the positive impact of the government's stimulus

packages. Following on from a "low" of 6.7 per cent in

2008-09, the GDP growth rate quickly returned to pre-

crisis levels, reaching a peak of 9.3 per cent in 2010-11.

It was against this backdrop of positive macroeconomic

news that the employment trends from the latter half of

the 2000s came as such a surprise and puzzle for policy-

makers and academics alike. In particular, data from the

Dr. Sher S. VerickSenior Employment Specialist

International Labour Organization

Employment Challenges in India and Beyond

38ECONOMY MATTERS

FOCUS OF THE MONTH

The National Skill Development Agency has been

mandated to monitor the progress of skilling in the

country, operationalise the National Skill Qualification

Framework, which facilitates both horizontal and

vertical mobility and makes skill aspirational among the

prospective trainees. To incentivise the students and

help the disadvantaged, the government has started

Standard Training & Assessment Reward (STAR)

Scheme, wherein the passed trainee is provided an

incentive of Rs 10,000. Besides this, students are

provided scholarship and other facilities, particularly in

the remote areas. Further, through sector skill councils

an attempt is made to link training with the industry

requirement.

The Government is also working to expand access to

education and vocational training for workers in the

country side, including rural broadband networks to

connect remote areas with educational opportunities as

also using Common Service Centres at the Panchayat

level for training. The role of advocacy to promote

awareness among the youth about various plan

schemes / vocational institutions needs to be initiated. In

addition, there is an urgent need to speed up the setting

up of the Sector Skills Councils and putting in place the

National Occupational Standards to make National Skill

Qualification System operational. This would facilitate

modification of curriculum in tune with the industry's

requirement.

At present, there is no organised and scientific system in

place to provide labour market information in terms of

supply-demand position in the labour market to guide

the labour and training policies, training providers,

prospective labour force and the employers. There is an

urgent need to put in place the same. To make

manufacturing an engine of growth and to generate

employment opportunities, the government has

announced new policies as part of the 12th Five year

Plan, aiming to create 100 million work opportunities by

2022, mainly in labour intensive manufacturing sectors

such as textiles, gems & jewellery, and leather industry.

For those who are engaged in self-employment, hand

holding in terms of credit availability as also market and

technical assistance is provided in the industrial policy thand the 12 Plan focusses on strengthening this further.

To conclude, there should be an integrated policy focus

in the coming years on promoting growth that supports

livelihood.

result of supply driven and not demand driven education

system due to lack of interface among different

stakeholders viz. policy makers, industry, training

providers and educational institutions. The training

institutes need to educate as per industry's

requirements so that demographic dividend can be

tapped fruitfully. It is expected that in a decade, 40 per

cent of the 15-29 age group will enter the labour force,

which needs to be provided with decent employment

opportunities.

Further, the manufacturing employment in India has not

increased to the extent desired. In rural areas, majority

of the labour force is engaged in the agriculture sector,

indicating almost negligible presence of employment

opportunities outside of agriculture. Any movement of

labour force to non-farm sector, as is envisaged in the

12th Plan, implies either no job or low-productivity-low-

paid jobs due to mismatch of skills. There is also a need to

increase formal employment, which presently

constitutes about 8 percent of the labour force to

circumvent more youth joining low paid sector and

remaining working poor. This poses the question: Is

India ready for this challenge?

The challenge of improving the employability of youth

and their accessing decent jobs requires improvement in

quality of education, job training, up gradation of skills,

and interface between industry, policy makers and

training institutions. However, this also requires

creation of adequate decent jobs in the non-farm sector thmainly manufacturing as is envisaged in the 12 Plan.

In the Indian context, to make the youth employable,

the government of India is laying emphasis on skill

development and has set a target of skilling 500 million

by 2022 and 50 million in the 12th plan. To achieve this

target, National Policy on Skill Development focuses on

improving quality, quantity, access and outreach of

training. Different innovative measures have been

followed to reach the difficult areas. Some of the good

examples are in terms of virtual classrooms, mobile

vans, simulation based etc. There are 23 Central

Ministries, which are engaged in skill development. In

order to recognize the prior learning, workers are tested

and given certificates of trained manpower. There are

general programmes, group-specific and region-

specific, for enhancing the employability of the youth.

Way Forward

(Views expressed are personal)

FOCUS OF THE MONTH

41 FEBRUARY 2014

l

l

l

l

l

The major loss of labour has occurred in terms of the

intangible aspects of people's rights, public

perceptions and political power. Labour has lost the

important space that it earlier occupied in the social

and political spheres in the country.

Rising inequality in the country and more so in the

labour market, is one of the most important

concerns. The most striking issue is the disparity

between the formal and informal workers-a rural

casual worker earns less than 7 per cent of the

average salary of a public sector employee, not to

speak of the much wider disparity between the

former and the highly-paid class one employees.

Alarmingly, this disparity has been increasing over

the years. The share of wages in the total value added

in the manufacturing sector has also been

consistently declining, falling from around 0.45 in the

1980s to around 0.25 in 2009-10.

The growth pattern is also extremely imbalanced: 49

per cent of the workers are engaged in agriculture,

but they contribute only 14 per cent to the GDP; on

the other side of the spectrum, hand, the

manufacturing sector employs 13 per cent of the

workforce but contributes to 16 per cent of the GDP

while the services sector employs 27 per cent of the

total workers but contributes to as much as 58 per

cent of the GDP. All this reveals the extremely

skewed contributions of sectors to employment.

This disparity is further compounded by the

exclusion of vulnerable groups and states/regions.

There are large inequalities both among the various

social groups as also within the groups.

There is considerable regional differentiation in

terms of access to good quality employment, which,

in any case, is very small. An Employment Situation

In this article, I would discuss the key findings of the

recently released report on 'India Labour and

Employment Report (ILER), 2014', prepared by Delhi-

based Institute for Human Development (IHD). The

Report comprehensively documents and analyses the

major trends in the structure and pattern of changes in

the employment and labour market in India since the

1990s and outlines the important challenges currently

being faced by the country. It provides an overview of

the labour market and employment outcomes that the

Indian economy has delivered in the process of

globalisation. The Report assesses the gains and losses

accruing to labour during the first round of globalisation.

It reveals many markers of progress as well as the deep

changes that have affected the Indian economy during

this period.

Although the rapid economic growth during the last

three decades or so has certainly contributed in

reducing extreme poverty in India as well as bringing

about modest improvements in the quality of life of a

large segment of the population, the growth has

been marked by large employment deficits. Most job

creation has been in the informal economy and has

been characterised by poor quality and low

productivity, with the proportion of high-quality

formal jobs being only 7.5 per cent of the total

number of jobs. Further, the gains from growth have

been disproportionately captured by a minority of

the population, thereby leaving many people

excluded from the benefits of growth. Consequently,

inequalities have widened and vulnerabilities have

grown, generating widespread insecurity of

livelihoods and other weaknesses stemming from

the prevalent social security systems.

Some Concernsl

Dr. Alakh N. Sharma Professor and Director

Institute for Human Development

Challenge of Employment in India

40ECONOMY MATTERS

FOCUS OF THE MONTH

cent in 2009-10. Over this period, the number of women

workers in India dropped by 21.3 million, of which 19.5

million were in rural areas. Based on ILO's research,

explanations for this surprising trend include: increasing

educational enrolment; shift to domestic duties (as

measured in the NSS); increased household income and

a change in preferences for work; and the lack of

employment opportunities.The latest NSS round (2011-

12) shows that the participation rate of women has

finally increased in urban areas, while it has continued to

decline in rural regions. Overall, India, like most

countries in South Asia apart from Nepal, has some of

the lowest labour force participation rates of women in

the world, and a major challenge is to ensure that

women are able to access productive employment

opportunities in both urban and rural areas.

In summary, though it is crucial that employment

growth keeps up with the increase in the labour force,

especially as more youth exit education, the main

employment challenge in India and most emerging

economies is to improve the quality of jobs. Seeking to

fulfil this goal requires supportive macroeconomic

conditions and sustainable rates of productive

investment, no easy task in the current environment.

Moreover, further improvements are needed in the

quality of formal education and skills development (the

latter without the former is very difficult), especially for

those residing in rural areas. In addition, other

constraints facing women require a range of

interventions such as the provision of childcare and safe

and affordable transport. The reversal of economic

fortunes for India and many other emerging economies

makes this objective that much harder; nonetheless, it is

crucial that governments increase the prioritization of

employment and decent work as a leading policy goal.

2009-10, it rose substantially by almost 9 million from

2009-10 to 2011-12. Consequently, the share of workers in

manufacturing reached 12.6 per cent in 2011-12. Of

course, this rapid growth occurred before the sharp

economic slowdown that started in late 2011, which

would have had negative implications for employment

in the sector.

Related to the uncertain nature of structural

transformation is the persistence of informality in the

Indian labour market. However, beyond the simple

picture of a stagnant mass of informally employed

workers, it is important to disaggregate the overall

trends. On the one hand, the share of unorganized

sector workers has declined, most recently from 84.7

per cent in 2009-10 to 82.7 per cent in 2011-12 (based on

NSS data). On the other hand, the share of informal

workers in the organized sector (i.e. workers without

access to social security) has increased significantly

through the greater utilization of contract and other

forms of casual labour. As a consequence of these

countervailing trends, the overall share of informal

workers in total employment (unorganized sector

workers plus informal workers in the organized sector)

has remained relatively stable (at around 92 per cent).

This situation is not unique to India; new jobs created in

both advanced economies and developing countries

are,in many cases, informal in nature due to their

temporary employment status and lack of employment

benefits and social security. Globally, this represents one

of the key barriers to improving access to decent work

for both men and women.

On gender dimensions, one of the most intense debates

in recent years has centred on the decline in the labour

force participation rate (LFPR) of women in India thsuggested by the figures from the NSS 66 Round (2009-

10): a decline from 29.4 per cent in 2004-05 to 23.3 per

FOCUS OF THE MONTH

41 FEBRUARY 2014

l

l

l

l

l

The major loss of labour has occurred in terms of the

intangible aspects of people's rights, public

perceptions and political power. Labour has lost the

important space that it earlier occupied in the social

and political spheres in the country.

Rising inequality in the country and more so in the

labour market, is one of the most important

concerns. The most striking issue is the disparity

between the formal and informal workers-a rural

casual worker earns less than 7 per cent of the

average salary of a public sector employee, not to

speak of the much wider disparity between the

former and the highly-paid class one employees.

Alarmingly, this disparity has been increasing over

the years. The share of wages in the total value added

in the manufacturing sector has also been

consistently declining, falling from around 0.45 in the

1980s to around 0.25 in 2009-10.

The growth pattern is also extremely imbalanced: 49

per cent of the workers are engaged in agriculture,

but they contribute only 14 per cent to the GDP; on

the other side of the spectrum, hand, the

manufacturing sector employs 13 per cent of the

workforce but contributes to 16 per cent of the GDP

while the services sector employs 27 per cent of the

total workers but contributes to as much as 58 per

cent of the GDP. All this reveals the extremely

skewed contributions of sectors to employment.

This disparity is further compounded by the

exclusion of vulnerable groups and states/regions.

There are large inequalities both among the various

social groups as also within the groups.

There is considerable regional differentiation in

terms of access to good quality employment, which,

in any case, is very small. An Employment Situation

In this article, I would discuss the key findings of the

recently released report on 'India Labour and

Employment Report (ILER), 2014', prepared by Delhi-

based Institute for Human Development (IHD). The

Report comprehensively documents and analyses the

major trends in the structure and pattern of changes in

the employment and labour market in India since the

1990s and outlines the important challenges currently

being faced by the country. It provides an overview of

the labour market and employment outcomes that the

Indian economy has delivered in the process of

globalisation. The Report assesses the gains and losses

accruing to labour during the first round of globalisation.

It reveals many markers of progress as well as the deep

changes that have affected the Indian economy during

this period.

Although the rapid economic growth during the last

three decades or so has certainly contributed in

reducing extreme poverty in India as well as bringing

about modest improvements in the quality of life of a

large segment of the population, the growth has

been marked by large employment deficits. Most job

creation has been in the informal economy and has

been characterised by poor quality and low

productivity, with the proportion of high-quality

formal jobs being only 7.5 per cent of the total

number of jobs. Further, the gains from growth have

been disproportionately captured by a minority of

the population, thereby leaving many people

excluded from the benefits of growth. Consequently,

inequalities have widened and vulnerabilities have

grown, generating widespread insecurity of

livelihoods and other weaknesses stemming from

the prevalent social security systems.

Some Concernsl

Dr. Alakh N. Sharma Professor and Director

Institute for Human Development

Challenge of Employment in India

40ECONOMY MATTERS

FOCUS OF THE MONTH

cent in 2009-10. Over this period, the number of women

workers in India dropped by 21.3 million, of which 19.5

million were in rural areas. Based on ILO's research,

explanations for this surprising trend include: increasing

educational enrolment; shift to domestic duties (as

measured in the NSS); increased household income and

a change in preferences for work; and the lack of

employment opportunities.The latest NSS round (2011-

12) shows that the participation rate of women has

finally increased in urban areas, while it has continued to

decline in rural regions. Overall, India, like most

countries in South Asia apart from Nepal, has some of

the lowest labour force participation rates of women in

the world, and a major challenge is to ensure that

women are able to access productive employment

opportunities in both urban and rural areas.

In summary, though it is crucial that employment

growth keeps up with the increase in the labour force,

especially as more youth exit education, the main

employment challenge in India and most emerging

economies is to improve the quality of jobs. Seeking to

fulfil this goal requires supportive macroeconomic

conditions and sustainable rates of productive

investment, no easy task in the current environment.

Moreover, further improvements are needed in the

quality of formal education and skills development (the

latter without the former is very difficult), especially for

those residing in rural areas. In addition, other

constraints facing women require a range of

interventions such as the provision of childcare and safe

and affordable transport. The reversal of economic

fortunes for India and many other emerging economies

makes this objective that much harder; nonetheless, it is

crucial that governments increase the prioritization of

employment and decent work as a leading policy goal.

2009-10, it rose substantially by almost 9 million from

2009-10 to 2011-12. Consequently, the share of workers in

manufacturing reached 12.6 per cent in 2011-12. Of

course, this rapid growth occurred before the sharp

economic slowdown that started in late 2011, which

would have had negative implications for employment

in the sector.

Related to the uncertain nature of structural

transformation is the persistence of informality in the

Indian labour market. However, beyond the simple

picture of a stagnant mass of informally employed

workers, it is important to disaggregate the overall

trends. On the one hand, the share of unorganized

sector workers has declined, most recently from 84.7

per cent in 2009-10 to 82.7 per cent in 2011-12 (based on

NSS data). On the other hand, the share of informal

workers in the organized sector (i.e. workers without

access to social security) has increased significantly

through the greater utilization of contract and other

forms of casual labour. As a consequence of these

countervailing trends, the overall share of informal

workers in total employment (unorganized sector

workers plus informal workers in the organized sector)

has remained relatively stable (at around 92 per cent).

This situation is not unique to India; new jobs created in

both advanced economies and developing countries

are,in many cases, informal in nature due to their

temporary employment status and lack of employment

benefits and social security. Globally, this represents one

of the key barriers to improving access to decent work

for both men and women.

On gender dimensions, one of the most intense debates

in recent years has centred on the decline in the labour

force participation rate (LFPR) of women in India thsuggested by the figures from the NSS 66 Round (2009-

10): a decline from 29.4 per cent in 2004-05 to 23.3 per

FOCUS OF THE MONTH

43 FEBRUARY 2014

households would rather spend money on skilling their

sons than their daughters.

As per NSSO, only 25 per cent per cent of working-age

women in rural areas stepped into the workforce, while 8in urban areas only 16 per cent ventured out . In

comparison to most other countries, these figures are

low. Just 40 per cent of women in the relevant age-

group were economically active in India as of 2010,

compared to 82 per cent of women in China and 72 per 9cent in Brazil . Anu Madgavkar of McKinsey Global

Institute points out that women leaving the workforce

account for half the sharp fall in India's overall labour

force participation rate (LFPR) from 62 per cent in 2000

to 57 per cent in 2010, which is much less than China's

LFPR at 70 per cent and as much as 10 percentage points

below Sub-Saharan Africa at 67 per cent. This is at a time

when education and better health are encouraging

rising LFPR for most countries.

The participation of women in the workforce goes

beyond economics to encompass social issues. Over the

past two decades, the proportion of women in gainful

employment has continued to fall steadily in India.

According to NSSO, the Labour Force Participation Rate

(LFPR) for women came down from 29 per cent per cent 7in 2004-05 to 22.5 per cent per cent in 2011-12 . Several

reasons have been put forward for this - as incomes

increase, women need not work; in a patriarchal society,

richer households prefer women to stay home; the

enrolment of women in higher education has increased;

women are dropping out to take care of children and

households, etc.

The obverse of the social causes can be that at higher

wage levels, there are simply not enough jobs,

particularly for somewhat skilled labour, so that males of

the household have first call on available jobs. Lack of

skills for women is another reason that they are unable

to work in sectors requiring even basic skills. Poor

Ms. Sharmila Kantha Member, Editorial Advisory Board,

'Economy & Industry'

Declining Participation of Women in the Workforce: An Overview

1999-2000 2004-05 2009-10 2011-12 Average yearly 10change: 2004-05 to 2011-12

Rural 83.06 91.5 80.92 72.13 -2.7730 per cent 25 per cent

Urban 16.52 20.68 20.97 23.26 0.3715 per cent 16 per cent

Total 99.58 112.18 101.89 95.39 -2.4

Number of Female Workers (in millions, UPS)

Shaw, A (2013); UPS – Usual Principal Status

7 NSS Report No. 455: Employment and Unemployment in India, 1999-2000 - Key Results; NSSO Press Release, 20 June 2013, 'Key Indicators of Employment and Unemployment in India, 2011-12'

8 NSS Report No. 455: Employment and Unemployment in India, 1999-2000 - Key Results; NSSO Press Release, 20 June 2013, 'Key Indicators of Employment and Unemployment in India, 2011-12'

9 Madgavkar, Anu 'India's Missing Women Workforce' Mint, Dec 30, 201210 Shaw, Abhishek 'Employment Trends in India: An Overview of NSSO's 68th Round' Economic and Political Weekly, October 19, 2013

42ECONOMY MATTERS

FOCUS OF THE MONTH

increase to nearly 58 per cent, with the number of

such workers rising to around 276 million.

The share of the educated unemployed among the

total number of overtly unemployed people has also

been rising-about one-third of the total unemployed

persons are currently graduates and above.

This situation would be further exacerbated with

around 10 million workers being added to the labour

force annually. The pace of urbanisation and

migration is likely to significantly increase in the

future and most of the new entrants to the labour

market would be in the urban areas. Another huge

challenge would be providing education and skills to

the growing young population to enable them to

meet their job aspirations. If it manages to

successfully meet this challenge, India would gain a

great advantage in view of the declining workforce

of the developed countries including China.

However, this could be a double-edged sword as its

failure on the same front would be disastrous.

Increasing the access to good quality jobs for

women, who are increasingly acquiring better

education, and of the deprived groups, including the

vulnerable among the privileged groups and

backward regions is also one of the most important

policy challenges.

The following measures would facilitate better inclusive

growth of the economy while also benefiting the labour

force.

Enhancing labour productivity across sectors, with

an emphasis on the manufacturing sector, which has

multiplier effects on employment expansion.

A coherent strategy for gradual formalisation of the

workforce through labour market policies, aimed at

expanding opportunities for formal employment

and increasing the earnings and productivity of

informal workers.

Balancing the need for labour flexibility in

enterprises and the interests of workers; as also the

need for simplifying and modernising labour laws

while also guaranteeing a minimum universal 'Social

Protection Floor' would go a long way towards

accelerating the process of formalisation of the

labour market. This, in turn, would greatly contribute

towards the achievement of sustainable and

inclusive growth.

l

l

l

Future Strategies

l

l

l

Index (ESI) has been prepared for this Report, which

captures various dimensions of employment

conditions. ESI shows that generally workers in the

southern and western states have much better

access to good quality employment than do workers

in states in the central and eastern regions (Himachal

Pradesh ranks number one, while Bihar ranks last).

There have been several positive developments as well.

Some of them are:

In the midst of rising inequalities , there has been

significant increase in real wages at the rate of over 3

per cent over three decades along with increase in

labour productivity

The process of informalisation of the work force

seems to have halted since mid 2000s as reflected by

increase in the share of formal workers from around

6.5 per cent in 2004-05 to 7.5 per cent in 2011-12. The

share of organized sector employment has risen

from around 12 per cent to 17 per cent and regular

workers from 14 per cent to 18 per cent during the

same period. These developments are largely

responsible for the reduction in poverty.

There has been increase, albeit small one, in the

access to quality employment of the deprived groups

such as SCs and STs, more so in the public sector.

Most dramatic is the increase in the access of OBCs to

quality employment, both in public and private

sectors, largely at the expense of the upper strata of

the society, including upper caste Hindus.

There has been incidence of increased awareness

about workers' rights along with the increase in the

popular movements about right to work and its

implementation.

Some major employment challenges facing India are as

follows:

A very large percentage of the 'working poor' and

under-employed are engaged in low productive work

in the informal economy. Even on the basis of the

current poverty line, which is indeed a gross under-

estimation, one-fourth of all workers, that is about

120 million, fall into the category of the poor. If the

poverty line is raised to about US$2 (in terms of the

PPP), the proportion of the working poor would

Some Positive Aspects

l

l

l

l

Major Employment Challenges

l

FOCUS OF THE MONTH

43 FEBRUARY 2014

households would rather spend money on skilling their

sons than their daughters.

As per NSSO, only 25 per cent per cent of working-age

women in rural areas stepped into the workforce, while 8in urban areas only 16 per cent ventured out . In

comparison to most other countries, these figures are

low. Just 40 per cent of women in the relevant age-

group were economically active in India as of 2010,

compared to 82 per cent of women in China and 72 per 9cent in Brazil . Anu Madgavkar of McKinsey Global

Institute points out that women leaving the workforce

account for half the sharp fall in India's overall labour

force participation rate (LFPR) from 62 per cent in 2000

to 57 per cent in 2010, which is much less than China's

LFPR at 70 per cent and as much as 10 percentage points

below Sub-Saharan Africa at 67 per cent. This is at a time

when education and better health are encouraging

rising LFPR for most countries.

The participation of women in the workforce goes

beyond economics to encompass social issues. Over the

past two decades, the proportion of women in gainful

employment has continued to fall steadily in India.

According to NSSO, the Labour Force Participation Rate

(LFPR) for women came down from 29 per cent per cent 7in 2004-05 to 22.5 per cent per cent in 2011-12 . Several

reasons have been put forward for this - as incomes

increase, women need not work; in a patriarchal society,

richer households prefer women to stay home; the

enrolment of women in higher education has increased;

women are dropping out to take care of children and

households, etc.

The obverse of the social causes can be that at higher

wage levels, there are simply not enough jobs,

particularly for somewhat skilled labour, so that males of

the household have first call on available jobs. Lack of

skills for women is another reason that they are unable

to work in sectors requiring even basic skills. Poor

Ms. Sharmila Kantha Member, Editorial Advisory Board,

'Economy & Industry'

Declining Participation of Women in the Workforce: An Overview

1999-2000 2004-05 2009-10 2011-12 Average yearly 10change: 2004-05 to 2011-12

Rural 83.06 91.5 80.92 72.13 -2.7730 per cent 25 per cent

Urban 16.52 20.68 20.97 23.26 0.3715 per cent 16 per cent

Total 99.58 112.18 101.89 95.39 -2.4

Number of Female Workers (in millions, UPS)

Shaw, A (2013); UPS – Usual Principal Status

7 NSS Report No. 455: Employment and Unemployment in India, 1999-2000 - Key Results; NSSO Press Release, 20 June 2013, 'Key Indicators of Employment and Unemployment in India, 2011-12'

8 NSS Report No. 455: Employment and Unemployment in India, 1999-2000 - Key Results; NSSO Press Release, 20 June 2013, 'Key Indicators of Employment and Unemployment in India, 2011-12'

9 Madgavkar, Anu 'India's Missing Women Workforce' Mint, Dec 30, 201210 Shaw, Abhishek 'Employment Trends in India: An Overview of NSSO's 68th Round' Economic and Political Weekly, October 19, 2013

42ECONOMY MATTERS

FOCUS OF THE MONTH

increase to nearly 58 per cent, with the number of

such workers rising to around 276 million.

The share of the educated unemployed among the

total number of overtly unemployed people has also

been rising-about one-third of the total unemployed

persons are currently graduates and above.

This situation would be further exacerbated with

around 10 million workers being added to the labour

force annually. The pace of urbanisation and

migration is likely to significantly increase in the

future and most of the new entrants to the labour

market would be in the urban areas. Another huge

challenge would be providing education and skills to

the growing young population to enable them to

meet their job aspirations. If it manages to

successfully meet this challenge, India would gain a

great advantage in view of the declining workforce

of the developed countries including China.

However, this could be a double-edged sword as its

failure on the same front would be disastrous.

Increasing the access to good quality jobs for

women, who are increasingly acquiring better

education, and of the deprived groups, including the

vulnerable among the privileged groups and

backward regions is also one of the most important

policy challenges.

The following measures would facilitate better inclusive

growth of the economy while also benefiting the labour

force.

Enhancing labour productivity across sectors, with

an emphasis on the manufacturing sector, which has

multiplier effects on employment expansion.

A coherent strategy for gradual formalisation of the

workforce through labour market policies, aimed at

expanding opportunities for formal employment

and increasing the earnings and productivity of

informal workers.

Balancing the need for labour flexibility in

enterprises and the interests of workers; as also the

need for simplifying and modernising labour laws

while also guaranteeing a minimum universal 'Social

Protection Floor' would go a long way towards

accelerating the process of formalisation of the

labour market. This, in turn, would greatly contribute

towards the achievement of sustainable and

inclusive growth.

l

l

l

Future Strategies

l

l

l

Index (ESI) has been prepared for this Report, which

captures various dimensions of employment

conditions. ESI shows that generally workers in the

southern and western states have much better

access to good quality employment than do workers

in states in the central and eastern regions (Himachal

Pradesh ranks number one, while Bihar ranks last).

There have been several positive developments as well.

Some of them are:

In the midst of rising inequalities , there has been

significant increase in real wages at the rate of over 3

per cent over three decades along with increase in

labour productivity

The process of informalisation of the work force

seems to have halted since mid 2000s as reflected by

increase in the share of formal workers from around

6.5 per cent in 2004-05 to 7.5 per cent in 2011-12. The

share of organized sector employment has risen

from around 12 per cent to 17 per cent and regular

workers from 14 per cent to 18 per cent during the

same period. These developments are largely

responsible for the reduction in poverty.

There has been increase, albeit small one, in the

access to quality employment of the deprived groups

such as SCs and STs, more so in the public sector.

Most dramatic is the increase in the access of OBCs to

quality employment, both in public and private

sectors, largely at the expense of the upper strata of

the society, including upper caste Hindus.

There has been incidence of increased awareness

about workers' rights along with the increase in the

popular movements about right to work and its

implementation.

Some major employment challenges facing India are as

follows:

A very large percentage of the 'working poor' and

under-employed are engaged in low productive work

in the informal economy. Even on the basis of the

current poverty line, which is indeed a gross under-

estimation, one-fourth of all workers, that is about

120 million, fall into the category of the poor. If the

poverty line is raised to about US$2 (in terms of the

PPP), the proportion of the working poor would

Some Positive Aspects

l

l

l

l

Major Employment Challenges

l

45 FEBRUARY 2014

agitations and tight fiscal situation are constraining pace

of infrastructure development.

We as a nation, also need to conclude our sub-judice /

pending issues on various infra projects sooner rather

than later and recreate an environment of investor

confidence to boost investment in the sector. While

visible development has been seen in the airports, there

have been considerable delays in completion of these

projects. Further, there is still a significant amount of

work to be done for our ports, interlinking of rivers,

roads, power generation, optimum utilization of natural

resources etc.

Another obstacle we need to overcome is to address the

environmental issues / Right of Way aspects so that road

contractors can execute projects in timely manner.

Similarly, the mining ban is severely impacting trade and

some projects. A single window clearance concept

should be implemented so that projects get green-lit in

an orderly and timely fashion.

The government is expecting the private sector and

banks to play a large role in infrastructure development.

However it needs to remove bottlenecks which are a

huge stumbling block to participation from these

quarters.

India's population has been steadily increasing over

the decades and today stands at over 1.2 billion.

However, investment in infrastructure across categories

over the same period has not kept pace with its

burgeoning population, necessitating focused approach

of all stake-holders. The current need for infrastructure

presents enormous opportunities, particularly given the

government's ambitious plan to invest US$1 trillion in

the 12th plan in the infrastructure sector.

Public-private participation was thought as means to

achieve the end, but the gap between physical

achievement on the ground and plans on the table are

widening each year. Key challenges such as

environmental clearances, raw material linkages,

Pushing Infrastructure Projects

Mr. Nirav ShahHead, Emerging Corporate Group &

Infrastructure Finance Group, HDFC Bank

SPECIAL FEATURE

44ECONOMY MATTERS

FOCUS OF THE MONTH

2004-05. Only 7 per cent of students enrolled in

Technical and Vocational Education and Training (TVET)

were girls.

In fact, the infrastructure for skill development for

females is weak, even within the overall gap for skill thinfrastructure. The 11 Plan covered 1.6 lakh women

under the Support to Training and Employment Program

for Women (STEP) for women below the poverty line.

The Ministry of Women and Child Development's Sabla

scheme for girls of 16-18 years provides skills for some 2-

2.5 lakh girls during a year. There are about 1.7 lakh seats

in industrial training for women under various training

institutes.

For both skilled and unskilled workers, new job creation

has been limited. The number of jobs created has

dropped from 60 million over the period of 1999-2000 to 162003-04 to 53 million during 2004 to Jan 2012 . The net

job creation for the period 2004-05 to 2009-10 was less

than 3 million and as many as 5 million jobs were lost in

the manufacturing sector. An OECD report notes that

100 per cent of new jobs created between 2000 and

2005 were in the informal sector. This is at a time when

63.5 million people will be added to the working age

population between 2011 and 2016. Although a strand of

analysis contends that the quality of jobs in the earlier

period was poor and could be due to distress shift from

agriculture, the decline in manufacturing jobs and rise in

construction jobs in the later period indicates that the

space for skilled labour is shrinking.

This brief overview shows that the challenge of creating

new jobs as a whole, and particularly for encouraging

women to venture out into the workforce, is formidable.

Both creation of new jobs as well as expanding the skill

development mission must be addressed in tandem. The

experience of countries which have established large

factories employing women in sectors such as garments

and accessories or food processing can be studied. In

the overall endeavor to expand employment, special

policies to encourage women to work must be accorded

high attention.

Almost 60 per cent of women in villages found livelihood

as self-employed, less than 6 per cent had regular wage

or salaried employment and over 35 per cent were 11casual labourers . It is interesting to note that as a

percentage of total workers, the proportion of self-

employed women in the rural areas has come down

significantly from 11.2 per cent in 1999-2000 to 9 per cent

in 2011-12 and that under casual labour too declined by 4

percentage points. More women found regular wage

employment in these years. This seems to be the case for 12urban female workers as well.

Sector-wise, just over 20 per cent of women were

employed in the organized sector in 2011, with 18.1 per

cent in the public sector and 24.3 per cent in the private

sector. The organized manufacturing sector employed a

low 9.7 lakh women, while 8.5 lakh worked in the

community, social and private services, and 4.3 lakh in 13the agriculture and allied sectors.

Regarding distribution among economic sectors, the

proportion of rural women as a percentage of total

workers in the primary sector has declined from 19 per

cent in 1999-2000 to 12.5 per cent in 2011-12. In the

secondary and tertiary sectors, this data point increased

marginally. Of the women in cities, the proportion

working in the secondary sector increased from 1.2 per

cent in 1999-2000 to 1.8 per cent in 2011-12, and in the

tertiary sector, this went up from 2.3 per cent to 143.2 per cent. However, the increase is minor as

compared to the overall decline in LFPR for women

which emanates mainly from women in villages

choosing not to work.

While much progress has been made in enrolling girls in

education, less than a third of women with college

education entered the workforce in 2010, and two of

three women in working age-group from rural areas had 15never received any school education . According to the

th12 Plan working group on women's agency and

empowerment, 60 per cent of employed women were

illiterate and only 3.7 per cent of them were graduates in

11 Central Statistics Office, National Statistical Organisation, 'Women and Men in India 2013' 12 Shaw, Abhishek13 Shaw, Abhishek14 Shaw, Abhishek15 Madgavkar, Anu16 Chauhan, Chetan 'NDA created more jobs than UPA' Hindustan Times, June 21, 2013; Pannu, SPS 'Amid economic slowdown, India lost 5

million jobs during 2005-2010' Mail Today, March 5, 2013; Choudhury, Chandrahas 'India's economy leaves job growth in the dust' Bloomberg View March 14, 2013during 2005-2010' Mail Today, March 5, 2013; Choudhury, Chandrahas 'India's economy leaves job growth in the dust' Bloomberg View March 14, 2013

45 FEBRUARY 2014

agitations and tight fiscal situation are constraining pace

of infrastructure development.

We as a nation, also need to conclude our sub-judice /

pending issues on various infra projects sooner rather

than later and recreate an environment of investor

confidence to boost investment in the sector. While

visible development has been seen in the airports, there

have been considerable delays in completion of these

projects. Further, there is still a significant amount of

work to be done for our ports, interlinking of rivers,

roads, power generation, optimum utilization of natural

resources etc.

Another obstacle we need to overcome is to address the

environmental issues / Right of Way aspects so that road

contractors can execute projects in timely manner.

Similarly, the mining ban is severely impacting trade and

some projects. A single window clearance concept

should be implemented so that projects get green-lit in

an orderly and timely fashion.

The government is expecting the private sector and

banks to play a large role in infrastructure development.

However it needs to remove bottlenecks which are a

huge stumbling block to participation from these

quarters.

India's population has been steadily increasing over

the decades and today stands at over 1.2 billion.

However, investment in infrastructure across categories

over the same period has not kept pace with its

burgeoning population, necessitating focused approach

of all stake-holders. The current need for infrastructure

presents enormous opportunities, particularly given the

government's ambitious plan to invest US$1 trillion in

the 12th plan in the infrastructure sector.

Public-private participation was thought as means to

achieve the end, but the gap between physical

achievement on the ground and plans on the table are

widening each year. Key challenges such as

environmental clearances, raw material linkages,

Pushing Infrastructure Projects

Mr. Nirav ShahHead, Emerging Corporate Group &

Infrastructure Finance Group, HDFC Bank

SPECIAL FEATURE

44ECONOMY MATTERS

FOCUS OF THE MONTH

2004-05. Only 7 per cent of students enrolled in

Technical and Vocational Education and Training (TVET)

were girls.

In fact, the infrastructure for skill development for

females is weak, even within the overall gap for skill thinfrastructure. The 11 Plan covered 1.6 lakh women

under the Support to Training and Employment Program

for Women (STEP) for women below the poverty line.

The Ministry of Women and Child Development's Sabla

scheme for girls of 16-18 years provides skills for some 2-

2.5 lakh girls during a year. There are about 1.7 lakh seats

in industrial training for women under various training

institutes.

For both skilled and unskilled workers, new job creation

has been limited. The number of jobs created has

dropped from 60 million over the period of 1999-2000 to 162003-04 to 53 million during 2004 to Jan 2012 . The net

job creation for the period 2004-05 to 2009-10 was less

than 3 million and as many as 5 million jobs were lost in

the manufacturing sector. An OECD report notes that

100 per cent of new jobs created between 2000 and

2005 were in the informal sector. This is at a time when

63.5 million people will be added to the working age

population between 2011 and 2016. Although a strand of

analysis contends that the quality of jobs in the earlier

period was poor and could be due to distress shift from

agriculture, the decline in manufacturing jobs and rise in

construction jobs in the later period indicates that the

space for skilled labour is shrinking.

This brief overview shows that the challenge of creating

new jobs as a whole, and particularly for encouraging

women to venture out into the workforce, is formidable.

Both creation of new jobs as well as expanding the skill

development mission must be addressed in tandem. The

experience of countries which have established large

factories employing women in sectors such as garments

and accessories or food processing can be studied. In

the overall endeavor to expand employment, special

policies to encourage women to work must be accorded

high attention.

Almost 60 per cent of women in villages found livelihood

as self-employed, less than 6 per cent had regular wage

or salaried employment and over 35 per cent were 11casual labourers . It is interesting to note that as a

percentage of total workers, the proportion of self-

employed women in the rural areas has come down

significantly from 11.2 per cent in 1999-2000 to 9 per cent

in 2011-12 and that under casual labour too declined by 4

percentage points. More women found regular wage

employment in these years. This seems to be the case for 12urban female workers as well.

Sector-wise, just over 20 per cent of women were

employed in the organized sector in 2011, with 18.1 per

cent in the public sector and 24.3 per cent in the private

sector. The organized manufacturing sector employed a

low 9.7 lakh women, while 8.5 lakh worked in the

community, social and private services, and 4.3 lakh in 13the agriculture and allied sectors.

Regarding distribution among economic sectors, the

proportion of rural women as a percentage of total

workers in the primary sector has declined from 19 per

cent in 1999-2000 to 12.5 per cent in 2011-12. In the

secondary and tertiary sectors, this data point increased

marginally. Of the women in cities, the proportion

working in the secondary sector increased from 1.2 per

cent in 1999-2000 to 1.8 per cent in 2011-12, and in the

tertiary sector, this went up from 2.3 per cent to 143.2 per cent. However, the increase is minor as

compared to the overall decline in LFPR for women

which emanates mainly from women in villages

choosing not to work.

While much progress has been made in enrolling girls in

education, less than a third of women with college

education entered the workforce in 2010, and two of

three women in working age-group from rural areas had 15never received any school education . According to the

th12 Plan working group on women's agency and

empowerment, 60 per cent of employed women were

illiterate and only 3.7 per cent of them were graduates in

11 Central Statistics Office, National Statistical Organisation, 'Women and Men in India 2013' 12 Shaw, Abhishek13 Shaw, Abhishek14 Shaw, Abhishek15 Madgavkar, Anu16 Chauhan, Chetan 'NDA created more jobs than UPA' Hindustan Times, June 21, 2013; Pannu, SPS 'Amid economic slowdown, India lost 5

million jobs during 2005-2010' Mail Today, March 5, 2013; Choudhury, Chandrahas 'India's economy leaves job growth in the dust' Bloomberg View March 14, 2013during 2005-2010' Mail Today, March 5, 2013; Choudhury, Chandrahas 'India's economy leaves job growth in the dust' Bloomberg View March 14, 2013

47 FEBRUARY 2014

GDP GROWTH (y-o-y%)

WPI INFLATION (y-o-y%)

INDEX OF INDUSTRIAL PRODUCTION (IIP) (y-o-y%)

US GDP Growth Japan GDP Growth

IndustryOverall GDP

Overall

Euro Area GDP Growth China GDP Growth

Agriculture Services

Primary Fuel Manufacturing

General Manufacturing Electricity Mining

4Q12 1Q13 2Q13

7.97.7 7.5 7.8

2.01.3

2.5

-1.2

0.5

4Q12 1Q13 2Q13

-0.3

0.11.2

4Q12 1Q13 2Q13

4.8 4.4

3QFY13 4QFY13 2QFY14

1.4

3QFY13 4QFY13 1QFY14

0.2

6.96.76.6

6.0

3QFY13 4QFY13 1QFY14

4Q12 1Q13 2Q13 3Q13

Sep-13 Oct-13

14.6

Sep-13 Oct-13

10.5

Sep-13 Oct-13

2.9

Sep-13 Oct-13

Aug-13 Sep-13 Aug-13 Sep-13

12.9

Aug-13 Sep-13

-0.9

Aug-13 Sep-13

GLOBAL GDP (y-o-y%)

3Q13

1.6

7.0

11.7

2.4

2.7

0.4

1.4

-0.2

3.6

-1.0-0.6

4Q13 3Q13

2.4

4.7

1QFY14

3.6

2QFY14

3QFY13 4QFY13 1QFY14 2QFY14

2QFY14

7.2

Nov-13 Nov-13

11.1

Nov-13 Nov-13

2.6

-1.6

Oct-13

-2.7

Oct-13 Oct-13

-3.2

Oct-13

7.7

4Q13

5.05

6.8

Dec-13 Dec-13

11.0

Dec-13

2.8

Dec-13

-1.3

Nov-13

-1.6

Nov-13 Nov-13

7.26.3

0.4

Nov-13

2.0

4Q13

1.0

4Q13

3QFY14

4.4 4.4

0.8

2.7

4.6

3QFY14

1.7

2.72.3

-0.7

3QFY14

7.6

3QFY14

7.5

6.2

14.0

15.3

10.8

Jan-14 Jan-14

10.0

Jan-14

2.8

Jan-14

-0.6

Dec-13

-1.8

Dec-13

1.3

7.5

Dec-13

1.7

Dec-13

ECONOMY MONITOR

46ECONOMY MATTERS

(Views are personal)

amount of gas which the country needs and can have a

huge bearing in reduction of imports. It has been seen

that the government is keen to sort out fuel availability

in the power sector, and granted many environmental

clearances, forest clearances. It has also cleared many

land acquisitions and all these factors may lead to fresh

investment in infrastructure sector.

With a spate of large ticket projects getting clearance, it

augurs well for the sentiment of the Industry. There is

still a huge time lag between clearance and actual

execution of the project, and the real benefit in terms of

cash generation kicks in only at a much later date. For

immediate impact we need to see a large scale

movement in either FDI or ECB funding for these

projects.

Public Private Partnership can collectively help India to

achieve its fair share in the world market. Once we

address the challenges highlighted above, we should

see banks / financial institutions coming forward and

extending support for infrastructure development. It

would then only be a matter of time before we see

foreign interest also pouring in this space.

According to ICRA estimates, the total infrastructure

credit in India (banks and NBFCs) stood at around Rs.12.5

trillion as on March 31, 2013. Of this, banks accounted for

59 per cent. At this industry size, India's infrastructure

credit penetration to GDP stood at around 12.5 per cent

as on March 31, 2013, against 11.5 per cent as on March 31,

2012. The total credit to the infrastructure sector

witnessed a growth during 2012-13. The biggest

challenge today is for the financing banks / institutions

which are struggling over stalled or slow projects and

appear to have very low appetite for further lending to

the sector.

Recently we have seen a certain set of favorable

decisions being taken such as the Electricity Tariff

Regulator agreeing for an increase in tariff for mega

power projects where earlier no pass through of tariff

was allowed to compensate the increase in coal import

cost which augurs well for the Industry. Similarly the

market gladly received the news of increase in gas tariff

which will help the country to drill for gas which was

discovered earlier but financially unviable at the earlier

fixed rate. Hopefully this will lead to generating higher

SPECIAL FEATURE

-0.3

3Q13

47 FEBRUARY 2014

GDP GROWTH (y-o-y%)

WPI INFLATION (y-o-y%)

INDEX OF INDUSTRIAL PRODUCTION (IIP) (y-o-y%)

US GDP Growth Japan GDP Growth

IndustryOverall GDP

Overall

Euro Area GDP Growth China GDP Growth

Agriculture Services

Primary Fuel Manufacturing

General Manufacturing Electricity Mining

4Q12 1Q13 2Q13

7.97.7 7.5 7.8

2.01.3

2.5

-1.2

0.5

4Q12 1Q13 2Q13

-0.3

0.11.2

4Q12 1Q13 2Q13

4.8 4.4

3QFY13 4QFY13 2QFY14

1.4

3QFY13 4QFY13 1QFY14

0.2

6.96.76.6

6.0

3QFY13 4QFY13 1QFY14

4Q12 1Q13 2Q13 3Q13

Sep-13 Oct-13

14.6

Sep-13 Oct-13

10.5

Sep-13 Oct-13

2.9

Sep-13 Oct-13

Aug-13 Sep-13 Aug-13 Sep-13

12.9

Aug-13 Sep-13

-0.9

Aug-13 Sep-13

GLOBAL GDP (y-o-y%)

3Q13

1.6

7.0

11.7

2.4

2.7

0.4

1.4

-0.2

3.6

-1.0-0.6

4Q13 3Q13

2.4

4.7

1QFY14

3.6

2QFY14

3QFY13 4QFY13 1QFY14 2QFY14

2QFY14

7.2

Nov-13 Nov-13

11.1

Nov-13 Nov-13

2.6

-1.6

Oct-13

-2.7

Oct-13 Oct-13

-3.2

Oct-13

7.7

4Q13

5.05

6.8

Dec-13 Dec-13

11.0

Dec-13

2.8

Dec-13

-1.3

Nov-13

-1.6

Nov-13 Nov-13

7.26.3

0.4

Nov-13

2.0

4Q13

1.0

4Q13

3QFY14

4.4 4.4

0.8

2.7

4.6

3QFY14

1.7

2.72.3

-0.7

3QFY14

7.6

3QFY14

7.5

6.2

14.0

15.3

10.8

Jan-14 Jan-14

10.0

Jan-14

2.8

Jan-14

-0.6

Dec-13

-1.8

Dec-13

1.3

7.5

Dec-13

1.7

Dec-13

ECONOMY MONITOR

46ECONOMY MATTERS

(Views are personal)

amount of gas which the country needs and can have a

huge bearing in reduction of imports. It has been seen

that the government is keen to sort out fuel availability

in the power sector, and granted many environmental

clearances, forest clearances. It has also cleared many

land acquisitions and all these factors may lead to fresh

investment in infrastructure sector.

With a spate of large ticket projects getting clearance, it

augurs well for the sentiment of the Industry. There is

still a huge time lag between clearance and actual

execution of the project, and the real benefit in terms of

cash generation kicks in only at a much later date. For

immediate impact we need to see a large scale

movement in either FDI or ECB funding for these

projects.

Public Private Partnership can collectively help India to

achieve its fair share in the world market. Once we

address the challenges highlighted above, we should

see banks / financial institutions coming forward and

extending support for infrastructure development. It

would then only be a matter of time before we see

foreign interest also pouring in this space.

According to ICRA estimates, the total infrastructure

credit in India (banks and NBFCs) stood at around Rs.12.5

trillion as on March 31, 2013. Of this, banks accounted for

59 per cent. At this industry size, India's infrastructure

credit penetration to GDP stood at around 12.5 per cent

as on March 31, 2013, against 11.5 per cent as on March 31,

2012. The total credit to the infrastructure sector

witnessed a growth during 2012-13. The biggest

challenge today is for the financing banks / institutions

which are struggling over stalled or slow projects and

appear to have very low appetite for further lending to

the sector.

Recently we have seen a certain set of favorable

decisions being taken such as the Electricity Tariff

Regulator agreeing for an increase in tariff for mega

power projects where earlier no pass through of tariff

was allowed to compensate the increase in coal import

cost which augurs well for the Industry. Similarly the

market gladly received the news of increase in gas tariff

which will help the country to drill for gas which was

discovered earlier but financially unviable at the earlier

fixed rate. Hopefully this will lead to generating higher

SPECIAL FEATURE

-0.3

3Q13

ECONOMY MONITOR

49 FEBRUARY 2014

Agriculture Industry Services

Source: RBI, CSO, SEBI, Office of Economic Advisor, Bureau of Economic Analysis, Euro Stat, Bank of Japan, National Bureau of StatisticsNote: AE - Advance Estimates

ANNUAL GDP GROWTH: DEMAND-SIDE (y-o-y%)

RATIO OF SAVINGS & INVESTMENT TO GDP

ANNUAL WPI INFLATION (y-o-y%)

GDP at Market Prices Private Consumption Expenditure Govt Consumption Expenditure Gross Fixed Investment

Gross Capital Formation Rate (%) Gross Savings Rate (%) Financial Savings Rate (%) Savings in Physical Assets (%)

Overall WPI Primary FuelManufacturing

FY 10 FY 11 FY 12

36.5

12.0 13.513.2 13.2

15.8

3.8

12.7

ANNUAL GDP GROWTH: SUPPLY-SIDE (y-o-y%)

34.310.1

8.1 11.0

FY 13

9.9

14.8

17.8

35.5

7.0

8.9

9.8

8.6

0.8

5.01.4

4.6

34.8

7.1

7.4

GDP at Factor Cost

8.9

FY 10 FY 11

8.6

FY 12

6.74.5

FY 13

4.9

FY 14 (AE) FY 10 FY 11 FY 12 FY 13 FY 14 (AE) FY 14 (AE)

9.2

7.67.8

1.0 0.7

FY 10 FY 11 FY 12 FY 13 FY 14 (AE)

10.59.7

6.6

1.4

4.6

8.510.3

6.6

4.7 4.6

FY 10 FY 11 FY 12 FY 13 FY 14 (AE)

7.48.7 9.3

5.0

4.1

FY 10 FY 11 FY 12 FY 13 FY 14 (AE)

13.9

5.8

6.96.2

5.5

FY 10 FY 11 FY 12 FY 13 FY 14 (AE)

7.711.0

12.3

0.80.2

FY 10 FY 11 FY 12 FY 13 FY 14 (AE)

FY 10 FY 11 FY 12 FY 13FY 09

36.5

33.7

32.0 31.3 30.1

FY 10 FY 11 FY 12 FY 13FY 09

33.7

FY 10 FY 11 FY 12 FY 13FY 09 FY 10 FY 11 FY 12 FY 13FY 09

9.6

FY 10 FY 11 FY 12 FY 13FY 09

9.8

FY 10 FY 11 FY 12 FY 13FY 09

12.311.6

14.0

10.3

-2.1

FY 10 FY 11 FY 12 FY 13FY 09

5.76.2

2.2

FY 10 FY 11 FY 12 FY 13FY 09

7.3

5.4

Exports (%) Imports (%) Trade Deficit (US$ Bn) Current Account Deficit (US$ Bn) Avg Exchange Rate (Rs/US$)

MONETARY VARIABLES (%)

CAPITAL FLOWS (US$ billion)

OTHER IMPORTANT VARIABLES (y-o-y%)

Non-Food Credit Growth (y-o-y%) M3Growth (y-o-y%) Repo Rate (%) Cash Reserve Ratio (%)

Net FII Flows (US$ billion) Net FDI Flows (US$ billion) Forex Reserves (US$ billion) ECB flows (US$ billion)

Core Sector Growth (y-o-y%) Cement Production Growth (y-o-y%) Steel Production Growth (y-o-y%)Commercial Vehicles

Production Growth (y-o-y%)

7.75

4.00 4.00 4.00 4.00 4.00

5.8

-16.4

10.5

Oct-13

32.6

18.121.8

3QFY13 4QFY13 1QFY14

61.6

Sep-13 Oct-13

17.916.8

14.1

Oct-13

0.4

Sep-13 Oct-13

3.2

Aug-13 Sep-13

281.3

Sep-13 Oct-13

1.0

2.8

4.2

0.9

2QFY13 3QFY13 4QFY13 1QFY14

8.0

Aug-13 Sep-13

11.5

Aug-13 Sep-13

6.6

Aug-13 Sep-13

-22.6

Aug-13 Sep-13 Oct-13

EXTERNAL ACCOUNT

63.8

12.5

1.21.7

276.3

3.7

5.5

4.3

2

4

6

8

10

12

0

-19.6-28.6

13.5

-14.5

Oct-13 Nov-13 Nov-13

9.2

5.2

2QFY14

62.6

Nov-13

14.6

Sep-13 Oct-13 Nov-13

14.5

Sep-13 Oct-13 Nov-13

7.75

Nov-13

7.75

Dec-13 Oct-13 Nov-13 Dec-13

0.3

Nov-13

1.8

Oct-13

291.3

Nov-13

1.5

2QFY14

-0.6

Oct-13

1.0

Oct-13

3.5

Oct-13

3.3

-15.8

Dec-13

10.1

Dec-13

61.9

14.8

Dec-13

Dec-13

14.9

Dec-13

8.00

Jan-14 Jan-14

3.5

Dec-13

2.1

Nov-13

295.7

Dec-13

1.7

Nov-13 Nov-13

4.2

Nov-13

3.9

Nov-13

-15.2-25.3

Dec-13

3.8

-18.1

Jan-14

9.9

Jan-14

62.1

Jan-14

Jan-14

14.9

Jan-14

14.5

8.00

Feb-14 Feb-14

Jan-14

2.2

Dec-13

2.4

Jan-14

291.2

Dec-13

2.1

Dec-13

1.1

Dec-13

3.1

4.2

3QFY14

48ECONOMY MATTERS

ECONOMY MONITOR

Feb-14

3.7

17.1

8.1

Feb-14

ECONOMY MONITOR

49 FEBRUARY 2014

Agriculture Industry Services

Source: RBI, CSO, SEBI, Office of Economic Advisor, Bureau of Economic Analysis, Euro Stat, Bank of Japan, National Bureau of StatisticsNote: AE - Advance Estimates

ANNUAL GDP GROWTH: DEMAND-SIDE (y-o-y%)

RATIO OF SAVINGS & INVESTMENT TO GDP

ANNUAL WPI INFLATION (y-o-y%)

GDP at Market Prices Private Consumption Expenditure Govt Consumption Expenditure Gross Fixed Investment

Gross Capital Formation Rate (%) Gross Savings Rate (%) Financial Savings Rate (%) Savings in Physical Assets (%)

Overall WPI Primary FuelManufacturing

FY 10 FY 11 FY 12

36.5

12.0 13.513.2 13.2

15.8

3.8

12.7

ANNUAL GDP GROWTH: SUPPLY-SIDE (y-o-y%)

34.310.1

8.1 11.0

FY 13

9.9

14.8

17.8

35.5

7.0

8.9

9.8

8.6

0.8

5.01.4

4.6

34.8

7.1

7.4

GDP at Factor Cost

8.9

FY 10 FY 11

8.6

FY 12

6.74.5

FY 13

4.9

FY 14 (AE) FY 10 FY 11 FY 12 FY 13 FY 14 (AE) FY 14 (AE)

9.2

7.67.8

1.0 0.7

FY 10 FY 11 FY 12 FY 13 FY 14 (AE)

10.59.7

6.6

1.4

4.6

8.510.3

6.6

4.7 4.6

FY 10 FY 11 FY 12 FY 13 FY 14 (AE)

7.48.7 9.3

5.0

4.1

FY 10 FY 11 FY 12 FY 13 FY 14 (AE)

13.9

5.8

6.96.2

5.5

FY 10 FY 11 FY 12 FY 13 FY 14 (AE)

7.711.0

12.3

0.80.2

FY 10 FY 11 FY 12 FY 13 FY 14 (AE)

FY 10 FY 11 FY 12 FY 13FY 09

36.5

33.7

32.0 31.3 30.1

FY 10 FY 11 FY 12 FY 13FY 09

33.7

FY 10 FY 11 FY 12 FY 13FY 09 FY 10 FY 11 FY 12 FY 13FY 09

9.6

FY 10 FY 11 FY 12 FY 13FY 09

9.8

FY 10 FY 11 FY 12 FY 13FY 09

12.311.6

14.0

10.3

-2.1

FY 10 FY 11 FY 12 FY 13FY 09

5.76.2

2.2

FY 10 FY 11 FY 12 FY 13FY 09

7.3

5.4

Exports (%) Imports (%) Trade Deficit (US$ Bn) Current Account Deficit (US$ Bn) Avg Exchange Rate (Rs/US$)

MONETARY VARIABLES (%)

CAPITAL FLOWS (US$ billion)

OTHER IMPORTANT VARIABLES (y-o-y%)

Non-Food Credit Growth (y-o-y%) M3Growth (y-o-y%) Repo Rate (%) Cash Reserve Ratio (%)

Net FII Flows (US$ billion) Net FDI Flows (US$ billion) Forex Reserves (US$ billion) ECB flows (US$ billion)

Core Sector Growth (y-o-y%) Cement Production Growth (y-o-y%) Steel Production Growth (y-o-y%)Commercial Vehicles

Production Growth (y-o-y%)

7.75

4.00 4.00 4.00 4.00 4.00

5.8

-16.4

10.5

Oct-13

32.6

18.121.8

3QFY13 4QFY13 1QFY14

61.6

Sep-13 Oct-13

17.916.8

14.1

Oct-13

0.4

Sep-13 Oct-13

3.2

Aug-13 Sep-13

281.3

Sep-13 Oct-13

1.0

2.8

4.2

0.9

2QFY13 3QFY13 4QFY13 1QFY14

8.0

Aug-13 Sep-13

11.5

Aug-13 Sep-13

6.6

Aug-13 Sep-13

-22.6

Aug-13 Sep-13 Oct-13

EXTERNAL ACCOUNT

63.8

12.5

1.21.7

276.3

3.7

5.5

4.3

2

4

6

8

10

12

0

-19.6-28.6

13.5

-14.5

Oct-13 Nov-13 Nov-13

9.2

5.2

2QFY14

62.6

Nov-13

14.6

Sep-13 Oct-13 Nov-13

14.5

Sep-13 Oct-13 Nov-13

7.75

Nov-13

7.75

Dec-13 Oct-13 Nov-13 Dec-13

0.3

Nov-13

1.8

Oct-13

291.3

Nov-13

1.5

2QFY14

-0.6

Oct-13

1.0

Oct-13

3.5

Oct-13

3.3

-15.8

Dec-13

10.1

Dec-13

61.9

14.8

Dec-13

Dec-13

14.9

Dec-13

8.00

Jan-14 Jan-14

3.5

Dec-13

2.1

Nov-13

295.7

Dec-13

1.7

Nov-13 Nov-13

4.2

Nov-13

3.9

Nov-13

-15.2-25.3

Dec-13

3.8

-18.1

Jan-14

9.9

Jan-14

62.1

Jan-14

Jan-14

14.9

Jan-14

14.5

8.00

Feb-14 Feb-14

Jan-14

2.2

Dec-13

2.4

Jan-14

291.2

Dec-13

2.1

Dec-13

1.1

Dec-13

3.1

4.2

3QFY14

48ECONOMY MATTERS

ECONOMY MONITOR

Feb-14

3.7

17.1

8.1

Feb-14

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

The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the development of India, partnering industry, Government, and civil society, through advisory and consultative processes.

CII is a non-government, not-for-profit, industry-led and industry-managed organization, playing a proactive role in India's development process. Founded in 1895, India's premier business association has over 7100 members, from the private as well as public sectors, including SMEs and MNCs, and an indirect membership of over 90,000 enterprises from around 257 national and regional sectoral industry bodies.

CII charts change by working closely with Government on policy issues, interfacing with thought leaders, and enhancing efficiency, competitiveness and business opportunities for industry through a range of specialized services and strategic global linkages. It also provides a platform for consensus-building and networking on key issues.

Extending its agenda beyond business, CII assists industry to identify and execute corporate citizenship programmes. Partnerships with civil society organizations carry forward corporate initiatives for integrated and inclusive development across diverse domains including affirmative action, healthcare, education, livelihood, diversity management, skill development, empowerment of women, and water, to name a few.

The CII Theme for 2013-14 is Accelerating Economic Growth through Innovation, Transformation, Inclusion and Governance. Towards this, CII advocacy will accord top priority to stepping up the growth trajectory of the nation, while retaining a strong focus on accountability, transparency and measurement in the corporate and social eco-system, building a knowledge economy, and broad-basing development to help deliver the fruits of progress to all.

With 63 offices, including 9 Centres of Excellence, in India, and 7 overseas offices in Australia, China, Egypt, France, Singapore, UK, and USA, as well as institutional partnerships with 224 counterpart organizations in 90 countries, CII serves as a reference point for Indian industry and the international business community.

ABOUT CII ResearchThe CII Research team regularly tracks economic, political and business developments within India and abroad to comment on the emerging economic scenario for the Indian corporate sector. It tracks policy developments, offers comprehensive analysis of industries and comments on and analyzes the economic climate through its regular publications– Economy Matters, Business Outlook Survey and, Fortnightly Economic Updates.

We have in-house expertise in providing the most comprehensive, in-depth, unbiased and incisive analysis and forecasts on the Indian economy and various sectors. CII Research is also well versed and well equipped to offer customized research based consultancy services on any theme. It has been catering to the needs of various stakeholders including industries, business houses and government providing meaningful insights about the prevailing trends, outlook on likely future trends, factors behind these trends, existing government policies and policy recommendations with an objective to help stakeholders in better understanding of the issues at hand. The objective of CII Research is to assist stakeholders in taking more informed and strategic decisions with due focus on the attainment of short term as well as long term goals. For more details and to advertise in our products, write to us at ecoresearch@cii.in

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50ECONOMY MATTERS

DISCLAIMER

Copyright © 2013 by Confederation of Indian Industry (CII), All rights reserved.

No part of this publication may be reproduced, stored in, or introduced into a retrieval system, or transmitted in any form or by

any means (electronic, mechanical, photocopying, recording or otherwise), without the prior written permission of the

copyright owner. CII has made every effort to ensure the accuracy of information presented in this document. However,

neither CII nor any of its office bearers or analysts or employees can be held responsible for any financial consequences arising

out of the use of information provided herein. However, in case of any discrepancy, error, etc., same may please be brought to

the notice of CII for appropriate corrections.

Published by Confederation of Indian Industry (CII), The Mantosh Sondhi Centre; 23, Institutional Area, Lodi Road, New Delhi-

110003 (INDIA),

Tel: +91-11-24629994-7, Fax: +91-11-24626149; Email: info@cii.in; Web: www.cii.in

The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the development of India, partnering industry, Government, and civil society, through advisory and consultative processes.

CII is a non-government, not-for-profit, industry-led and industry-managed organization, playing a proactive role in India's development process. Founded in 1895, India's premier business association has over 7100 members, from the private as well as public sectors, including SMEs and MNCs, and an indirect membership of over 90,000 enterprises from around 257 national and regional sectoral industry bodies.

CII charts change by working closely with Government on policy issues, interfacing with thought leaders, and enhancing efficiency, competitiveness and business opportunities for industry through a range of specialized services and strategic global linkages. It also provides a platform for consensus-building and networking on key issues.

Extending its agenda beyond business, CII assists industry to identify and execute corporate citizenship programmes. Partnerships with civil society organizations carry forward corporate initiatives for integrated and inclusive development across diverse domains including affirmative action, healthcare, education, livelihood, diversity management, skill development, empowerment of women, and water, to name a few.

The CII Theme for 2013-14 is Accelerating Economic Growth through Innovation, Transformation, Inclusion and Governance. Towards this, CII advocacy will accord top priority to stepping up the growth trajectory of the nation, while retaining a strong focus on accountability, transparency and measurement in the corporate and social eco-system, building a knowledge economy, and broad-basing development to help deliver the fruits of progress to all.

With 63 offices, including 9 Centres of Excellence, in India, and 7 overseas offices in Australia, China, Egypt, France, Singapore, UK, and USA, as well as institutional partnerships with 224 counterpart organizations in 90 countries, CII serves as a reference point for Indian industry and the international business community.

ABOUT CII ResearchThe CII Research team regularly tracks economic, political and business developments within India and abroad to comment on the emerging economic scenario for the Indian corporate sector. It tracks policy developments, offers comprehensive analysis of industries and comments on and analyzes the economic climate through its regular publications– Economy Matters, Business Outlook Survey and, Fortnightly Economic Updates.

We have in-house expertise in providing the most comprehensive, in-depth, unbiased and incisive analysis and forecasts on the Indian economy and various sectors. CII Research is also well versed and well equipped to offer customized research based consultancy services on any theme. It has been catering to the needs of various stakeholders including industries, business houses and government providing meaningful insights about the prevailing trends, outlook on likely future trends, factors behind these trends, existing government policies and policy recommendations with an objective to help stakeholders in better understanding of the issues at hand. The objective of CII Research is to assist stakeholders in taking more informed and strategic decisions with due focus on the attainment of short term as well as long term goals. For more details and to advertise in our products, write to us at ecoresearch@cii.in

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50ECONOMY MATTERS