indian economy outlook 2012-12 jan-12

8/2/2019 Indian Economy Outlook 2012-12 Jan-12

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CRISILEcoViewJanuary 2012

GDPGrowth

GDPGrowth

Economy

Growth to remain a challenge


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Economic Research

Industry Research

Industry Risk Score

A monthly review and analysis of key macro-economic parameters along with outlooks on drivers of the economy,presented by CRISIL's team of renowned economists. Periodic outlooks and views on key regulatory and policyannouncements, besides regular in-depth analysis of key themes also form part of this document, titled 'CRISILEcoView'.

An annual service on 49 industries, our Industry Research Service offers a detailed analysis of the market, factorsimpacting performance, players and outlooks on the performance and profitability of sectors.

Covering 139 industries, CRISIL Industry Risk Scores capture the influence of industry variables and the extent of theirimpact on cash flows and debt repayment ability of companies in an industry over a short-to-medium term horizon.These scores are accessed by a large numbers of banks and corporates to assess industry risks while evaluating theperformance of companies.

CRISIL EcoView


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Dharmakirti Joshi Chief EconomistSunil K Sinha Senior Economist

Vidya Mahambare Senior EconomistParul Bhardwaj EconomistDipti Saletore EconomistAnuj Agarwal EconomistAindrila Roy Chowdhury Economist

CCER Team

Economic Outlook

Contact DetailsEmail : [email protected] : +91(22)33428000Delhi: +91(11)42505100

Growth: GDP is expected to grow at 7.0 per cent in 2012-13. This is on theassumption of a mild recession during early 2012 in Euro Zone and nosignificant progress on domestic policy reforms. The services sector, growing at8.7 per cent will remain the key driver of growth. At 5.6 per cent, industrial growthwould be relatively higher than preceding year due to RBI's supportive monetarystance.

Inflation: We expect WPI based inflation to average at 5.8 per cent in 2012-13.Overall inflation will be lower than last year because (a) low pricing power ofcorporates and (b) high base of last year that will keep food inflation lower.

Exchange rate: The rupee is expected to settle around Rs 46.5 per US dollar byMarch-end 2013. Although pressure on the current account would easesomewhat during 2012-13 as compared to 2011-12, it will remain on the higherside. However, we expect the situation in the capital account to improve onaccount of higher inflow of both FDI and FII which will support the rupee againstUS dollar.

Fiscal deficit: The fiscal deficit for 2012-13 is estimated to be at 5.5 per cent ofGDP. We expect government's revenue position to remain weak during 2012-13in view of GDP growing at 7 per cent. In addition, we do not expect either asignificant compression in government expenditure or in the subsidy burden dueto higher food, fuel and fertilizer subsidies.

Interest rate: Yield on bench mark 10 year G-sec will be in the range of 7.3 to 7.5by the March-end 2013. Although government borrowing pressure wouldremain high during the year, crowding out of private sector investment is unlikelydue to weak economic activity. Yields will soften due to (a) lower inflationexpectations and (b) monetary easing by RBI.

2011-12 2012-13

Growth Agriculture 3.8 3.0

(y-o-y, %) Industry 4.5 5.6

Services 8.9 8.7

Total 7.0 7.0

Inflation WPI - Average 9.2 5.8

Exchange rate Re/US $ (year end) 48.0 46.5

Fiscal deficit as a % of GDP 5.5 5.5

Interest rate 10- year G-Sec (year end, %) 8.5 7.3-7.5

(y-o-y, %)


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CRISIL EcoView


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Contents Pages

Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

3

5

Industrial production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

11

External Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Money and banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Global economic outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Quarterly update: Balance of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

India Economy Outlook 2012-13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Index


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CRISIL EcoView


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1

Overview

Ringing in a challenging year

What a tumultuous year 2011 was. And the outlook for 2012 is far from comfortable. 2011 saw sovereign ratings of

some of the most powerful nations getting downgraded. Europe is on the verge of slipping into a recession which many

hope will be a mild and short one. But there is near consensus on the anaemic growth prospects for Europe in the

foreseeable future. The alphabet 'L' could be a close proxy for the shape of recovery and long term prospects for

Europe, bringing in memories of Japan's lost decade. The 'L' shaped path for Europe implies that Euro zone which

underwent a severe recession in 2009 and is slipping into it again will not return to its trend rate of growth. US economy

has sprung a bit of positive surprise on the growth front, but risks to its recovery remain. Given the fragility of recovery in

advanced countries, it might not be amiss to say that chances of their sinking into recession once again, cannot be

completely ruled out. The key risk is from a full blown crisis in Euro zone which can create global financial instability and

also drag down the entire advanced world. For Asia, which has held up reasonably well, there is no escaping the pain of

a hard landing in the advanced world, if that happens. To add to the woes, the murmurs of a hard landing in China,

world's second largest economy and Asia's growth locomotive, are getting louder.

In India, developments have been far from encouraging. Except the good performance of agriculture, in most other

aspects - growth, currency, fiscal deficit, manufacturing output, investments or business confidence - matters have only

worsened in 2011. The outlook has turned gloomier enough to trigger a debate on the sustainability of even 7 per cent

growth in the coming year. Escalating risks in Euro Zone, demand-reducing impact of past interest rate hikes and

emerging bottlenecks from slowed decision making in the government have cast a pall on the India outlook for 2012-13.

This month's theme crystal gazes into 2012-13, whose outlook will be based on a variety of factors- some within ourcontrol and some outside our influence.

External developments such as risk from a deep recession in Europe, movement in commodity and crude prices, are

outside India's domain of influence. But some of the risks to growth are of our own making. Unaddressed bottlenecks in

the mining sector via shortages of coal and iron ore are creating downside risks to industrial activity. Similarly

uncertainty in land acquisition and environment clearances is depressing the investment climate. Slow decision in

government is trimming the project pipeline. Although government has taken some steps to address these issues, a

swift and stronger action is required particularly in today's environment of heightened global risks. Last but not the

least, revival of the reform process, at this juncture, will not only give a boost to investor confidence but also provide

some buffer against global headwinds in 2012. From a long term perspective, these steps will raise the economy'sgrowth potential and also allow us to take advantage of global upturn whenever that happens.

Dharmakirti Joshi

Chief Economist, CRISIL

January 2012


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CRISIL EcoView

2

High current account deficit persists in the

second quarter of 2011-12

Industrial output contracts by 5.1 per cent inOctober

Steep fall in export growth in November

Inflation remains firm despite easing foodinflation

India's current account deficit (CAD) rose to $16.9 billionin the second quarter of 2011-12 from $15.8 billion in theprevious quarter. While the surplus on the financial andcapital accounts increased relative to the first quarter,the difference between this surplus and CAD narrowed.Merchandise trade deficit increased to $43.9 billion inthe second quarter from $41.7 billion in the previousquarter. With rising merchandise trade deficit and

moderation in net services exports, our CAD forecastnow stands at 2.9 per cent of the GDP for 2011-12.

A high base, coupled with the deterioration in bothdomestic and global demand, led to a 5.1 per centcontraction in the industrial output in October 2011.Growth in the mining sector continued to contract, by 7.2per cent, hindered by regulatory hurdles, late monsoonsand falling gas production, while manufacturing output

contracted by 6.0 per cent. We expect the weakness inindustrial growth to continue through the rest of thisfiscal year.

Growth in merchandise exports fell to a mere 3.9 percent in November 2011 as compared to 10.8 per centgrowth in the previous month. Meanwhile, growth inimports rose by 24.5 per cent. The widening gapbetween export and import levels pushed up themonthly trade deficit to $13.6 billion in November 2011.

Growth in exports is likely to remain subdued due toweak global outlook and an unfavorable base-effect.With buoyant oil imports, trade deficit is expected towiden significantly this year as compared to last year.

WPI inflation rose to 9.1 per cent in November 2011 asagainst 9.6 per cent a month earlier. However, primaryfood inflation has now fallen sharply to 0.1 per cent forthe week ending December 24, 2011. Manufacturing

inflation remained stubborn at 7.7 per cent during

November 2011, unchanged from the previous month.Food inflation is expected to fall further on account of agood harvest. However, the depreciating rupee isexpected to exert pressure on the imported componentof overall inflation.

Bank credit growth increased to 17.2 per cent for thefortnight ending December 16, 2011, from 16.4 per cent

for the fortnight ending November 18, 2011. Depositgrowth increased to 18.2 per cent. With liquidity deficit inthe banking system increasing despite RBI's steps toinject liquidity, the interbank call money rates moved upin December.

Despite higher portfolio investment inflows, persistentdollar demand owing to high import payments andcorporate debt repayment obligations saw the rupee fall

by 3.6 per cent against the dollar in December 2011.With the easing of debt market norms, net FII inflows intothe debt market totaled $4.2 billion in December. Assuming a mild recession in the EU and recoverythereafter, portfolio inflows into India should recovertowards the end of the fourth quarter of 2011-12. Wethus assign a 50 per cent probability to the rupee settlingat 48.0 to a dollar by March end 2012.

The yield on the benchmark 10-year paper stood at anaverage of 8.7 per cent in December. CRISIL expects10-year G-sec yields to be around 8.5 per cent by end-March 2012, assuming RBI does not cut the repo ratebefore April 2012. This is because, while thegovernment's market borrowing during the second halfof 2011-12 will now be higher than announced earlier,RBI will be continuing with its open market operations toincrease liquidity in the system.

Credit growth falls to around 17 per cent inDecember

Rupee touches record low of Rs 54.2 per dollarin December

10-year G-sec yields rise to 8.7 per cent inDecember

Executive Summary


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3

India's Balance of Payments (BoP) surplus shrank to

$0.27 billion in the second-quarter of 2011-12 as against

$5.4 billion in the previous quarter. The BoP surplus

dipped sharply as the current account deficit (CAD)

widened on account of the rise in trade deficit during the

quarter. For the first-half of 2011-12, the cumulative

surplus stands at $5.7 billion as compared to $7 billion in

the same period last year.

Under the Balance of Payments Manual (Sixth Edition)

BPM6 classification that was adopted by the RBI during

the last quarter, India's BoP is now divided into current,

capital and financial accounts. The current account

deficit stayed high at $16.9 billion (3.7 per cent of GDP)

in the second-quarter of 2011-12 as compared to $15.8

billion (3.4 per cent of

GDP) in the previous

quarter. Under the current

account, trade deficit

increased to $43.9 billion in the second-quarter of 2011-

12 as compared to $41.7 billion in the previous quarter,

as the gap between the absolute levels of exports and

imports widened during the reporting quarter. But, in

growth terms, exports of goods registered a growth of

47.2 per cent as compared to a growth of 35.4 per cent in

goods imports. For the rest of this fiscal, trade deficit is

expected to widen further as a weak rupee and firm

commodity prices will keep the import bill high, while

growth in exports is likely to remain subdued on the back

of rising uncertainty in the global economy.

Net secondary income that includes private transfers

(remittances from Indian overseas) jumped by almost 10

per cent in the second quarter of 2011-12 over the

previous quarter to stand at $16.2 billion. Under the new

format, instead of invisibles, services have been added

as a separate category. Net services remained flat for

the reporting quarter. Net primary income continued to

witness outflows during the second-quarter of 2011-12

as well, but in absolute terms, it increased, partly owing

to increase in net outflows under investment income as

higher interest rates in India leads to higher debt servicepayments as compared to receipts.

Going forward, for the remaining two quarters of this

fiscal, the outlook for the overall current account deficit

remains bleak. The upward pressure on CAD will mainly

come from higher merchandise trade deficit as we

expect sluggishness in exports, but no reduction in oil

prices, going forward. Also, net services exports are

expected to remain under pressure due to weak growth

prospects in the US and EU.

Under the new format, capital account now includes

mainly the official transfers, which witnessed a net inflow

of $0.2 billion in the second-quarter of 2011-12 as

against an outflow of $0.3 billion in the previous quarter.

On the other hand, under the financial account, net

financial flows increased to $17.9 billion (3.9 per cent of

GDP) in the reporting quarter as against $17.4 billion

(3.8 per cent of GDP) in the first quarter. Net financial

CCurrent accountdeficit remains high

Quarterly update: Balance of Payments

-50.0

0.0

FY10 FY11 FY10 2Q113Q10 4Q10 1Q11

Source: RBISource: RBI

Figure I: Current Account Balance (US$ bn) Table I: Current Account

Current Account balance -38.4 -46.0 -15.8 -16.9

Net Merchandise -118.4 -130.4 -41.7 -43.9

Net Services 36.2 48.7 15.4 15.5

Net Primary Income -8.0 -17.3 -4.4 -4.7

Net Secondary Income 51.8 53.1 14.8 16.2

Current Account balance -2.8 -2.7 -3.4 -3.7

Net Merchandise -8.6 -7.5 -9.0 -9.6

Net Services 2.6 2.8 3.3 3.4

Net Primary Income -0.6 -1.0 -0.9 -1.0

Net Secondary Income 3.7 3.1 3.2 3.6

FY10R FY11PR FY12(US$ bn) 1QPR 2QP

% of GDP

Note: P- Preliminary; PR-Partially revised

FY10 FY11

-38.4

-46.0

-10.1

-5.4

-15.8-16.9


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CRISIL EcoView

4

Table II: Capital Account

Outlook

We expect the current account deficit to widen further

in absolute terms in the remaining quarters of 2011-

12, underpinned by the rise in merchandise trade

deficit and moderation in net exports of services. In

view of the rising risks on the external account front,

we had revised our 2011-12 forecast for CAD

upwards to 3.2 per cent of GDP from 2.9 per cent

forecasted earlier. Moreover, due to heighteneduncertainty in the global scenario, the consequent

reduction in financial inflows and a weakening rupee,

the vulnerability of India's BoP account too has risen.

flows largely rose on account of other investments led by

NRI deposits that rose to $2.8 billion in the second-

quarter as against $1.2 billion in the first quarter. Trade

c red i t rema ined

hea l thy a t $2 .9

billion. During the

second quarter of

2011-12, net loans

declined by almost

27 per cent to $11.2

billion on a quarterly basis as an adverse global scenario

discouraged the non-government and non-banking

sectors (net external commercial borrowings) to borrow

externally.

Due to the ongoing Euro zone crisis, foreign inflows

have reduced in recent months. Consequently, there

was a net outflow to the tune of $1.4 billion recorded

under portfolio flows in the second quarter of 2011-12 as

against net inflows of $2.3 billion in the last quarter.

Direct investment also slowed down with the second

quarter of 2011-12 witnessing net FDI inflows of $4.4

billion as against $7.9 billion in the first quarter. For the

remaining quarters of 2011-12 also, net portfolio flows

are expected to remain subdued due to the deepeningsovereign debt crisis in Europe and its adverse impact

on the global financial markets.

For the first half of 2011-12, financial account surplus

stood at $35.3 billion as compared to $31.3 billion in the

same period last year. Going forward, the surplus under

the financial account is expected to remain modest, as

the mild recession in the Euro zone and weakness in

GGlobal uncertaintytriggers net portfolio

outflows; net direct

investment flow halves

other emerging economies are likely to trigger much

larger net portfolio outflows along with subdued direct

investment flows.

FY10R FY11PR FY12(US$ bn) 1QPR

Financial Account balance 38.2 48.9 17.4

Net Foreign Direct Investment (FDI) 18.0 9.4 7.9

Net Portfolio Investment 29.1 28.2 2.3

Net Other Investments 4.6 24.4 12.6

Financial Account balance 2.8 2.8 3.8

Net Foreign Direct Investment (FDI) 1.3 0.5 1.7

Net Portfolio Investment 2.1 1.6 0.5

Net Other Investments 0.3 1.4 2.7

2QP

17.9

4.4

-1.4

15.2

% of GDP

3.9

1.0

-0.3

3.3

Source: RBI

Figure II: Financial Account Balance (US$ bn)

38.2

48.9

9.46.2

17.4 17.9

0.0

60.0

FY10 FY11 3Q10 4Q10 1Q11 2Q11

FY11 FY12

Source: RBI Note: P- Preliminary; PR-Partially revised


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5

l Economy to grow at 7 per cent in 2012-13

l Inflation to ease to 5.8 per cent in 2012-13 as

compared to 9.2 per cent in 2011-12

l Fiscal deficit to remain high at 5.5 per cent of GDP

in 2012-13

When we had released our theme on India's economic

growth outlook for 2011-12 last year, the general view

was that India has not only emerged relativelyunscathed from the 2008 global financial crisis, but also

set to return to 8 per cent plus growth levels in 2011-12.

However, as the year progressed, pressure points

emerged both on the domestic front, due to stubborn

inflation and a policy logjam, and on the global front, due

to the Euro zone debt crisis. Consequently, market

sentiments and economic growth took a beating. As per

the Central Statistical Organisation (CSO) estimates,

GDP grew at 7.3 per cent during the first half of 2011-12,

as against 8.6 per cent during the same period in 2010-

11. Given the growth in key macroeconomic indicatorslike IIP, exports/ imports, and non food credit offtake,

GDP growth during the second half of 2011-12 is likely to

be lower than the first half.

CRISIL has therefore scaled down its GDP forecast for

the whole of 2011-12 to 7 per cent from 7.6 per cent

earlier). Though we believe that the economy's inherent

strengths are more or less intact over the medium to

long term the road to 2012-13 looks quite uncertain. This

month's Ecoview presents our forecasts of GDP growth

and other macroeconomic variables for 2012-13 and

also outlines potential risks to the economy.

The global economic landscape is uncertain; growth

forecasts by several

agencies, especially for

the Euro zone, havebeen sca led down

significantly for 2012. We

expect the Euro zone to

have a mild recession in early 2012 and status quo to

continue on the domestic policy front.

Under this scenario, GDP is expected to grow at 7 per

cent during 2012-13. The services sector is expected to

remain the key driver of economic growth during 2012-

13, growing at 8.7 per cent as against expected 8.9 per

cent in the current fiscal. Growth in the industrial sectorwould be relatively better at 5.6 per cent, due to the

Reserve Bank of India's (RBI) supportive monetary

stance.

However there are both upside and down side risk to our

growth forecast. In case domestic policy scenario

improves then we may get a higher GDP growth of 7.5

per cent. The improvement in policy scenario will

GDP growth

I. India Economy Outlook 2012-13

GGDP to grow at 7.0per cent in FY13

6.0

8.0

10.0

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

F

2012-13

F

7.0 7.0

8.5

9.5

Source: CSO, CRISIL Research

Figure 1.1: GDP (y-o-y, %)

Source : Ministry of Industry, CRISIL Research

Figure 1.2: Inflation (y-o-y,%)

9.69.2

5.8

4.0

7.0

FY11 FY12E FY13F

10.0


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CRISIL EcoView

6

encourage investments by lifting the sagging business

confidence and create the upside to 7 per cent growth. In

case the domestic policy logjam continues and Euro

zone debt crisis escalates then we may get a lower GDP

growth of 6.5 per cent.

Inflation

Our baseline forecast for average inflation in 2012-13 is

5.8 per cent. So far in the current fiscaL, the overall

inflation has yet not shown significant moderation and

therefore our average

inflation forecast for

2011-12 stands at 9.2 percent. However, lately the

food inflation has shown moderation and even turned

negative. We believe that this trend is temporary and will

reverse during 2012-13. Firstly, the current decline in the

prices of fruits and vegetables is due to seasonal factors

and therefore appear unsustainable. Secondly, the

implementation of Food Security Bill is likely to keep up

the demand-side pressure on food inflation. Yet, due to a

very high base of last year and lower pricing power

of corporate, we expect inflation to be much lower in

2012-13.

The risk to this projection, however, could emanate from

two factors. If the GDP grows at higher rate of 7.5 per

cent then underlying demand side pressure may push

up the inflation to 6 per cent. If, however, GDP growth

falls below 7 per cent and global oil/commodity prices

decline sharply due to escalation of Euro zone crisis

then inflation may fall to 4 per cent.

The rupee is expected to settle at around Rs 46.5 per US

dollar by March end 2013. Although, pressure on the

current account would ease somewhat during 2012-13

as compared to 2011-12, it will remain on the higher

side. However, we expect the situation in the capital

account to improve on account of higher inflow of both

FDI and FII which will

support the rupee

against US dollar. As

financial markets are

generally forward-

looking, capital inflows into India could begin even

before the actual recovery in the Euro zone. Also a

substantial part of FII money which withdraws from

emerging market economies towards the end of the

calendar year usually returns during the early part of

new calendar year after the portfolio reallocation. We

believe that with global risk aversion subsiding in 2012

and given attractive valuation of Indian equity market,

capital inflows will pick up in 2012.

The risk to this exchange rate outlook arises from a

prolonged and deeper recession in Euro zone, which

translates into sharp capital outflows and worsened

export demand. This would place rupee above 50 per

dollar.

Current account deficit

We expect current account deficit to settle at 3.0 per cent

Exchange rates

IInflation pressuresto ease

Source : FIMMDA, CRISIL Research

Figure 1.3: 10 year government security yield (March-end %)

8.0

8.5

7.3-7.5

6.8

7.5

8.2

FY11 FY12F FY13F

8.9

44.6

48.0

46.5

43.0

47.0

FY11 FY12F FY13F

%51.0

Figure 1.4: Exchange rate (INR/USD)

Source: RBI, CRISIL Research

RRupee to appreciatefrom current levels


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7

of GDP in 2012-13 as compared to 3.2 per cent

expected during the current fiscal. The marginal

downward pressure on the current account deficit in

2012-13 is expected mainly due to the improvement in

exports of both goods and services towards the second-

half of the year, aided by a modest recovery in the Euro

zone. In addition, expected softness in global

commodity prices due to the depressed global growth

and likely appreciation of the Rupee vis--vis the US

dollar next year, will exert downward pressure on the

current account deficit.

In the first-half of 2011-12, the current account deficit

swelled to $32.7 billion (3.6 per cent of GDP) from $28.9

billion (3.7 per cent of GDP) in the same period last year.

The growth was on the back of an almost 24 per cent rise

in merchandise trade deficit over the comparable

period. As per monthly data, exports displayed

unexpected buoyancy in the first-half of 2011-12,

growing strongly by 52 per

cent as compared to a 31 per

cent growth in the same period

last year. However, after

peaking in July 2011, exports

began their downward momentum, with the latestreading for November 2011 coming in at 3.9 per cent.

We believe that exports will continue to trend downward

in the second-half of 2011-12.

CRISIL expects fiscal deficit to settle at 5.5 per cent of

Fiscal deficit

GDP during 2012-13. For 2011-12 too, we had revised

our fiscal deficit forecast to 5.5 per cent of GDP from 5.2

per cent earlier (released in October 2011). The

government's budget estimate for 2011-12 meanwhile

stands at 4.6 per cent. The deterioration in fiscal deficit

numbers for 2011-12 is due to a substantial under-

budgeting of subsidies such as oil, the government's

difficulty in completing its disinvestment programme of

Rs 400 billion and a sudden increase in the borrowing

programme on two occasions, aggregating to Rs 928

billion

We expect fiscal deficit to be at 5.5 per cent of GDP

during 2012-13 due to the following factors:

1) Revenue position of the government is expected to

remain fragile.

a. During the current fiscal (April to November

2011), net tax revenue collections were at 48.2

per cent of the budgeted amount for the year, as

compared to 52.6 per cent in the previous year.

The situation is expected to be similar in the next

fiscal as well.

b. Of the Rs 400 billion of disinvestment revenue

budgeted in 2011-12, only Rs 11.4 billion have

been accrued this fiscal from stake sale in Power

Finance Corporation. Given the track record of

the government in earlier years it is unlikely that

government would be able to garner substantial

revenue for disinvestment even during 2012-13.

Source : RBI, CRISIL Research

Figure 1.5: Current account balance (% of GDP)

-2.6

-3.2-3.0

-4.0

-2.0

FY11 FY12 F FY13 F

5.1

5.5 5.5

4.0

5.0

FY11 FY12F FY13F

6.0

Source: Budget documents, CRISIL Research

Figure 1.6: Fiscal Deficit (% of GDP)

FFiscal situationto remain grim


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CRISIL EcoView

8

The repo rate forms the floor for G-sec yields in the

market. The rate cuts from RBI will lower this floor. We

do not expect much upward pressure on G-sec yield

from government borrowings as they are unlikely to

compete with private requirement for funds in a weak

growth scenario. . This will ease availability of credit for

the government and thus keep its rate of the borrowing

lower. The lower inflation and rate cuts from RBI will help

to bring down yields from the current levels. We

therefore expect interest rates on benchmark 10 year G-

Sec to soften to around 7.3-7.5 per cent by March-end

2013.

In case the government's borrowing programme rises

substantially from the budgeted figure as it has in FY12,

then interest rates on the benchmark 10-year G-Sec

could be higher than 7.3-7.5 per cent or vice versa if the

Euro zone crisis deepens further, lowering global

commodity prices and thus lower government's subsidy

bill.

CRISIL's macroeconomic forecasts set out here are

based on our view of the domestic and global factors

that shape up macroeconomic outcomes. However, we

do recognize that our outlook on India's macroeconomic

variables are strongly linked and dependent on the

assumptions that we have made and can pan out

differently if our assumptions do not turn out to be true.

Domestically as well as globally, economic environment

is much more uncertain and risky currently. Therefore,

instead of a single growth outlook, we have tried to put

forward scenarios for various macro-economic

indicators based on our understanding of how they will

evolve over the course of 2012-13.

Conclusion

2. For FY2011-12, several ministries have been

advised to curtail expenditure to contain fiscal

deficit from overshooting much beyond target.

Much of these curtailed expenses could get

spilled over to

the next fiscal.

In add i t i on ,

overall subsidy

burden due to

continued food, fuel, fertilizer subsidy and

various other social sector programs are likely to

remain high. In addition, if the Food Security Bill

is fully implemented, food subsidies will

escalate.

Fiscal deficit to GDP could be lower in 2012-13 if (a)

GDP growth exceeds 7.0 per cent which would yield

higher tax as well as disinvestment revenues due to an

improving investment climate, and (b) there is

substantial pass-through of fuel prices which would

alleviate the petroleum subsidy burden. A much higher-

than-forecast fiscal deficit could emerge if GDP growth

dips sub-7 per cent and there is inability to pass-through

of petroleum subsidy burden.

With food inflation turning negative recently and GDP

growth falling below 7.0 per cent in the second quarter of

2011-12, there is an expectation of an early reversal in

RBI's monetary stance. The central bank's third quarter

review of monetary policy is due on January 24, 2012.

Although the RBI has indicated that in view of falling

inflation, its focus is going to shift towards supporting

growth, it is unlikely to cut key policy rates before the Q1

of 2012-13 unless it gets enough comfort on the inflation

front.

Interest rate

GGsec yields to softenin 2012-13


15/36

Industrial output contracted by a hefty 5.1 per cent in

October 2011 as compared to 1.9 per cent growth in the

previous month. A high base, coupled with

deterioration in the domestic and global economic

scenario, led to the sharp fall in the industrial growth.

The industria l output

growth has been sliding for

the past few months. The

underlying weakness has

been quite aptly captured

by the industrial output

growth on a seasonally-adjusted m-o-m basis, whichdeclined to the tune of 3.1 per cent in October 2011.

Growth in all the sectors of IIP, except electricity, turned

negative in October 2011. On a cumulative basis,

industrial output for the first 7 (April-October) months

of 2011-12 stood at an anaemic 3.5 per cent as

compared to a healthy 8.7 per cent in the same period

last year.

Mirroring the weakness in the overall industrial output,

core sector growth also dipped sharply to 0.1 per cent

in October 2011. This is the lowest level since July2005. Barring electricity, cement and steel, all other

core industry segments registered negative growth

during the month. This is the fourth consecutive month

of sluggish growth in industrial output and indicates

that the downside risks for the domestic growth

scenario have increased. A conjunction of factors such

as high funding & input costs, policy inaction and risk

aversion in global markets have continued to weigh on

industrial growth in this fiscal year.

Manufacturing output contracted by 6.0 per cent in

October 2011 as compared to a growth of 2.4 per cent

in the previous month. The average growth for the

manufacturing sector for the April-October2011 period

stood at a dismal 3.7 per cent as compared to 9.4 per

cent in the corresponding period in the previous year.

At the 2-digit classification level, out of 22 of

manufacturing groups, only 13 showed positive growth

in October 2011.

The mining sector continues to face challenges in this

fiscal year. In October 2011, the sector's output

contracted by 7.2 per cent, taking the cumulative fall in

the first 7 months of 2011-12 to 2.2 per cent. The ban on

mining iron ore in

some states, late

m o n s o o n ( w h i c h

c u r b e d c o a l

production) and falling

gas production from

the KG basin are some of the reasons why the miningsector took a beating so far this year. This weakness in

growth in the mining sector is a matter of concern as it

adversely impacts the manufacturing sector's output.

Growth in capital goods contracted for the second

consecutive month in October 2011 and slid sharply by

25.5 per cent. The sector's volatile and weak growth

trajectory during this fiscal year reflects the weak

II. Industrial Production

IIndustrial growthslumps on broad

sectoral slowdown

Source: CSO

Figure 2.1: Manufacturing Sector Growth (%)

FY12

4.8

9.0

12.4

0.0

7.0

14.0

-7.0Oct OctFY10 FY11 Feb

-6.0

FY11

MMining sector outputcontracts for the third

consecutive month

Source: CSO

Table 2.1: Sectoral Growth (y-o-y %)

April-OctoberWeight Oct-10 Oct-11 2010-11

General 1000.0 11.4 -5.1 8.7

Manufacturing 755.3 12.4 -6.0 9.4

Mining 141.6 6.1 -7.2 6.9

Electricity 103.2 8.8 5.6 4.5

Basic 355.7 9.8 -0.1 5.5

Capital 92.6 21.1 -25.5 17.1

Intermediates 265.1 9.7 -4.7 8.6

Consumer Goods 286.6 9.4 -0.8 9.1

-Durables 53.7 14.3 -0.3 15.7

-Non durables 233.0 5.1 -1.3 3.9

2011-12

3.5

3.7

-2.2

8.9Use Based Industry (%)

5.8

-0.3

0.6

3.7

4.5

2.9

9


16/36

CRISIL EcoView

10

Note - Please refer to Annex (Table 8.4) for full description of abbrev used in the textSource: CSO

April-OctoberWeight Oct-10 Oct-11 2010-11

Food & Bev 72.76 -3.7 14.7 7.0 15.6

Other transport 18.25 43.7 1.9 30.3 14.9

Office Eqp 3.05 10.4 18.4 -4.7 13.8

Metal Products 30.85 18.2 6.2 14.8 12.9

Basic metals 113.35 18.5 2.9 6.4 12.8

Motor Vehicles 40.64 27.2 -7.1 36.3 10.6

Media 10.78 19.2 2.7 12.0 8.0

Communication 9.89 12.2 15.3 15.8 6.6

Leather products 5.82 11.5 -2.1 6.4 5.4

Paper 9.99 16.5 2.1 7.8 5.0

Petroleum products 67.15 -7.9 -3.5 -2.6 4.1

2011-12April-October

Weight Oct-10 Oct-11 2010-11

Electronics 19.8 15.9 -58.8 3.3 -14.2

Apparel 27.82 15.4 -5.7 5.9 -6.8

Mach. & Eqp 37.63 36.0 -12.1 34.1 -3.3

Textiles 61.64 11.8 -11.0 6.8 -3.1

Rubber 20.25 18.1 -11.4 16.9 -2.7

Wood 10.51 -7.7 1.9 1.9 -2.7

Chemical 100.59 3.3 -6.7 -0.9 -1.7

Tobacco 15.7 9.8 0.8 10.5 -0.8

Furniture 29.97 -8.3 0.3 -6.3 0.3

Medical 5.67 -9.1 30.8 9.5 2.1

NMMP 43.14 11.5 2.7 6.1 2.6

2011-12

investment scenario in the country. Cumulatively, for

the first 7 months of this fiscal, output in the capital

goods sector contracted by 0.3 per cent as comparedwith an impressive double-digit growth of 17.1 per cent

during the same period last year. Basic goods output

too slid into the negative territory after a gap of almost

two-and-a-half years; it contracted by 0.1 per cent in

October 2011 as compared to a healthy 9.8 per cent

growth in the same month last year.

The adverse impact of high interest rates and inflation

continues to affect growth in the consumer goods

sector. In October 2011, growth in consumer goods slid

into the negative territory after a gap of more than 2years. Growth in non-durables has remained in the red

since the past 3 months. Consumer durables dipped

into the negative territory (-

0.3 per cent) after a gap of

two-and-a-half years. There

have been early signs of this

decline with the fall in credit

offtake in this sector. Rising

inflation has hurt the sector's growth during this fiscal

year. Persistent sluggishness in growth in intermediate

goods reflects underlying weakness in the capital and

consumer goods sector. Intermediate goods grew by apaltry 0.6 per cent in the first 7 months of the current

fiscal year as compared to 8.6 per cent during the same

period last year.

The forward-looking indicators also indicate worsening

of both domestic and global conditions far more than

anticipated earlier. The momentum of exports has now

started to decelerate after displaying unexpected

buoyancy in the first half of the current fiscal year. As

per the provisional estimates, on a y-o-y basis, growthin exports plummeted to 4.2 per cent in November

2011. This downward trend is expected to continue for

the remaining months of the fiscal year due to

deterioration in the Eurozone growth prospects.

Consequently, growth in the export-intensive sectors

like textiles and leather products will slow down, going

forward. In addition, sales growth prospects in the

passenger vehicles and 2-wheelers segments remain

bleak, despite marginal recovery lately due to the low

base of last year. Rising funding and input costs will

adversely impact this sector.

Table 2.3: Laggards in Manufacturing Sector (%)Table 2.2: Performers in Manufacturing Sector (%)

The industrial sector has been besieged by several

factors lately. On the domestic front, it has been

severely hit by persistent inflation, the rising cost of

capital, policy log-jam and unavailability of suitable

workforce. On the global front, dwindling export

demand, heightened risk aversion due to the EU's

sovereign crisis and continued firmness in energy

prices have only aggravated the situation. Although

the extent of weakness in the IIP data during October2011 surprised us as well, we expect the IIP growth to

remain weak, but in the positive territory for the

remaining months of this fiscal.

Outlook

CConsumer goodsoutput declines


17/36

III. Services

The latest GDP figures point to some decline, albeit

robustness in services sector growth. During the second

quarter of 2011-12, the services sector registered a

growth of 9.3 per cent. The sector had registered a

growth of 10.0 per cent during

the previous quarter and 9.6

per cent during the second

quarter of 2010-11. Trade,

h o t e l s , t r a n s p o r t a n d

communications registered a growth of 9.9 per cent in

the second quarter of 2011-12, down from 12.8 per cent

in the previous quarter. However, financing, insurance,real estate and business services grew at 10.5 per cent

in the second quarter of 2011-12, up from 9.1 per cent

during the previous quarter. Similarly, community, social

and personal services also fared well, growing at 6.6 per

cent during the second quarter, up from 5.6 per cent in

the first quarter.

In November 2011, foreign tourist arrivals stood at 6.37

lakhs, which on a seasonally adjusted basis amounts to

a contraction of 0.7 per cent over the previous month,

but a 5.1 per cent growth over November 2010.Revenue from tourism was about 8.14 per cent higher

than a year ago, totaling US$1.5 billion during

November 2011. During the fiscal year so far revenue

from tourism has risen by 21.82 per cent, over last year.

The latest data available for port traffic shows a decline

in domestic and international cargo handled at major

ports. On a monthly basis, the cargo handled at major

ports registered a decline for the third consecutive

month in October 2011. Cargo handled at major ports

recorded a decline of 3.7 per cent in October 2011 over

the previous month. On an annual basis, there has been

a decline in the cargo

handled at these

ports since the beginning

of the second quarter of

this fiscal. On a y-o-y

basis, the cargo handled at

major ports registered a

decline of 9.7 per cent in October 2011. Railway freight,

on the other hand, showed an increase of 5.92 per cent

on an annual basis. The railways carried 81.08 million

tonnes of freight in November 2011. On a cumulative

basis, since the beginning of this fiscal, freight carried by

railways saw an increase of 4.1 per cent over the same

period last year.

As per the latest data, total air passenger traffic

contracted by 3.3 per cent in July 2011, as opposed to a

contraction of 2.5 per cent in the previous month. July

2011 saw domestic passenger traffic fall by 5.3 per centover the previous month, while international passenger

traffic registered a growth of 5.5 per cent.

The data released by the Telecom Regulatory Authority

of India (TRAI) pegs the total telecom subscriptions at

914.59 million in October 2011, up from 906.93 million in

the previous month and 742.12 million a year ago.

Wireless subscriptions stood at 881.40 million in

Source: RBI

Figure 3.2: Credit flow to services (y-o-y %)

15.0

Apr-10 Jan-11 Oct-11

Services

Trade', 'Tourism, Hotels & Restaurants', 'Transport Operators'

NBFC', 'Real estate', 'Professional Services', 'Shipping'

5.0

25.0

35.0

45.0

CCargo handledat ports declines

for 3rd consecutive

month

SServices growthslows down

11

Figure 3.1: Foreign Tourist Arrivals (FTA) , (%)

Source: Ministry of Tourism

17.7

5.1

-0.7

3.02.8

4.4

8.6

2.0

8.0

14.0

20.0

FY10 FY10 FY11 Apr Jun Oct Nov

FY12

Aug

FTA (y-o-y) SA FTA (m-o-m)


18/36

October 2011, growing at 24.72 per cent over last year,

while wired line subscriptions declined by 6.32 per cent

over the previous year and stood at 33.19 million.Teledensity increased to 76.03 from 75.48 a month ago

and 62.51 a year ago. At the end of October 2011, the

share of PSU telecom players increased marginally to

12.19 per cent from 11.60 per cent a month ago.

Credit offtake in the services sector continued to decline.

Credit growth to services declined to 13.5 per cent in

November 2011, down from 15.5 per cent in the last

month and 19.3 per cent in September 2011. Growth in

credit disbursements to trade however increased

marginally 14.0 per cent in November 2011, from 13.0per cent a month ago and 9.1 per cent during September

2011. Credit growth to commercial real estate has also

been declining since the second quarter of this fiscal. It

stood at 10.7 per cent in November 2011. Credit growth

to transport operators and tourism was 13.9 per cent

and 12.3 per cent, respectively, in November 2011.

Persistent inflation and slowdown in the growth ofpersonal consumption expenditure is expected to hit

growth in the services sector adversely. Also, with the

effect of the slowing industry spilling over onto the

services sector, and a reduced demand for services,

we expect the sector to grow at 8.9 per cent during

2011-12.

Outlook

Source: Airport Authority of India

Figure 3.3: Cargo traffic 3-month MA (y-o-y %)

-10.0

40.0

20.0

0.0

Apr-10 Jan-11 Oct-11

Cargo Handled: Domestic Cargo Handled: International

3 month MA (yoy%)

CRISIL EcoView

12


19/36

Against the backdrop of an uncertain and uneven

global economy, growth in India's exports moderated

further to 3.9 per cent in

November 2011 as

compared to 10.8 per

cent in the previous

month. However, on a

seasonally-adjusted month-on-month (m-o-m) basis,

growth in exports declined marginally by 0.2 per cent,

taking the absolute number to $22.3 billion.

The Ministry of Commerce, conceded to theoverestimation in the export numbers in the current

fiscal. These numbers were neither adequately

supported by macroeconomic indicators, like industrial

output growth, nor were they in sync with the global

slowdown. The Ministry admitted to the numbers being

inflated by $9 billion in the April-November period of the

current fiscal, with the error being attributed to double-

counting and problems in computer software, etc. After

accounting for all these data revisions, the cumulative

exports for the first 8 months now stand at $192.7

billion.

Meanwhile, growth in imports rose by 24.5 per cent and

stood at $35.9 billion in November 2011. After

revisions, cumulative imports for April-November 2011

stand at $309.5 billion as compared to $237.7 billion

over the same period last year. In November 2011,

healthy growth in both, oil and non-oil imports, spurred

the growth in imports. Growth in oil imports accelerated

sharply to 32.3 per cent supported by a weakened

IV. External Sector

Source: Ministry of Commerce

178.0

237.9

0.0

50.0

100.0

150.0

200.0

250.0

FY10 FY11 Apr May Jun Jul

FY12

Figure 4.1: Exports Performance (US$ bn)

Aug NovSep Oct

Source: Ministry of Commerce

April-November

Table 4.1: Trade Performance

2011-12Nov-10 Nov-11 2010-11

Exports 21.5 22.3 144.7

Imports 28.8 35.9 237.7

Oil Imports 7.8 10.3 66.0

Non-oil Imports 21.1 25.6 171.7

Trade Balance -7.4 -13.6 -93.0

Exports 26.5 3.9 29.4

Imports 11.2 24.5 28.3Oil Imports 2.3 32.3 25.4

Non-oil Imports 15.0 21.7 29.5

Trade deficit -11.6 85.0 26.4

Merchandise(US$ billion)

192.7

309.5

94.1

215.4

-116.8

y-o-y %

33.2

30.2

40.8

25.5

25.6

Going forward, growth in exports is likely to remain

subdued due to the weak global outlook and anunfavourable base effect. Continued high oil imports

will keep the overall imports bill firm, while declining

non-oil imports (due to slackening domestic demand)

will prevent imports from rising at a fast pace. But

overall, trade deficit will widen significantly this year

as compared to the last year.

Outlook

rupee, which is inflating the import bill (India imports

almost 75 per cent of its crude oil requirements). Non-

oil imports also remained firm at

21.7 per cent in November 2011,

despite weak domestic demand.

The gap between exports and

imports levels continued to rise,

thereby pushing up the monthly trade deficit to $13.6

billion in November 2011.

Going forward, growth in exports is likely to remain

subdued on account of the weak global outlook, but therising oil imports bill will keep growth in imports firm.

Trade deficit is also likely to remain high this fiscal, as

unlike in the previous global crisis period, commodity

prices have not fallen sharply this time around. Hence,

while exports have moderated, imports have not fallen

at the same rate.

TTrade deficitremains high

GGrowth in exportsremains sluggish

13


20/36

Source: Ministry of Industry & CRISIL Estimate

Table 5.1: Inflation in Major Product Groups

General 100.00 8.2 9.1 9.6

Primary 20.12 14.7 8.5 18.4

Fuel 14.91 10.3 15.5 12.5

Manufacturing 64.97 12.0 7.7 5.5

Primary - 43.7 24.3 45.2

Fuel - 19.0 26.2 19.6

Manufacturing - 37.0 49.6 35.3

2011-12

April-NovemberWeight Nov-10 Nov-11 2010-11

y-o-y %

9.6

11.9

13.4

7.6

Contribution to inflation

31.4

21.6

47.1

Source: Ministry of Industry

3.8

9.6

0.0

6.0

12.0

FY10 Oct May Nov

WPI CPI-IW

FY12

9.1

9.39.7

9.1

Figure 5.1: Headline Inflation (y-o-y %)

FY11

FY11

WPI rose by 9.1 per cent in November 2011 as against

9.6 per cent a month earlier. Inflation for September

2011 was revised upward to 10.0 per cent from 9.7

reported earlier. During the month, food inflation

(primary and manufactured) declined sharply, bringing

down overall inflation. But, fuel inflation surged higher

while core inflation (non-food manufacturing) too

remained firm. Despite domestic demand weakening

during the first two quarters of the current fiscal, WPI

inflation has remained high and stubborn reflecting

price stickiness as well as impact of continued

depreciation in rupee. Recent weakness in thecurrency has pushed up the cost of imports of edible

oil, fuels and metals despite some decline in their

international prices. The fall in rupee and its adverse

impact on inflation prompted us to make an upward

revision to CRISIL Research's average inflation

forecast for 2011-12. It now stands at 9.2 per cent as

compared to 9.1 per cent forecasted earlier.

The month-on-month seasonally adjusted inflation

series moderated for the second consecutive month,

after a spike in September2011 . On a mon th l y

average basis, the index

rose by 0.46 per cent during

April to November 2011,

compared to 0.52 per cent

in the same period of 2010.

Consumer price inflation (for industrial workers)

declined marginally to 9.3 per cent in November 2011,

from 9.4 per cent in the previous month. Inflation in the

fiscal year so far (April to November 2011) stands at 9.1

per cent compared to 9.6 per cent during the same

period of 2010.

During November 2011, there was sharp deceleration

in primary articles' inflation. Inflation in this category

fell to 8.5 per cent from 11.4 per cent in the previous

month. This was due to a steep fall in primary food

inflation (especially in fruits, vegetables and poultry) to

8.5 per cent from 11.1 per cent in the previous month.

Normal monsoons and a good harvest have kept food

inflation in check. Non-food inflation (especially fibres)

has also declined substantially as it came down to 3.2

per cent in November 2011, compared to 7.7 per cent in

the previous month.

Weekly trends in inflation data depict that primary

articles' inflation has almost halved during December

2011, compared to the previous month. With food

inflation at 0.8 per cent

average, primary articles'

inflation is seen at 3.0 percent. Fuel inflation is expected

at 14.9 per cent average

during December. Most of the

decline in food inflation is due to fall in prices of fruits &

vegetables, condiment & spices, and lower inflation in

eggs, meat and fish.

During November 2011, fuel inflation rose to 15.5 per

V. Inflation

IInflation remainsfirm despite easing

food inflation

CRISIL EcoView

14

FFood inflation at

nearly zero

in December


21/36


Table 5.2: Inflation in Primary Articles (y-o-y %)


Cereals 3.37 3.2 2.4 6.7

Pulses 0.72 -10.0 13.9 10.0 -

Fruits & Vegetables 3.84 7.9 9.6 12.0

Eggs,Meat & Fish 2.41 18.9 11.9 31.5

Fibres 0.88 44.7 1.6 26.0

Oilseeds 1.78 3.1 11.3 3.9

Metallic Minerals 0.49 69.9 -2.2 52.0

Other Minerals 0.13 7.9 1.8 2.7

2011-12

4.6

1.5

14.9

10.5

34.1

12.7

6.9

9.0

Table 5.3: Inflation in Manufactured Products (y-o-y %)


Chemicals 12.02 5.2 9.5 4.9

Food Products 9.97 1.1 6.8 5.3

Textiles 7.33 11.7 6.6 10.6

Machine Tools 8.93 2.9 3.5 2.6

Metal & Alloys 10.75 7.8 13.0 7.9

Transport Eqp. 5.21 2.7 4.6 3.0

NMMP 2.56 2.1 6.1 2.6

Rubber & Plastic 2.99 7.5 5.1 5.4

2011-12

8.4

7.7

11.3

3.2

10.6

3.5

4.3

7.6


cent compared to 14.8 per cent in the previous month,

due to sustained increase in prices of aviation turbine

fuel, naptha, bitumen and furnace prices of which areinternationally linked. An extended period of sharp

rupee depreciation is influencing the imported

components of inflation.

For instance, while the

global crude oil prices

rose by nearly 20.0 per

cent in November 2011

compared to a year

earlier, the rupee price of oil shot up by around 40.0 per

cent due to currency depreciation. On a month-on-

month basis, the fuel index rose 0.9 per cent inNovember 2011, compared to 1.0 per cent in the

previous month.

Manufacturing inflation remained stubborn at 7.7 per

cent during November 2011, unchanged from the

previous month. Manufactured food inflation

decelerated to 6.6 per cent compared to 7.6 per cent in

October 2011. Despite slowing growth, core (non-food

manufacturing) inflation is still showing no signs of

decline. Non-food inflation rose further to 7.9 per cent

from 7.7 per cent in the previous month. Within non-

food manufacturing, inflation in paper, leather,chemicals, metals, machine tools & transport

equipment stayed firm, while beverages & tobacco

products, textiles, & rubber and plastics saw some

moderation.

CCore inflation risesto 7.9 per cent

in December

15

Looking ahead, inflation will fall further as foodinflation declines due to good harvest and slowing

demand. The pace of fuel inflation will depend on the

response of oil/commodity prices to global slowdown,

the extent of pass-through into domestic market and

the Rupee-USD equation as the recent depreciation

of the rupee has pushed up the imported component

of inflation. We believe that WPI inflation will fall

around RBI's projection of 7.0 per cent by March

2012. Nonetheless, it will remain above the RBI's

tolerance limit of 5 per cent for some months even in

the next fiscal.

Outlook


22/36

Source: RBI

Table 6.1: Scheduled Commercial Banking Indicators (y-o-y%)

2010 2010-11 2011-12Financial Year so far

th

Outstanding as on 16 Dec2011

Aggregate Deposits 14.7 18.2 6.8

Bank Credit 23.7 17.2 12.2

Food Credit 38.8 32.6 28.9

Non-Food credit 23.5 17.0 11.9

Investments 6.9 16.3 4.2

Credit-Deposit Ratio 75.8 75.2 113.3*

9.0

8.3

29.0

8.0

11.9

71.9*

*Note: Incremental credit deposit ratio as on dateSource: RBI

Figure 6.1: Money Supply Growth (%)

FY12

0.0

10.0

20.0

FY10 FY11 Sep May Dec

y-o-y19.3

16.0

FY11

16.515.5

A tight interbank liquidity situation prompted the RBI to

conduct four open market operations (OMOs -

purchase of government securities) in December

2011. These were conducted, on December 1, 8, 22

and 29, in 2011 and it infused Rs 57.82 billion, Rs 90.92

billion, Rs 87.90 billion and Rs 81.09 billion,

respectively into the banking system. Together, a total

of five such OMOs have been conducted since

November 2011. During the month, the average net

liquidity in the banking system (repo less reverse repo

balance) remained above Rs 1 trillion. Despite multiple

injections of liquidity by the RBI, the interbank liquiditysituation continues to be strained, because the

increased money supply is sucked up by the auction of

G-sec issues, which closely follows the OMOs. With

the recent announcement by the government to raise

further debt, more such OMOs are likely to happen as

the liquidity in the banking system will remain

stretched. Policy rates are at high levels of 8.5 for repo,

7.5 for reverse repo and 9.5 per cent for Marginal

Standing Facility.

Growth in bank credit increased to 17.2 per cent for the

f o r t n i g h t e n d i n g

December 16, 2011, from

16.4 per cent for the

f o r t n i g h t e n d i n g

November 18, 2011. Non-

food credit growth also

fell to 17.0 per cent from

17.4 per cent last month. Credit to deposit ratio

increased to 75.2 per cent as against 74.2 per cent last

month. This takes the credit deposit ratio to the levels

of last year. As per data on sectoral deployment of bank

credit, which is available for November 2011, overall

non-food credit growth declined from 18.2 per cent in

October to 16.8 per cent in November 2011. Credit

growth in the manufacturing sector declined marginally

from 14.48 per cent to 13.54 per cent in the reporting

month. Industrial credit growth also showed a declining

trend and reached 20.86 per cent as against 23.07 per

cent in October, 2011. Though mining and quarrying

credit growth showed a declining trend amongindustries, it continued to remain at a high level of 41.2

per cent. Credit offtake to the services sector for

November 2011 was 16.94 per cent as against 22.53

per cent last year. Credit growth in the housing sector

dipped further to reach 1.91 per cent as against 3.51 in

October 2011. However, credit growth in exports

increased further and reached 39.4 per cent in

November 2011. This can be explained by the

increased cost of the inputs needed to manufacture

India's basket of exports. Also, since India is

substantially dependent on imports for most of its raw

materials, a depreciating currency has hit the cost of

production of the exporters, thereby increasing their

need for credit. But export-related industries like gems

& jewellery, textiles, chemicals & chemical products

witnessed a slowdown in the credit growth in

November 2011 as against October 2011 on account of

weaker demand from Europe. Credit growth to the

consumer durables sector contracted further and

VI. Money and Banking

CCredit growthslows to 17 per cent

in December 2011

CRISIL EcoView

16


23/36

Source: CCIL & RBI

0.5

3.5

6.5

Figure 6.2: Liquidity Situation In India

FY11

-1200.0

0.0

600.0

1200.0

1800.0

-600.0

-1800.0Dec-10 Aug-11 Sep-11 Nov-11Feb-11 Apr -11 Jun-11

FY12

Net LAF transactions, Rs bn (LHS) Call rates Repo rate Reverse repo rate Marginal Standing Facility

reached -8.51 per cent, the lowest level in the last 23

months. This has been one of the hardest hit sectors in

the past few months because of the hike in interestrates by the RBI. Deposit growth increased marginally

and reached 18.2 per cent for the fortnight ending

December 16, 2011. Increasing deposit growth and

slow credit growth pushed the incremental credit-to-

deposit ratio to 71.9 in December as against 77.6 per

cent last month.

Having shown a declining trend in the past few months,

money supply (M3 ) growth increased to 16.5 per cent

(y-o-y) for the fortnight

ending December 16, 2011.

During the reporting period,

growth in bank credit to the

commercial sector dropped

further to 16.4 per cent from

17.7 per cent last month.

Growth in net bank credit to the government remained

at around 22 per cent for the fortnight ending

December 16, 2011. However, banks' investments in

government securities declined further to 16.14 per

cent for the fortnight ending December 16, 2011. The

total investment of banks in government securities as a

percentage of total deposits remained at around 29 percent, almost the same level as last year.

Government borrowings slowed somewhat in

December 2011 vis--vis the last month. It borrowed

Rs 420 billion via treasury bills, Rs 134.59 billion came

from state development loans and Rs 400 billion from

dated securities. As compared to this, the government

had borrowed Rs 320 billion in November 2011 via

The Union Government announced that it would

increase its borrowing by Rs 400 billion in December

2011. This will take the total gross borrowing by the

government to 5.1 trillion and exert further pressure

on both, liquidity and bond yields. Likelihood of further

OMOs remains high.

Outlook

treasury bills, Rs 120. 97 billion via state development

loans, Rs 520 billion via

dated securities and Rs150 b i l l ion v ia cash

management bills. The

continued increase in the

government's long-term

borrowing had pushed the

average 10-year G-sec yield to 9.1 per cent in

November 2011 from an average of 8.9 per cent in

October 2011.

Average call rates for December 2011 increased

further to around 8.9 per cent. Daily net transactions

under the liquidity adjustment facility (LAF) window

increased to Rs 1.16 trillion this month, indicating a

liquidity crunch in the system. Following the increase in

government borrowings, and the severe liquidity

crunch in the system, further OMOs were carried out

during the month.Continued tight monetary policy and

severe shortage of inter-bank liquidity pushed average

call rates to 8.5 per cent in November 2011. Daily net

transactions under the liquidity adjustment facility

(LAF) window increased to Rs 928 billion this month,

showing severe liquidity crisis in the system.

HHigh governmentborrowings keepliquidity under

pressure

10.0

MMoney supplygrowth moves upin December 2011

%

17


24/36

Source: RBI

Table 7.1: Currency Movement (Monthly Averages)

Note: * As of 23rd December, 2011

USD GBP Euro Yen

FY 11 45.6 70.9 60.2 53.3

H1 FY11 46.1 70.1 59.0 51.9

H2 FY11 45.1 71.7 61.4 54.7

H1 FY12 45.3 73.3 64.5 56.9

Q3 FY12 51.0 80.1 68.6 65.9

November-11 50.8 80.3 68.9 65.6

1--month 8.7

6-months 6.5

Indian Rupee vis--vis

December-11 52.7 82.1 69.3 67.7

Forward premia*

-2.0

0.0

3.0

44.0

49.0

54.0

Source: SEBI, RBI

Figure 7.1: Net FII Inflows and Exchange Rate

May-08 Oct-09 Jan-11 Dec-11

FY09 FY10 FY11

Net Fll inflow US$ bn (LHS) Rs per USD

FY12

Currency

The rupee continued to decline against all major

currencies in December 2011. On a monthly average

basis, it fell by 3.6 per cent against the dollar, as

compared to 3.2 per cent in the previous month. On the

supply-side, a mix of factors such as weak growth

prospects in the Euro zone, increased speculation of a

credit freeze, slowing domestic GDP growth in the

second quarter of the fiscal year and a contraction in

industrial growth during October 2011 caused foreign

investors to shy away from Indian markets. Thisreduced the supply of dollars. There was some respite

due to RBI's decision to raise the limits on foreign

investment in government and corporate debt market.

On the demand-side, persistent demand for the dollar

to make import payments and to address the huge

foreign loan repayment obligations of corporate India,

kept the currency at record lows. The sharp fall in the

rupee saw the RBI intervening in the currency market

on a few occasions. RBI also issued directives to

reduce the speculative element and hence, volatility in

the currency market.

During the month, global crude oil prices fell by 2.6 per

cent on a month-on-month basis. In the forwardmarket, the one month premium rose by 37.1 per cent,

while the 6-month premium rose by 65.8 per cent. The

rupee touched a record low of 54.2 to a dollar inDecember 2011, much beyond than the previous

record low of 52.1 in March 2009. Volatility in the rupeewas high as the currency hovered between 51.4 and

VII. Markets 54.2 per dollar. The rupee also continued its downwardmovement against all other currencies, although the

decline against the pound and the euro were lower thanthe previous months. It fell 2.3 per cent against thepound and 0.6 per

cent against the

euro in December2 0 1 1 , a s

compared to 3.6per cent and 2.1

per cent in the previous month. On a monthly average

basis, it posted a sharper fall of 3.1 per cent against theyen in December 2011, in comparison with 2.3 per cent

in the previous month.

In December 2011, foreign institutional investment(FII) gathered some pace mainly due to relaxation of

investment in debt securities. For the month, net FII

inflows were recorded at $4.2 billion as compared tonet outflows of $0.6 billion in November 2011. Almost

all the money pumped in went into debt instruments.

RRupee touches recordlow of Rs 54.2 per dollar

in December 2011

CRISIL EcoView

18

Outlook

Although a mild recession in the first half of 2012 in

the Euro zone and recovery thereafter is now a possibility, given the forward-looking nature of

financial markets, we expect portfolio inflows to

recover somewhat by March 2012 relative to the

current levels. Therefore, CRISIL Research expects

the rupee to settle at around Rs 48 per dollar by end-

March 2012 and assigns a 50 per cent probability to

this event.


25/36

19

Debt

The benchmark 10-year G-sec yields cooled slightly inDecember 2011 as against last month. This can be

attributed to the lower government borrowing and

repeated OMOs (open market operations - purchase of

government securities) undertaken by the RBI during

the month, which infused the required liquidity into the

system. The Government borrowed Rs 400 billion in

December 2011 as compared to Rs 520 billion in the

previous month via dated securities.

In December 2011, the government announced an

additional borrowing of Rs 400 billion via dated

securities, taking the total gross borrowing by the

government in this fiscal year to Rs 5.1 trillion on a gross

basis.

The yield on the benchmark 10-year paper stood at an

average of 8.7 per cent in December 2011. It reached

8.5 per cent during the month, the lowest since

September 2011. On a month-end basis, yields were

higher by 42 bps in

D e c e m b e r 2 0 1 1 a s

compared to November

2011. Yields of the short-term 1-year government

bond also showed a

similar trend and averaged at 8.6 per cent in December

2011, 29 bps lower than last month. Despite lowering

yields, the yield curve, defined as the spread between

the 10-year and 1-year bond yield, continued to become

flat. Net FII inflows to the tune of $4.2 billion into the debt

market were recorded in December 2011 in comparison

with $0.2 billion in November 2011. The spike in net FII

inflows into the debt market was because of the

increase in the FII investment limit in governmentsecurities to $15 billion as against $10 billion earlier.

Yield on the long-term 'AAA' corporate bonds dropped

during the reporting month. The corporate bond yield

came down to 9.4 per cent by end-December, from 9.7

per cent as of end-November 2011. The spread

between the 'AAA' corporate bond and the 10-year

government bond fell by 10 bps over November 2011

levels.

Source : CCIL

Figure 7.2: 10-year G-sec yields, year-end and month-end (%)

5.0

7.5

10.0

FY10 FY11

8.7

Dec Dec

7.8

FY11May

FY12

8.1

8.1

Source: FIMMDA

Figure 7.3: Risk Premia, year end & month end (%)

Spread between AAA corporate & 10-yr G-sec

0.0

1.0

2.0

FY10 FY11

1.21.1

0.9

0.7

Dec Dec

FY12

May

FY11

Outlook

The Government's borrowings from the market

during the second half of 2011-12 have now gone up

to Rs 2.6 trillion instead of the Rs 2.2 trillion

announced earlier. On the other hand, the RBI has

been undertaking OMOs to ease liquidity pressure

While the RBI is mulling over reversing its policy

stance, it has not made it clear about the timing of

such a move. Therefore, we expect the 10-year G-sec

yields to be around 8.5 per cent by March 2012.endYYield curve flattensfurther, in

December 2011


26/36

Equity

The Indian equity markets surged during the first weekof December 2011 as global stocks climbed on a

renewed optimism that European officials were poised

to arrive at a solution to the economic crisis that is

wreaking havoc in the euro zone. Investors pumped in

money into the equity markets amidst India's weak

second-quarter GDP data and expectations of lower

inflation and that the Reserve Bank of India (RBI) may

pause its aggressive monetary stance to prop up

growth.

During the second week of the month, the markettumbled on concerns over the government's inability to

continue with policy reforms as it suspended plans to

allow foreign direct investment (FDI) in India's multi-

brand reta i l sector.

Conce rns ove r the

outcome of the European

Union's summit also

s p o o k e d i n v e s t o r s .

Though the US and the

European markets held up well in anticipation of a

positive outcome from the EU summit, the Indian

markets underperformed and ended the week on anegative note on the back of negative domestic news.

The Government's inability to implement the policy

reforms, high fiscal deficit and the cut in the GDP

forecast for 2011-12 increased concerns in the minds

of the investors. During the week ended December 16,

2011, the key benchmark indices fell and hit their

lowest level in more than 2 years after the RBI kept the

cash reserve ratio (CRR) unchanged, despite tight

liquidity in the system. Towards the end of December

2011, bearish sentiments gripped the market as the

investors' focus shifted towards the upcomingcorporate results for the third quarter.

The Sensex stood at 15454.9 as on December 30,

2011, down from 16123.5 a month ago and 20389.1 a

year ago. During the month, the benchmark index gave

negative monthly and yearly returns of 4.2 per cent and

19.9 per cent, respectively. Amidst the policy log-jam,

the valuation of Indian companies continued to suffer

with the P/E ratio falling to 16.9 in December 2011 from

17.6 in November 2011. NSE India VIX stood at 27.11

as on December 30, 2011, up from 25.02 at thebeginning of the month, hinting towards expectations of

increased volatility in the short term.

Net FII inflows during December 2011 turned positive

and stood at $4.2 billion, of which, there were nil net FII

inflows into the equity markets during the month. The

last month saw a net FII outflow of $0.6 billion. In

December 2011, S&P 500 yielded monthly and yearly

returns of 6.2 per cent and 0.1 per cent, respectively.

NIKKEI 225 gave negative returns of 17.0 per cent on a

yearly basis, but provided positive returns of 10.0 per

cent on a monthly basis.

Note : Returns are for the period of December 2011Source: NSE, BSE

Figure 7.4: Indian Equity Market Performance

Yearly returns Monthly returns

S&P CNX 500

CNX Mid Cap

S&P CNX Nifty

Sensex

-7.1

-5.7

-4.2

-22.5

-19.9

-19.9

-27.0

-4.4

Note : Returns are for the period of December 2011Source: Yahoo Finances

Figure 7.5: Global Equity Market Performance

Yearly returns Monthly returns

MSCI EME

S&P 500

MSCI WORLD

NIKKEI-225

0.1

-17.0

-7.1

6.2

-16.7

-1.0

1.8

10.0

PPolicy log-jamweighs down

market sentiment

CRISIL EcoView

20


27/36

21

compared to an increase of 0.7 per cent in the second

quarter. During the same period, Non-residential fixed

investment increased by 15.7 per cent (up from 14.8 per

cent in the previous estimate) as compared to an

increase of 10.3 per cent in the second quarter. Real

federal government consumption expenditures and

gross investment rose by 2.1 per cent in the third

quarter.

According to the third estimate released by the Office for

National Statistics, UK's economy grew at 2.4 per cent inthe third quarter of 2011, up from 2.0 per cent as

estimated previously. The UK had recorded a similar

growth in the third quarter of 2010. The output of the

agriculture, forestry and fishing sector increased by 2.0

per cent in the third quarter of 2011 as compared with a

decrease of 4.4 per cent in the second quarter of 2011.

The output of the production industries rose by 0.8 per

cent in the third quarter of 2011. Output in the services

sector went up by 2.8 per cent in the third quarter of 2011

as compared to an increase of 0.4 per cent in the

previous quarter.

The second estimate released by Eurostat pegs the

Euro area growth at 0.8 per cent for the third quarter of

2011, unchanged from the flash estimate. Germany

grew at 2.0 per cent, France registered a growth of 1.6

per cent, the Spanish economy remained stagnant and

Portugal contracted by 1.6 per cent.

In recent months, the global economy has witnessed

further loss in growth momentum. Against the

background of heightened uncertainty and rising stress

in financial markets, the global business and consumer

sentiment has deteriorated further. These

developments have affected the positive impetus that

was visible due to the clearing of supply-chain

disruptions that had been triggered by the Japanese

earthquake. The recent moderation in growth should

help to alleviate overheating pressures in emerging

economies, while the advanced economies facesignificant structural headwinds.

The third estimate, released by the US Bureau of

Economic Analysis, pegs real GDP growth for the US at

1.8 per cent for the third quarter of 2011. US growth for

the third quarter of 2011

h a s b e e n r e v i s e d

downwards from 2.0 per

cent as pegged earlier by

the second estimate. The increase in real GDP primarily

reflects positive contributions from personalconsumption expenditure, non-residential fixed

investment, exports, and federal government spending.

But, they were partly offset by negative contributions

from private inventory investment and state and local

government spending. Real personal consumption

expenditures increased by 1.7 per cent (down from 2.3

per cent in the previous estimate) in the third quarter,

VIII. Global Economic Outlook

Source: Statistical Bureau, Respective Countries Note: * y-o-y %

Table 8.1: GDP Growth (q-o-q, annualised %)

Source: Statistical Bureau, Respective Countries

Table 8.2: Trade Balance (Billion, National Currency)

Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11

United States -51.6 -44.8 -44.9 -44.2 -43.5

United Kingdom -4.5 -2.3 -2.7 -4.3 -1.6

Euro Area 0.1 2.5 -4.4 2.7 1.1

Japan 67.3 67.9 -779.6 293.9 -281.8

China (US$ billion) 22.3 31.5 17.8 14.5 17.0

-

-

-

-687.6

14.5

2010 Q3-10 Q4-10 Q1-11 Q2-11 Q3-11

United States 2.9 2.6 3.1 1.9 1.3

United Kingdom 1.3 2.8 -2.0 2.0 0.4

Euro Area 1.7 1.2 1.2 2.5 0.8

Japan* 4.0 5.2 2.3 -1.0 -1.1

China* 10.3 10.7 10.4 9.7 9.6

1.8

2.4

0.8

-0.1

9.4

UUS growth reviseddownwards again


28/36

CRISIL EcoView

22

Among the Asian economies, China's GDP expanded at

9.4 per cent in the third quarter of 2011, down from 9.6

per cent during the second quarter of 2011. This is the

slowest pace of GDP growth in China since early 2009.

Japan's economic activity has been picking up, albeit

moderately mainly due to effects of a slowdown in the

overseas economies. Japan's economy showed some

improvement by contracting at only 0.1 per cent in the

third quarter of 2011. It had previously contracted at 1.1

per cent during the second quarter of 2011.

According to the US Census Bureau and the US Bureau

of Economic Analysis, exports for October 2011 stood at

$179.2 billion, while imports were at $222.6 billion. This

resulted in a goods and services deficit of $43.5 billion,

down from $44.2 billion (revised) in September 2011. In

October 2011, the goods deficit decreased by $0.7

billion from the September 2011 level, while the services

surplus remained virtually unchanged at $15.3 billion in

October. The fall in exports of goods reflected decreases

in industrial supplies and materials, consumer goods,

foods, feeds, beverages, automotive vehicles, parts,

and engines. Imports of capital goods, consumer goods,

foods, feeds, and beverages registered an increase.

With regard to services, increases in royalties andlicense fees and other private services (which include

items such as business, professional and technical

services, insurance services, and financial services)

were mostly offset by decreases in travel, other

transportation, and passenger fares.

The UK's deficit in trade in goods and services stood at

1.6 billion in October 2011 as compared to a deficit of

4.3 billion in September. The deficit in seasonally-

adjusted trade in goods was 7.6 billion in October 2011,

compared with the deficit of 10.2 billion in September

2011. The surplus in seasonally-adjusted trade in

services was estimated at 6.0 billion in October 2011,

compared with the surplus of 5.9 billion in September

2011. The increase in total exports was driven by higher

levels of exports of chemicals, medical products, capital,

telecommunications equipment and silver. Imports of oil

increased, while that of consumer goods registered a

decline.

In Japan, trade balance fell to a deficit of 687.6 billion in

November 2011 from a deficit of 281.8 billion last

month. Japan had posted a surplus of 293.9 billion in

September 2011. On a

monthly basis, Japanese

exports fell by 5.6 per

cent, but imports grew at

1.6 per cent in November

2011. China posted a surplus of $14.5 billion in

November 2011, down from a surplus of $17 billion in the

last month, but same as in September 2011. On a

monthly basis, China's exports and imports registered agrowth of 10.8 per cent and 13.9 per cent, respectively.

Eurostat's estimate for the Euro area's trade with the rest

of the world stood at a surplus of 1.1 billion in October

2011. In September 2011, the balance was 2.7 billion.

On a seasonally-adjusted basis, in October, exports fell

by 1.9 per cent and imports by 0.7 per cent, in

JJapan's trade deficitwidens sharply


Table 8.3 Consumer Price Inflation (y-o-y %)

Nov-11Jun-11 Jul-11 Aug-11 Sep-11 Oct-11

United States 3.6 3.6 3.8 3.9 3.6

United Kingdom 4.2 4.4 4.5 5.2 5

Euro Area 2.7 2.5 2.5 3.0 3

Japan 0.2 0.2 0.2 0.1 -0.2

China 6.4 6.5 6.2 6.1 5.5

3.4

4.8

3.0

-0.5

4.2


Jul-11 Aug-11 Sep-11 Oct-11 Nov-11

United States 0.0-0.25 0.0-0.25 0.0-0.25 0.0-0.25 0.0-0.25

United Kingdom 0.5 0.5 0.5 0.5 0.5

Euro Area 1.50 1.50 1.50 1.50 1.00

Japan 0.1 0.1 0.1 0.1 0.0

China 6.6 6.6 6.6 6.6 6.6

Dec-11

0.0-0.25

0.5

1.00

0.0

6.56

Table 8.4: Policy Interest Rate (End of Month %)


29/36

comparison with September 2011.

According to the Bureau of Labour Statistics, inflation in

the US fell marginally to 3.4 per cent in November 2011

from 3.6 per cent in October 2011. The energy index

declined for the second month in a row. As in October

2011, the gasoline index fell sharply and the index for

household energy declined as well. The index for all

items (excluding food and energy) increased by 0.2 per

cent in November 2011, following an increase of 0.1 per

cent in the previous 2 months. The y-o-y change in the

food index also declined slightly, from 4.7 per cent in

October 2011 to 4.6 per cent in November 2011.

Inflation in the UK fell to 4.8 per cent in November 2011,

from 5.0 per cent in the last month. The downward

pressures to inflation came from food, petrol, clothing

and furniture, household equipment and maintenance.

But these were offset by upward pressures from

domestic heating and off sales of alcohol. Prices of food

and non-alcoholic beverages rose by 4.0 per cent. Gas

and electricity charges rose by 25.3 per cent and 15.5

per cent, respectively.

In November 2011, the Euro area's annual inflation was3.0 per cent. Inflation has stood at 3.0 per cent in the

Euro area since September 2011. The main

components with the highest inflation in November 2011

were transport, housing, alcohol and tobacco, while the

lowest inflation was observed in communications,

recreation, culture and education. As compared with

October 2011, annual inflation fell in fourteen member

m-o-m y-o-y

Wheat

Soya Oil*

Steel

Aluminium

-4.1

-4.5

-3.9

-8.3

-4.0

-13.6

-0.2

Source: Metal Bulletin, FAO *Note: Data is available only upto November 2011Source: Energy Information Administration

Figure 8.1: Europe Brent (US$ per barrel)

107.9

91.4

60.0

95.0

indian economy outlook 2012-12 jan-12

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