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© Confederation of Indian Industry
November 21, 2012
The Indian Economy
© Confederation of Indian Industry
• India: State of the Economy
• India: Trends in employment
• India: Policy reforms
© Confederation of Indian Industry
Growth estimates have been revised down significantly
Source: IMF, World Economic Outlook, October 2012
2010 2011 2012 Projection
2013 Projection
World 5.1 3.8 3.3 3.6
Advanced Economies 3.0 1.6 1.3 1.5
USA 2.4 1.8 2.2 2.1
Euro Area 2.0 1.4 -0.4 0.2
Japan 4.5 -0.8 2.2 1.2
Emerging and Developing Economies
7.4 6.2 5.3 5.6
China 10.4 9.2 7.8 8.2
India 10.1 6.8 4.9 6.0
Brazil 7.5 2.7 1.5 4.0
Global Real GDP Growth Rates
© Confederation of Indian Industry
• Although the US recession officially ended in June 2009, the American economy has not fully recovered even after three and a half years have passed.
• Indeed, it seems to be facing fresh weakness since the impact of the stimulus is fading out and fear of the “fiscal cliff” is causing uncertainty.
• Euro zone economies contracted in the third-quarter 2012 despite modest gains in Germany and France, as rising unemployment and fiscal austerity across much of Europe pushed the continent into its second recession since 2009.
Fresh challenges in the US and Europe
© Confederation of Indian Industry
India will be impacted
20
08
q1
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q3
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q1
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q2
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q3
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q2
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q3
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q4
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q1
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q2
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q4
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q1
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q2
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q3
-10.0
-5.0
0.0
5.0
10.0
15.0Quarterly GDP growth
US India
2.0%
© Confederation of Indian Industry
Exports Growth (%)
Exports are sliding
Source: CSO
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 H1
30.8%
23.4% 22.6%
29.0%
13.6%
-3.5%
40.5%
21.3%
-6.8%
• Exports now constitute almost 25% of GDP and will be a drag on overall growth
• The biggest declines in exports have been to Europe (-12%), ASEAN (-21%) and NE Asia (-15%) during the first half of 2012-13; surprisingly, exports to the US have increased by 14%.
© Confederation of Indian Industry
FDI and Portfolio Inflows (US $ Billion) • While FDI inflows have been steady, portfolio inflows have been more volatile, impacted by the uncertainty of the global economic environment and tough austerity measures in many economies.
• Rupee had been gaining some strength against the dollar but has begun to depreciate once again. Rupee which was trading at Rs. 57/US$ and above in June 2012 is trading in a range of 54-55/ US$ in November 2012.
Capital Inflows have been Volatile
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Apr-Sep 2012
22.7
34.7
41.7
33.127.8
33.0
16.1
6.9
27.4
-14.0
32.4 30.3
17.2
6.4
Inward FDI Portfolio Exchange Rate: INR/USDN
ov-10
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
40.00
42.00
44.00
46.00
48.00
50.00
52.00
54.00
© Confederation of Indian Industry
Twin deficits
20
05
-06
20
06
-07
20
07
-08
20
08
-09
20
09
-10
20
10
-11
20
11
-12
20
12
-13
BE
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
Fiscal deficit (% GDP)
Current account deficit (% GDP)
3.7%
• The target for the fiscal deficit for 2012-13 has been revised up to 5.3% of GDP, in view of increased spending on subsidies and lower tax collections
• However, even this revised target is unlikely to be met in view of the shortfall in telecom auction receipts and in disinvestment receipts
• A shortfall of Rs 50,000 crore would take the fiscal deficit to 5.6% of GDP
• The current account deficit is expected to moderate to 3.7% of GDP on account of lower imports.
• However, even this will be difficult to finance
Domestic challenges, 1
5.3%
© Confederation of Indian Industry
Nov-10
Jan-1
1
Mar-1
1
May-
11
Jul-1
1
Sep-11
Nov-11
Jan-1
2
Mar-1
2
May-
12
Jul-1
2
Sep-12
0.0
2.0
4.0
6.0
8.0
10.0
12.0
Overall Core Food
• Although lower than last year, inflation remains high at 7.5%• Core inflation (non-food manufacturing) has declined but food inflation has
again increased• Inflation due to fuels and minerals remain in double digits and are a key
reason for higher inflationary expectation
Domestic challenges, 2
Persistently high inflation
© Confederation of Indian Industry
• India: State of the Economy
• India: Trends in employment
• India: Policy Reforms
© Confederation of Indian Industry
Source: NSSO, 66th Round survey & CII computations
Agriculture Industry Services Agriculture Industry ServicesGDP Employment
19.0
27.9
53.156.6
18.7
24.7
14.7
28.1
57.252.9
22.7 24.4
2004-05 2009-10
Share of sectors in GDP and employment
© Confederation of Indian Industry
Total Work Force - 459 Million
40.0%
98.0%
Organized Sector32 Million
Un-Organized Sector427 Million
7.0% 93%
Public Sector 17.9 Million
Private Sector 14.2 Million
55.7% 44.3%
Total Population - 1180 Million
Total Labour Force - 469 Million
Workforce profile (2009-10)
© Confederation of Indian Industry
Source: NSSO, 66th Round survey & CII computations
47
60
76
0
10
20
30
40
50
60
70
80
Casual Regular Self-Employed
in millions
Non-agricultural workers (2009-10)
© Confederation of Indian Industry
• Employment created in the first half of the decade was much higher than in the second half
• In the second half, only non-manufacturing industrial sectors – mining, utilities and construction – created jobs; in all other sectors, there was a decline
• However, this was also accompanied by a decline in the labour force, so unemployment did not increase.
• This decline in the labour force was largely concentrated in the below 25 age group and among women and is therefore being interpreted as a positive sign
1999-00 to
2004-05
2004-05 to
2009-10
1999-00 to
2009-10
Agriculture 21.3 -15.7 5.5
Manufac-turing
11.7 -7.2 4.5
Non-manu-facturing industry
9.1 26.1 35.5
Services 18.6 -0.5 18.1
Total 60.7 2.7 63.4
Employment creation in the last decade
Increase in employment (in million)
Source: Planning Commission
© Confederation of Indian Industry
• India: State of the economy
• India: Trends in employment
• India: Policy Reforms
© Confederation of Indian Industry
Recent Policy Reforms
List of policy decisions taken recentlyReform Date
announcedImpact
Fuel price hike 13/09/ 2012 Reduction in fuel subsidy
FDI in multi-brand retail 14/09/ 2012 Greater competition and efficiency in the retail sector; more investmentsFDI in single-brand retail 14/09/ 2012
FDI in broadcasting services
14/09/ 2012 74% permitted in teleports, mobile TV and sky broadcasting services
FDI in civil aviation 14/09/ 2012 49% permitted in scheduled and non-scheduled air transport services
FDI in power trading exchanges
14/09/ 2012 49% permitted
PSU disinvestment 14/09/ 2012 More revenue for exchequer
Reduction in withholding tax on foreign borrowing
21/09/ 2012 Cheaper foreign loans
Financial restructuring of State Discoms
24/09/ 2012 State governments to take over 50% of liabilities
Infrastructure debt fund (IDF)
04/10/ 2012 Model Tripartite Agreement approved that will facilitate creation of IDFs
© Confederation of Indian Industry
Electronic Cash Transfer
– The Prime Minister announced the architecture of moving to Electronic Cash Transfers so that benefits can be transferred directly to the bank account of the targeted segment. This would significantly reduce wastages and eliminate corruption but is dependent on the rollout of Aadhar for identification of beneficiaries. With this process being directed by the PM, we can hope for rapid progress.
National Investment Board
– The Finance Minister has proposed the setting up of a National Investment Board
(NIB) that will have the final authority in taking decisions with regard to the implementation of projects above Rs 1,000 crore. Such an authority is the need of the hour and would go a long way in expediting project implementation, which is currently inordinately delayed on account of inter-ministerial differences.
Some promising ideas
© Confederation of Indian Industry
Key Bills pending in Parliament
Insurance Bill Introduced in Dec-2008 Allows FDI upto 49%
Pension Bill Introduced in Mar-2011 Seeks to give statutory status to the PFRDA
Companies Bill Re-introduced in Dec-2011
Ensures more transparent corporate governance
Forward Contracts Regulation Act (FCRA)
Introduced in Dec-2010 Gives statutory powers to FMC, allows trading in derivatives and options
Land Acquisition Bill Introduced in Sep-2011 For commercial land acquisition, and rehabilitation
National Food Security Bill
Introduced in Dec-2011 Provides for food and nutritional security by providing specific entitlements to certain groups
Public Procurement Bill Introduced in May-2012 Seeks to regulate and ensure transparency in the procurement process
Mines and Minerals (Development and Regulation) Bill
Introduced in Dec-2011 Consolidates and amends the law relating to the scientific development and regulation of mines and minerals
Goods and Services Tax (GST) Bill
Introduced in Mar-2011 Landmark Change – requires constitutional amendment with 2/3rd majority
Direct Taxes Code (DTC) Introduced in Aug-2010 The Bill replaces the Income Tax Act 1961 and the Wealth Tax Act, 1957
Banking Laws (Amendment) Bill
Introduced in Mar-2011 Seeks to strengthen the regulatory powers of the RBI
© Confederation of Indian Industry
www.cii.in