Indian Economy 2013-14

8/12/2019 Indian Economy 2013-14

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CONFIDENTIAL1

Indian Economic Outlook: 2013-14

Indian Economic Outlook: 2013-14

2 April 2013


2/20

CONFIDENTIAL2

High fiscal deficit Due to rise in unproductive spending, Indias fiscal deficit is among the highest in emerging markets

Record high current account deficit (CAD)

Indias CAD widened to US$32.6bn (6.7% of GDP) in 3QFY13 the highest in a single quarter

Falling domestic savings

Indias gross domestic savings have declined to 30.8% of GDP in FY12, from a peak of 36.8% inFY08

High inflation and interest rates

Despite some softening in WPI inflation recently, food and CPI inflation remain in double digits

Lack of political will for economic reforms

Key reforms such as implementation of GST, DTC, land acquisition bill have been pending for a longtime

Growth slowdown

Indias GDP growth slowed to around 5% during FY13 the lowest in a decade

Gloomyandpessimisticsentimentallaround


3/20

CONFIDENTIAL3

Eurozone: Enters into second year of recession The big four Germany, France, Italy and Spain economies of the Eurozone contracted in 4Q

2012

A record high unemployment rate

Crisis in Cyprus resulted in new uncertainties on the future of the Eurozone

US: Economy moving, not accelerating

GDP growth slowed down to 0.4% in 4Q 2012 vs. 3.1% in 3Q 2012

Despite improvement in the labour market, the unemployment rate at 7.7% is still very high

China: Weak start to 2013

Manufacturing sector exhibits sluggishness

Inflation rate has started moving up, reducing scope for aggressive easing of the monetary policy

Majorconcernsintheglobaleconomy


4/20CONFIDENTIAL4

Indiascycle:SeenthroughtheEconomist

India'sriseoffersadollopofreassurancetoanyonewho

believesinthecombination

ofdemocracyand

capitalism.

Itisasuperpowerinwaiting

whosepeoplevote,whose

societyis

raucous,

and

whosefirmsareredblooded

andstridingontotheworld

stage. Someseeanecho

ofAmerica'sfreewheeling

approach,withspicierfood

andworseroads. 22Oct11


5/20CONFIDENTIAL5

23May09 Goodnews:don'twasteit

Indiaisalandofbright

promise.It

is

also

extremely

poor. Congress nowhas

aclearmandatetoprovide

thecountrywitheducated

minds,well

fedbellies,

irrigatedfieldsand

uninterruptedelectricity,

withoutbusting

the

budget.


6/20CONFIDENTIAL6

23Jul11 Pushforeconomicreforms

GivenIndia'ssheerscale,its

economicriseisbiggerthan

anythat

came

before,

bar

China's. Butsuccessive

governmentshavefailedto

repairthemarketsforinputs

likelabour,landandpower.TwentyyearsafterIndias

historiceconomicreforms,

itstime

for

another

big

effort.


7/20CONFIDENTIAL7

24Mar12 Politickingkillingtheeconomy

PoliticsispreventingIndia

from

fulfilling

its

vast

economicpotential. lately,

likeaBollywoodvillainwho

justrefusestodie,theold

Indiahas

made

aterrifying

reappearance.Themain

reasonisthecountry's

desperatepolitics.


8/20


9/20CONFIDENTIAL

9

27Mar13 IndispensableIndia

whereasChinas

rise

is

agiven,Indiaisstillwidely

seenasanearlypowerthat

cannot

quite

get

its

act

together.


10/20


11/20CONFIDENTIAL

11

UnderstandingmacrofundamentalsthroughtheGita

Growth,Inflation,Enforcement,SpendingBody Fragile

Democracy,Institution,Entrepreneurship,ReformSoul Eternal

Economy

The atman is neither born nor does it die. Cominginto being and ceasing to be do not take place in It.Unborn eternal constant and ancient It is notkilled when the body is slain.


12/20


13/20

CONFIDENTIAL13

WhatfactorstobringbackIndiasglory?


14/20

CONFIDENTIAL14

GoodsandServicestaxtoimprovegovernmentfinance

Tax collection to go up

Tax-rate under the GST would come down by broadening the tax base and minimizingexemptions

Number of assesses would increase

Tax collection would go up due to broadening the tax base

It would foster a common market across the country and reduce compliance costs

Investment decisions would be independent of tax considerations and would be based on

purely economic concerns


15/20

CONFIDENTIAL15

DirectTaxCode:Toboostdirecttaxrevenue

Shareof

direct

tax

in

total

tax

roseduringFY98FY10

DirectTaxCodetoboostdirect

taxrevenue

Tomakethetaxprocesssimpler

Tobroadenthetaxbaseby

eliminatingtax

exemptions

0

10

20

30

40

50

60

70

80

90

100

FY95

FY96

FY97

FY98

FY99

FY00

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

(S

hare,

%)

Direct tax to total tax Indirect tax to total tax

Note:Directtaxincludesonlytwomajortaxes

DeclineinshareofdirecttaxintotaltaxafterFY10

Di B fi T f T k h b f h id


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CONFIDENTIAL16

DirectBenefitTransfer:Toworkatthebottomofthepyramid

Tomake

welfare

schemes

effective

DBTwouldsave$6bnworthof

governmentspendingperyear

Itwould

lead

to

activation

of

80m

dormantbankaccounts

Majorconsumptionboostforthe

poor

Regulartransfer

of

money

to

poor

householdaccountstomakethem

bankable

Bettertargetingtoboostdemandfor

basicconsumption

goods

from

the

bottomofthepyramid

WelfareschemesworthUS$56bncanbeconvertedintoDBT

13.7

11.6

10.5

7.1

5.65.1

2.4

0

2

4

6

8

10

12

14

16

FoodSubsidy

FertilizerSubsidy

StateGo

vt.

MGNREG

A

LPGSubsidy

PDSKerose

ne

Pension,e

tc.

(US$,

bn)

Government expenditure on welfare schemes

Total amount

US$56.1bn


17/20

I f t t t l d t


18/20

CONFIDENTIAL18

Infrastructuretoleadnextcapexrecovery

Totalinvestment

in

infrastructure

is

projectedatUS$1trnin12thPlanvs.

US$539bnduring11thPlan

CabinetCommitteeonInvestments

toexpedite

decisions

on

clearances

forimplementationofprojects

Metrorailprojectsinmajorcities

(Mumbai,Hyderabad,Chennai,

Bangalore)

8,800kilometersunderNationalHighway

DevelopmentProjectinFY13

88000MW

capacity

to

be

added

during

12th Plan(201217)

100,000villagestobeelectrifiedunder

theBharat Nirman project

DelhiMumbaiIndustrialCorridor

Shale gas leading to lower oil prices can reduce the twin deficits


19/20

CONFIDENTIAL19

Shalegasleadingtoloweroilpricescanreducethetwindeficits

Oilimports

account

for

around

one

third

of

Indiastotalimports

TheEIA,USA, hasreportedthatIndiahasshale

gasreservesof293trillioncubicfeet(TCF)with69

TCF

as

recoverable

in

four

Indian

basins AccordingtoPetroleumMinistryestimates,thisis

goodenoughtomeetIndia'snaturalgasdemand

forthenext33years

India

might

offer

shale

blocks

for

exploration

in

Sep13

UShasbecome80%selfsufficientinitsenergy

consumptionfrom69%7yearsago.Experts

projectUStobe100%selfsufficientinadecade

IncreaseinshalegasproductionintheUSmay

reduceoildemand

Thus,itwouldreducethetwindeficits inIndia

ShalereservesinIndia

Source:DirectorGeneralofHydrocarbons

Note:1Cambay

Basin,

2Gondwana

Basin,

3Assam

Arakan Basin,

4KG

Basin,

5Cauvery

Basin,

6Indo

Gangetic

Basin

EIA:EnergyInformationAdministration

Why Indias long term prospects remain unimpaired


20/20

CONFIDENTIAL20

WhyIndiaslongtermprospectsremainunimpaired

India back on the path of fiscal prudence: Sharp cuts in spending and strict measures to avoid tax

evasion to control India's fiscal deficit in next three years

Current account deficit to improve: In FY13, excluding gold, Indias current account deficit was just

1.2% of GDP vs. 4.2% CAD including gold; Measures to control gold imports would bring down Indias CAD

to 2-3% of GDP range in next three yeas. Reduction in oil prices may help further

Domestic savings to improve: Governments commitment to bring down fiscal deficit and an increase in

corporate profits would lead to increase in Indias gross domestic savings in coming years

Inflation and interest rate to soften: Excess capacity and better rabi output to bring down inflation in

FY14, leading to easy monetary policy by the RBI

Perception of policy paralysis fading: Since Sep12, government has taken some reform measures

such as partial decontrol of diesel prices, limited use of subsidized LPG-cylinder, FDI in multi-brand retail.

Elections may compel the government to act fast on pending reforms

Gradual economic recovery ahead: Growth, softening of inflation, declining cost of borrowing, and

policy activism to pave the path of India's next boom cycle

History shows that the best of time starts when sentiment turns most pessimistic

Indian Economy 2013-14

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