state of the economy - ficcificci.in/spdocument/20316/state-of-economy-sept-2013.pdf · the rupee...

Economic Affairs and Research Division

State of the economy

September 2013

7.5

6.5

6.0

5.1

5.4

5.2

4.7

4.8

4.4

0.3

2.8

3.0

-1.2

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

0

2000

4000

6000

8000

10000

12000

14000

16000

In p

er

cen

t

In R

s. B

illio

n

Agriculture & Allied activities Industry

Services GDP (%) y-o-y

Manufacturing (%) y-o-y

Source: MOSPI

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

5.5 5.3

5.6

4.8 4.7

4 4.1 4 4.2

5.7

6.4 5.8

5.5 5.5 5.5 5.1

6 5.5

In P

er

cen

t

Latest Projection FY14 Previous Projection FY14

Source: Various Sources

Since end of June this year, Rupee has displayed extreme precariousness, raising fresh concerns about the already fragile economic situation. The Rupee slide has been more of a symptom than the disease itself and reflects the inherent weakness in the economy.

This has been apparent from the recent set of macro releases which continue to put across a dismal picture. The quarterly GDP growth has fallen to a four year low, inflationary pressures are arising again with food inflation persisting at elevated levels. Though some recovery has been noted in IIP data but this comes at the back of a low base. The only silver lining so far has been an improved performance in the external sector data.

Both the government and central bank have been proactive in announcing measures to arrest the Rupee decline and in the past few days we did see Rupee recovering vis-à-vis the USD.

Gross Domestic Product (GDP)

76.6

37.8

49.0

0 10 20 30 40 50 60 70 80 90

Q1

FY

03

Q4

FY

03

Q3

FY

04

Q2

FY

05

Q1

FY

06

Q4

FY

06

Q3

FY

07

Q2

FY

08

Q1

FY

09

Q4

FY

09

Q3

FY

10

Q2

FY

11

Q1

FY

12

Q4

FY

12

Q3

FY

13

FICCI's Overall Business Confidence Index Going ahead, it will be imperative to stick to the reform path without loosing steam. It is extremely critical to revive the capex cycle as investor sentiment continues to be subdued. In fact, FICCI’s recently released survey indicates a sharp fall in the Overall Business Confidence Index. The index that gauges the mood amongst members of India Inc has declined to a seventeen quarter low.

Also, both availability and cost of credit have emerged as concerns once again. With new governor coming at the helm, a change in the policy stance could have uplifted the sentiment. However, the 25 bps point increase in repo rate in the latest policy announcement came as a surprise. FICCI feels that moves that improve liquidity can help industry and begin to drive interest rates down.



-30

-20

-10

0

10

20

Jan

-12

Feb

-12

Mar

-12

Ap

r-1

2

May

-12

Jun

-12

Jul-

12

Au

g-1

2

Sep

-12

Oct

-12

No

v-1

2

Dec

-12

Jan

-13

Feb

-13

Mar

-13

Ap

r-1

3

May

-13

Jun

-13

Jul-

13

Basic goods Intermediate goods

Capital goods Consumer goods-durables

Consumer non-durable goods

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

In p

er

cen

t

IIP Mining Manufacturing Electricity

Source: MOSPI

Index of Industrial Production (IIP)

IIP data released for the month of July, 2013 rebounded to 2.6% y-o-y with improved performance in manufacturing (3.0%) and electricity (5.2%) sectors. The mining sector registered (-) 2.3% growth.

11 out of the 22 manufacturing sub sectors reported positive growth.

This growth comes at the back of a low base, but it does point towards a likely turn around as a result of measures taken by the government.

Also the forthcoming festive demand and an improved export demand are expected to give impetus to the sector.

Capital goods sector registered a growth of 15.6% in July 2013 which is the highest since June 2011.

However, consumer durable goods segment witnessed negative growth {(-) 9.3%} for eighth consecutive month.

GDP growth slipped to 4.4% in Q1 FY14 vis-à-vis 4.8% growth in Q4 FY13. This was the lowest quarterly growth in almost four years. Among the three broad sectors, agriculture growth recovered to 2.7% in Q1 FY14 from 1.4% in Q4 FY13. Manufacturing sector registered (-) 1.2% growth and service sector growth slowed to 6.6%.

Respondents of FICCI’s Economic Outlook Survey had anticipated a growth of 5.0% in Q1FY14.

Also, the private financial consumption expenditure growth slowed to 1.6%, which is the lowest since Q2 of 1999-00. Gross capital formation registered negative 1.2% growth.

Given the recent volatility displayed in currency market and the weak fundamentals, near term growth is expected to

remain moderate. Further, it will still take a while for the global economic situation to indicate a firm turn around and this will continue to have a bearing on our growth performance.

Prime Minister Economic Advisory recently revised its GDP growth projection to 5.3% for the FY14, from its earlier

estimate of 6.4%.

The positive effect of normal monsoons and the expectation that the government will unclog the bottlenecks that are hampering infrastructure projects will lend some support going ahead.



Inflation

-5.0

0.0

5.0

10.0

15.0

20.0

Jan

-12

Feb

-12

Mar

-12

Ap

r-1

2

May

-12

Jun

-12

Jul-

12

Au

g-1

2

Sep

-12

Oct

-12

No

v-1

2

Dec

-12

Jan

-13

Feb

-13

Mar

-13

Ap

r-1

3

May

-13

Jun

-13

Jul-

13

Au

g-1

3

In p

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Inflation(WPI) Primary Products

Fuel Group Manufactured Products

Food inflation

Source: MOSPI

Headline inflation rose to 6.1% y-o-y in August, 2013 vis-à-vis 5.8% in July, 2013. This is the third consecutive month of increase and indicates pressure arising once again on prices.

The rise can be attributed to the increase in food prices. The food articles segment reported a growth of 18.2%, which is a 3-year high.

Prices of cereals and vegetables remain elevated. Also,

an increase was noted in prices of milk and egg, meat and fish.

Fuel group inflation reported an increase to 11.34% y-

o-y in August, 2013, vis-à-vis 11.31% in July 2013 and 8.74% a year back.

Manufacturing inflation remained within the comfort

zone and declined further to 1.9% in August 2013.

According to PMEAC, food inflation will ease on account of good monsoons and improved agricultural performance. The overall inflation has been pegged at 5.5% for end of March 2014.

Overall core sector index registered a growth of 3.1% y-o-y in July 2013 vis-à-vis 0.1% growth in June 2013 and 1.5% growth in June 2012.

Coal and Electricity sectors witnessed positive 1.2%

and 5.2% growth respectively in July 2013 vis-à-vis (-) 3.0% and (-) 1.2% in June 2013. However, the cumulative growth during April-July 2013 was (-) 0.5% for the coal sector.

Natural Gas again registered a negative growth of

16.1% in July, 2013. The corresponding growth in June 2013 was (-) 16.7% and in July 2012 was (-) 13.5%.

Fertilizers sector growth witnessed a significant

decline. The sector registered 0.4% growth in July 2013 vis-à-vis 11.3% growth in June 2013.

Core Sector- Growth (%)

2012-13 Apr-July

2013-14 Apr-July

Jul-12

Jun-13

Jul-13

Overall 4.1 2 1.5 0.1 3.1

Coal 5.8 -0.5 2.1 -3.0 1.2

Crude Oil -0.6 -1.6 -0.7 -0.6 -2.3

Natural Gas

-11.7 -17.2 -13.5 -16.7 -16.1

Refinery Products

8.4 4.8 3.6 2.3 5.1

Fertilizers -9.6 1.8 -2.2 11.3 0.4

Steel 2.8 4.1 1.1 3.4 7

Cement 12.1 2.7 6.5 2.3 0.8

Electricity 5.7 3.4 2.7 -1.2 5.2

Source: MOSPI

Core Sector



Foreign Trade

13.0

-0.7

-20

-10

0

10

20

30

40

0.0

5.0

10.0

15.0

20.0

25.0

Jan

-12

Feb

-12

Mar

-12

Ap

r-1

2

May

-12

Jun

-12

Jul-

12

Au

g-1

2

Sep

-12

Oct

-12

No

v-1

2

Dec

-12

Jan

-13

Feb

-13

Mar

-13

Ap

r-1

3

May

-13

Jun

-13

Jul-

13

Au

g-1

3

In p

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In U

SD B

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Trade Deficit Exports (y-o-y) Imports (y-o-y)

Source: Reserve Bank of India

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

Jan

-12

Fe

b-1

2

Mar

-12

A

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12

M

ay-1

2

Jun

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Ju

l-1

2

Au

g-1

2

Sep

-12

O

ct-1

2

No

v-1

2

Dec

-12

Ja

n-1

3

Feb

-13

M

ar-1

3

Ap

r-1

3

May

-13

Ju

n-1

3

Jul-

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A

ug-

13

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In U

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Oil-imports ($ Mn) Non-oil imports ($ Mn)

Import growth (%)

Source: Reserve Bankof India

Foreign trade data released for the month of August, 2013 came as a breather. Exports grew by 13.0% y-o-y in August 2013, witnessing double digit growth for the second consecutive month. Imports on the other hand registered negative 0.7% growth y-o-y in August 2013.

As a result the trade deficit narrowed to $10.9 billion in August 2013 vis-à-vis $12.3 billion in July 2013 and $15.7 billion in August 2012.

Oil-imports rose to $15.1 billion in August 2013 vis-à-vis $12.7 billion in July 2013 whereas non-oil imports decline to

$21.9 billion vis-à-vis $25.3 billion in July 2013.

It seems the measures taken to contain gold imports and boost exports are gradually having an impact. In fact, the government has once again increased the import duty on gold and silver to 15%.

Gold imports have witnessed a dramatic increase in last couple of years and are finally showing signs of moderation.

Value of gold imports declined to $0.65 billion in August 2013 vis-à-vis $2.9 billion in July 2013.

Further, some recovery has been evident in Euro Area and the United States which is expected to improve the export demand in near term.

It will be crucial for the government to contain the current account deficit to USD 70 billion this year as promised.



Foreign Investments

(Net) Foreign Direct Investment (USD Million)

(Net) Portfolio Investment (USD Million)

Total Foreign Investment Inflows (USD Million)

Sept-12 4147 4124 8271

Oct-12 1213 2921 4134

Nov-12 439 2002 2442

Dec-12 453 4858 5311

Jan-13 2701 6042 8743

Feb-13 2210 4101 6311

Mar-13 822 1171 1993

Apr-13 2782 1621 4404

May-13 1860 6783 8643

June -13 1830 -8627 -6797

July-13 2187 -4624 -2437

Apr-Jul 2013-14

8659 -4847 3812

Apr-Jul 2012-13

5434 196 5630


-965.5

710.11 68.4

62.2

54.0

56.0

58.0

60.0

62.0

64.0

66.0

68.0

70.0

-1200

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0

200

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2-J

ul-

13

9-J

ul-

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16

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3

23

-Ju

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3

30

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6-A

ug-

13

13

-Au

g-1

3

20

-Au

g-1

3

27

-Au

g-1

3

3-S

ep-1

3

10

-Sep

-13

17

-Sep

-13

Net FII's ($ Mn) Re/USD

The net foreign direct investment inflows witnessed an increase over the first four months of current fiscal year. The cumulative flows amounted to $8.7 billion, registering an increase of almost 59% over the same period last year.

The foreign institutional investors have been in selling mode since June 2013. The sharp weakening of Rupee value and uncertainty in the overall macro picture has led to wary outlook for the investors.

As a result there has been a noticeable dip in the overall foreign investment inflows in the country.

The government last month raised FDI caps in several sectors. This has helped in perking up the sentiment

and is likely to have a positive impact going ahead.

Source: Reserve Bank of India and Securities and Exchange Board of

India



Exchange Rate

51.35

63.2

66.21

84.18

66.78

64.57

40.0

50.0

60.0

70.0

80.0

90.0

Jan

-12

Feb

-12

Mar

-12

Ap

r-1

2

May

-12

Jun

-12

Jul-

12

Au

g-1

2

Sep

-12

Oct

-12

No

v-1

2

Dec

-12

Jan

-13

Feb

-13

Mar

-13

Ap

r-1

3

May

-13

Jun

-13

Jul-

13

Au

g-1

3

Re / Dollar Re / Euro Re/ 100 Yen

60.7

68.4

63.4

58.0

60.0

62.0

64.0

66.0

68.0

70.0 Re/Dollar (Daily close)

All-time closing low

After coming under tremendous pressure since June 2013, INR is finally showing some signs of gaining.

Rupee value depreciated by 26% between April and August 2013, when INR touched an all time low of 68.4 for a dollar on August 28, 2013.

Some of the measures announced by the new

governor to handle the situation have enabled the Rupee to regain some of its earlier losses.

Also, the announcement by Fed to postpone tapering

of its quantitative easing programme has brought in some optimism.

Rupee appreciated to 61.7 for a dollar on September

19, 2013 post Federal Reserve’s meeting. This was the highest value in the past one month.

Foreign Exchange Reserves

Total foreign

exchange reserves (USD Bn)

Foreign Currency

Assets (USD Bn)

Gold (USD Bn)

SDRs (USD Bn)

Reserve Tranch

Position (USD Bn)

Sep-12 294.8 260.0 28.1 4.5 2.3

Oct-12 295.3 260.4 28.2 4.4 2.3

Nov-12 294.5 260.0 27.8 4.4 2.3

Dec-12 295.6 261.7 27.2 4.4 2.3

Jan-13 295.5 261.7 27.0 4.4 2.4

Feb-13 290.9 257.9 26.3 4.4 2.3

Mar-13 292.0 259.7 25.7 4.3 2.3

Apr-13 293.9 263.3 24.0 4.4 2.2

May13 287.9 258.5 22.8 4.3 2.2

Jun-13 282.5 254.4 21.6 4.3 2.2

Jul-13 277.6 250.3 20.7 4.4 2.2

Aug-13 275.5 247.4 21.7 4.3 2.0

The total foreign exchange reserves decline further in August to $275.5 billion vis-à-vis $290.0 billion in August 2012. Forex reserves stood at $277.6 billion in July 2013 and $282.5 billion in June 2013.

Foreign currency assets continued to decline to reach $247.4 billion in August 2013.

Gold reserves increased a bit to $21.7 billion in

August 2013 after falling to $20.7 billion in July 2013.

Total foreign exchange reserves as on September 6, 2013 stood at $274.8 billion, declining by $ 656.6 million. This was a 39 month low.



August 28, 2013



Parliament passes Food Security Bill- Rajya Sabha gave its nod to the Food Security Bill earlier this month. The Bill aims to provide food grains to about two thirds of the population at subsidized rates.

Land Acquisition Bill passed by Parliament –Land Acquisition Bill cleared by Rajya Sabha earlier this month after some amendments.

Parliament passes key Pension Bill- The Pension Fund Regulatory and Development Authority (PFRDA) Bill, 2011, was passed in the Rajya Sabha after a delay of nearly a decade.

Government tightens belt to cut rising deficit – Finance Ministry announced a slew of measures to cut spending in non critical areas like barring conferences from being held in five star hotels, banning creation of new posts.

Banks free to open branches in Tier-1 cities: RBI – Banks have been given freedom to start new branches in Tier I cities without seeking prior approval from RBI. This move comes with some riders.

RBI tightens norms for lending against jewellery – RBI tightened norms for gold loans provided by NBFCs, mandating that gold the NBFCs receive as collateral should be valued transparently.

RBI's 80:20 gold import norm deadlock ends: RBI clarified that more than 20% of gold can be exported back, as against

the interpretation of limiting exports to 20% and making the remaining 80% available for domestic use.

Gold duty hiked again, this time for jewellery – Import duty on gold jewellery hiked to 15%, introducing a tariff differential of 5% with raw gold.

Companies Bill enacted in to a law

Fiscal Position

Indicators Budget Estimates 2013-2014*

Actuals@ up to July 2013

% of Actuals to Budget Estimates

Rs. Crore Rs. Crore Current Corresponding Period

of the Previous

Year Revenue Receipts 1056331 176155 16.7% 18.0%

Tax Revenue (Net) 884078 145109 16.4% 18.5%

Non-Tax Revenue

172252 31046 18.0% 15.8%

Total Receipts 1122799 180556 16.1% 17.7%

Non-Plan Expenditure

1109975 371427 33.5% 33.3%

Plan Expenditure

555322 149738 27.0% 21.9%

Total Expenditure 1665297 521165 31.3% 29.3%

Fiscal Deficit 542499 340609 62.8% 51.5%

Revenue Deficit 379838 277378 73.0% 61.3%

Primary Deficit 171814 254302 148.0% 94.8%

The fiscal deficit during the first four months of the current financial year was Rs 340609 crore, 62.8% of the budgeted amount.

The revenue receipts of the government rose by 4.3% during first four months of the FY14 as compared to the same period previous fiscal.

Net tax revenue collections were subdued and

registered a growth of 1.6% upto July 2013 whereas non-tax revenue recorded a growth rate of 19.2% upto July 2013.

The total expenditure stood at Rs. 5,21,165 crore

during Apr-Jul 2013 as compared to Rs. 4,37,291 crore in Apr-Jul 2012, owing to rise in both plan and non-plan expenditure.

Plan expenditure rose by 31.4% and non-plan

expenditure rose by 19.2% over the same period.

Key Policy Announcements

Source: Controller General of Accounts

state of the economy - ficcificci.in/spdocument/20316/state-of-economy-sept-2013.pdf · the rupee...

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