CII Economy Matters - July 2013 Issue
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Transcript of CII Economy Matters - July 2013 Issue
ECONOMY MATTERSVolume 01 No. 07July 2013
Inside This Issue
The National Food Security Ordinance – Benefits and Concerns
Cover Story
Foreword 01
Executive Summary 02
Growth Outlook: 2013-14 03
Global Trends 04
Domestic Trends 9
Corporate Performance 15
Sector in Focus: Textiles 19
Special Article: The National 25
Food Security Ordinance
Economy Monitor 30
China's economy is besieged with several problems currently, which have had
adverse repercussions for the global growth too. The rebalancing towards
domestic consumption from an export and investment-led growth path has
not been as successful as was planned. Add to this the rising concerns over
banking sector's asset quality and slowing macroeconomic parameters and
you got a perfect recipe for an imminent loss of economic momentum.
However, the policy makers still seem comfortable with allowing growth to
cool to "sustainable levels". Elsewhere, in the last few months, Central Banks
globally have been paring interest rates in order to cushion falling growth, but
three emerging economies viz. Indonesia, Turkey and Brazil have gone
against the tide in raising interest rates to support their currencies and curb
inflationary pressures. India too could be added to that list, given that RBI
responded aggressively to curb the exchange rate volatility by announcing
slew of liquidity tightening measures in the last month.
On the domestic front, there is some good news finally. The progress of
South-West monsoon has been good so far, with the overall country receiving
17 per cent rainfall above LPA till end of July 2013. Consequently, the sowing
pattern has also remained robust so far, raising hopes for another year of
bumper harvest of food-grains. As regards to the fiscal situation, however,
things are not as rosy. The fiscal deficit in the first quarter has already reached
almost half of the budgeted target for the entire 2013-14 due to sluggish
revenue growth even though the government spending has remained robust.
The Finance Minister has reaffirmed his commitment to curb the fiscal deficit
around the budgeted levels in the current year too. However, it shouldn't
happen at the cost of curtailing government expenditure on plan/capital
heads, which, along with removal of structural impediments, is critical for
crowding in private investment to pull the economy out of the current
slowdown.
The promulgation of an ordinance on National Food Security by the
government is indeed a historic development. It provides a legal entitlement
to persons belonging to specified households to receive specific quantities of
food grain at subsidised prices from the state. If implemented properly, there
is no doubt that the ordinance will address the concerns on hunger and
malnutrition. However, there are some serious challenges to its
implementation. Some of the challenges are in terms of distribution and
logistics, rising food subsidy, lack of crop diversification and increasing food
inflation. How well the government is able to address these challenges will be
critical in scripting NFSO's success.
FOREWORD
1 JULY 2013
Chandrajit Banerjee
Director-General, CII
China's economy is besieged with several problems currently, which have had
adverse repercussions for the global growth too. The rebalancing towards
domestic consumption from an export and investment-led growth path has
not been as successful as was planned. Add to this the rising concerns over
banking sector's asset quality and slowing macroeconomic parameters and
you got a perfect recipe for an imminent loss of economic momentum.
However, the policy makers still seem comfortable with allowing growth to
cool to "sustainable levels". Elsewhere, in the last few months, Central Banks
globally have been paring interest rates in order to cushion falling growth, but
three emerging economies viz. Indonesia, Turkey and Brazil have gone
against the tide in raising interest rates to support their currencies and curb
inflationary pressures. India too could be added to that list, given that RBI
responded aggressively to curb the exchange rate volatility by announcing
slew of liquidity tightening measures in the last month.
On the domestic front, there is some good news finally. The progress of
South-West monsoon has been good so far, with the overall country receiving
17 per cent rainfall above LPA till end of July 2013. Consequently, the sowing
pattern has also remained robust so far, raising hopes for another year of
bumper harvest of food-grains. As regards to the fiscal situation, however,
things are not as rosy. The fiscal deficit in the first quarter has already reached
almost half of the budgeted target for the entire 2013-14 due to sluggish
revenue growth even though the government spending has remained robust.
The Finance Minister has reaffirmed his commitment to curb the fiscal deficit
around the budgeted levels in the current year too. However, it shouldn't
happen at the cost of curtailing government expenditure on plan/capital
heads, which, along with removal of structural impediments, is critical for
crowding in private investment to pull the economy out of the current
slowdown.
The promulgation of an ordinance on National Food Security by the
government is indeed a historic development. It provides a legal entitlement
to persons belonging to specified households to receive specific quantities of
food grain at subsidised prices from the state. If implemented properly, there
is no doubt that the ordinance will address the concerns on hunger and
malnutrition. However, there are some serious challenges to its
implementation. Some of the challenges are in terms of distribution and
logistics, rising food subsidy, lack of crop diversification and increasing food
inflation. How well the government is able to address these challenges will be
critical in scripting NFSO's success.
FOREWORD
1 JULY 2013
Chandrajit Banerjee
Director-General, CII
2
EXECUTIVE SUMMARY
Global Trends
Domestic Trends
Corporate Performance
Chinese economy in the first-half of the current year
witnessed a generally stable growth. However, the
economy is still faced with grim and complicated
economic situation. The rebalancing towards domestic
consumption from an export and investment-led
growth path has not been as successful as was planned.
The policymakers in China have indicated that they will
continue to maintain proactive fiscal policy and a
prudent monetary policy in 2013 in order to lift the
economic growth to 7.5 per cent for the year.
Elsewhere, in the last few months, Central Banks
globally have been paring interest rates in order to
cushion falling growth, but three emerging economies
viz. Indonesia, Turkey and Brazil have gone against the
tide in raising interest rates to support their currencies
and curb inflationary pressures.
The progress of South-West monsoon has been good so
far, with the overall country receiving 17 per cent rainfall
above LPA till end of July 2013. However, the skewed
spatial pattern of rainfall cannot be missed as we have
seen excess rains causing floods in states such as
Uttarakhand, while below normal rains in states such as
Assam, Haryana, West Bengal etc. have created
problems. Notwithstanding this uneven distribution of
rainfall, the sowing of major kharif crops has remained
robust so far, raising hopes for another year of bumper
harvest of food-grains. On the fiscal front, the situation
has not been sound as fiscal deficit in the first-quarter
2013-14 was almost half of the budgeted target for the
entire year mainly due to sluggish revenue growth even
though government spending remained robust.
Firms remained plagued by stagnant net sales and poor
domestic demand, in the face of headwinds such as
sliding rupee, weak export growth and high retail
inflation in the first quarter of the current fiscal. While
revenues plummeted sharply, corporate sector
continued to pull expenses down against the backdrop
of a clouded economic outlook. In face of dwindling net
sales growth, rise in profitability came as the much
needed respite, attributable mainly to moderation in
expenditure costs. Margins, both net and gross saw an
improvement in the quarter too, reflecting the
improved profitability. Our analysis is based on the
financial performance of balanced panel of 524 firms
(extracted on July 31, 2013).
The textile and clothing (T&C) industry is one of the
leading sectors of the Indian economy and constitutes
major part of the industrial sector. It contributes
significantly to the industrial output, employment
generation and foreign exchange earnings in India. It is
also the second largest provider of employment, after
the agricultural sector. India's position in the global T&C
scenario is indeed praiseworthy as it remains the
world's second largest producer of textiles after China.
Currently, the Indian textile industry is facing challenges
due to various issues related to FTAs, technology,
labour and power that are crucial for its growth. The
sector needs an enabling policy environment, fiscal and
export incentives, market access, raw material
securitization and infrastructure support.
In keeping with the UPA's entitlement based approach,
the government recently promulgated an ordinance on
National Food Security. It provides a legal entitlement
to persons belonging to specified households to receive
specific quantities of food grain at subsidised prices
from the state. One of the expected benefits from the
new legislation is that it moves the PDS away from the
APL-BPL system, which was fraught with problems of
identification. Further, the prices proposed under the
new legislation are highly subsidised so that it is
expected to leave additional income in the hands of
beneficiaries. The ordinance has a special focus on
nutritional support to women and children, which is not
limited to food rations. If implemented properly, there
is no doubt that the ordinance will address the concerns
on hunger and malnutrition. However, there are some
serious challenges to its implementation. One of the
real challenge is in terms of distribution and logistics,
while rising food subsidy, lack of crop diversification
and increasing food inflation are its other drawbacks.
Sector in Focus: Textiles
Special Article
ECONOMY MATTERS 33 JULY 2013
REVISED GROWTH OUTLOOK: 2013-142012-13 2013-14 Rationale
GDP Growth 5.0% 5.3-5.8%
5.3-5.8 per cent for the current fiscal as compared to 6.0-6.4
per cent forecasted earlier on the back of higher-than-
expected demand compression in the wake of
intensification of global uncertainities coupled with fragile
domestic situation. The recent weakening in the Rupee too
has also reduced the probability of faster reduction in
interest rates, which is also expected to impinge on growth.
The only silver lining visible at the current juncture seems to
be the advent of normal monsoons which is expected to
cushion growth to some extent.
Agriculture 1.9% 3.0-3.5% The progress of monsoons so far has been satisfactory,
reflected also in the robust sowing patterns of the kharif
crop. Aided by the low base and normal monsoons,
agriculture is expected to grow at an above-trend rate of 3.5
per cent in the current fiscal. Consequently, we have scaled
up the growth forecast of agriculture GDP to a range of 3.0-
3.5 per cent from 2.5-3.5 per cent forecasted earlier.
Industry 2.1% 3.5-4.0% Industry GDP growth has been scaled down to a range of 3.5-
4.0 per cent as compared to an earlier estimate of 5.0-5.5 per
cent. The main reasons for this growth downgrade of the
industrial sector is the continued poor performance by the
sector in the wake of depressed global demand, reduced
chances of RBI cutting interest rates at a fast pace, general
risk aversion amongst investors and mining sector de-
growth amongst other reasons. In order to lift industrial
growth, its pivotal to sort out issues related to mining, and
opt for speedy clearances of projects.
Services 7.1% 6.5-7.0% Services sector GDP growth too has been revised downward
to a range of 6.5-7.0 per cent as compared to an earlier
estimate of 7.2-7.5 per cent. The spillovers from lower
industrial growth are expected to adversely impact services
sector growth in the current fiscal. However, the upside to
our services sector forecast emerges from the rise in rural
incomes due to better-than-expected farm sector growth
and increased government spending owing to a pre-election
year.
WPI Inflation 7.3% 5.5-6.0% We have not revised our WPI inflation forecast for the
current year, despite a sharp depreciation seen in the Rupee
and some firming up of crude prices owing to two main
reasons: firstly, normal monsoons in the current year will
help in keeping food inflation in check and secondly, slower
GDP growth will help in further cooling down of demand-
side pressures on inflation. However, the timing and
magnitude of administered price revisions, particularly of
electricity and coal, will impact the evolution of inflation
trajectory during the year.
We have scaled down our growth forecast to a range of
2
EXECUTIVE SUMMARY
Global Trends
Domestic Trends
Corporate Performance
Chinese economy in the first-half of the current year
witnessed a generally stable growth. However, the
economy is still faced with grim and complicated
economic situation. The rebalancing towards domestic
consumption from an export and investment-led
growth path has not been as successful as was planned.
The policymakers in China have indicated that they will
continue to maintain proactive fiscal policy and a
prudent monetary policy in 2013 in order to lift the
economic growth to 7.5 per cent for the year.
Elsewhere, in the last few months, Central Banks
globally have been paring interest rates in order to
cushion falling growth, but three emerging economies
viz. Indonesia, Turkey and Brazil have gone against the
tide in raising interest rates to support their currencies
and curb inflationary pressures.
The progress of South-West monsoon has been good so
far, with the overall country receiving 17 per cent rainfall
above LPA till end of July 2013. However, the skewed
spatial pattern of rainfall cannot be missed as we have
seen excess rains causing floods in states such as
Uttarakhand, while below normal rains in states such as
Assam, Haryana, West Bengal etc. have created
problems. Notwithstanding this uneven distribution of
rainfall, the sowing of major kharif crops has remained
robust so far, raising hopes for another year of bumper
harvest of food-grains. On the fiscal front, the situation
has not been sound as fiscal deficit in the first-quarter
2013-14 was almost half of the budgeted target for the
entire year mainly due to sluggish revenue growth even
though government spending remained robust.
Firms remained plagued by stagnant net sales and poor
domestic demand, in the face of headwinds such as
sliding rupee, weak export growth and high retail
inflation in the first quarter of the current fiscal. While
revenues plummeted sharply, corporate sector
continued to pull expenses down against the backdrop
of a clouded economic outlook. In face of dwindling net
sales growth, rise in profitability came as the much
needed respite, attributable mainly to moderation in
expenditure costs. Margins, both net and gross saw an
improvement in the quarter too, reflecting the
improved profitability. Our analysis is based on the
financial performance of balanced panel of 524 firms
(extracted on July 31, 2013).
The textile and clothing (T&C) industry is one of the
leading sectors of the Indian economy and constitutes
major part of the industrial sector. It contributes
significantly to the industrial output, employment
generation and foreign exchange earnings in India. It is
also the second largest provider of employment, after
the agricultural sector. India's position in the global T&C
scenario is indeed praiseworthy as it remains the
world's second largest producer of textiles after China.
Currently, the Indian textile industry is facing challenges
due to various issues related to FTAs, technology,
labour and power that are crucial for its growth. The
sector needs an enabling policy environment, fiscal and
export incentives, market access, raw material
securitization and infrastructure support.
In keeping with the UPA's entitlement based approach,
the government recently promulgated an ordinance on
National Food Security. It provides a legal entitlement
to persons belonging to specified households to receive
specific quantities of food grain at subsidised prices
from the state. One of the expected benefits from the
new legislation is that it moves the PDS away from the
APL-BPL system, which was fraught with problems of
identification. Further, the prices proposed under the
new legislation are highly subsidised so that it is
expected to leave additional income in the hands of
beneficiaries. The ordinance has a special focus on
nutritional support to women and children, which is not
limited to food rations. If implemented properly, there
is no doubt that the ordinance will address the concerns
on hunger and malnutrition. However, there are some
serious challenges to its implementation. One of the
real challenge is in terms of distribution and logistics,
while rising food subsidy, lack of crop diversification
and increasing food inflation are its other drawbacks.
Sector in Focus: Textiles
Special Article
ECONOMY MATTERS 33 JULY 2013
REVISED GROWTH OUTLOOK: 2013-142012-13 2013-14 Rationale
GDP Growth 5.0% 5.3-5.8%
5.3-5.8 per cent for the current fiscal as compared to 6.0-6.4
per cent forecasted earlier on the back of higher-than-
expected demand compression in the wake of
intensification of global uncertainities coupled with fragile
domestic situation. The recent weakening in the Rupee too
has also reduced the probability of faster reduction in
interest rates, which is also expected to impinge on growth.
The only silver lining visible at the current juncture seems to
be the advent of normal monsoons which is expected to
cushion growth to some extent.
Agriculture 1.9% 3.0-3.5% The progress of monsoons so far has been satisfactory,
reflected also in the robust sowing patterns of the kharif
crop. Aided by the low base and normal monsoons,
agriculture is expected to grow at an above-trend rate of 3.5
per cent in the current fiscal. Consequently, we have scaled
up the growth forecast of agriculture GDP to a range of 3.0-
3.5 per cent from 2.5-3.5 per cent forecasted earlier.
Industry 2.1% 3.5-4.0% Industry GDP growth has been scaled down to a range of 3.5-
4.0 per cent as compared to an earlier estimate of 5.0-5.5 per
cent. The main reasons for this growth downgrade of the
industrial sector is the continued poor performance by the
sector in the wake of depressed global demand, reduced
chances of RBI cutting interest rates at a fast pace, general
risk aversion amongst investors and mining sector de-
growth amongst other reasons. In order to lift industrial
growth, its pivotal to sort out issues related to mining, and
opt for speedy clearances of projects.
Services 7.1% 6.5-7.0% Services sector GDP growth too has been revised downward
to a range of 6.5-7.0 per cent as compared to an earlier
estimate of 7.2-7.5 per cent. The spillovers from lower
industrial growth are expected to adversely impact services
sector growth in the current fiscal. However, the upside to
our services sector forecast emerges from the rise in rural
incomes due to better-than-expected farm sector growth
and increased government spending owing to a pre-election
year.
WPI Inflation 7.3% 5.5-6.0% We have not revised our WPI inflation forecast for the
current year, despite a sharp depreciation seen in the Rupee
and some firming up of crude prices owing to two main
reasons: firstly, normal monsoons in the current year will
help in keeping food inflation in check and secondly, slower
GDP growth will help in further cooling down of demand-
side pressures on inflation. However, the timing and
magnitude of administered price revisions, particularly of
electricity and coal, will impact the evolution of inflation
trajectory during the year.
We have scaled down our growth forecast to a range of
4ECONOMY MATTERS
GLOBAL TRENDS
China's Economy in the First Half of 2013: Stable and Moderate Growth
the 2008 financial crisis had provided a welcome boost
to global demand, and substantial progress has been
made in rebalancing China's external accounts.
However, it warned that the pattern of economic
activity in the world's second largest economy has
become too reliant on investment and credit, resulting
in rising domestic vulnerabilities in the financial sector,
local government finances, and real estate. Further, the
report says that in addition to the Chinese authorities
announcing broad range of reforms and policy
objectives for 2013 to contain risks and balance growth,
priority should now be focused on devising specific
action plans and implementing them swiftly.
Further, in an interesting observation by the report,
China is at the dawn of a demographic shift as the
economy will soon start to be weighed down by a
shrinking workforce and aging population. The working
age (15-64) population will start to fall in less than a
decade due to declining fertility, reflecting the one-child
policy. The cohort of 25-39 year olds-the core industrial
workers-will shrink even faster, with implications for the
pattern of growth reliant on building new factories and
finding a ready supply of workers. These demographic
changes imply that China will reach a point when the
supply of plentiful low-cost labor is exhausted-toward
the end of the decade. As the surplus labor dwindles,
labor cost will rise, which would affect prices, incomes,
and corporate profits in China and would have
implications for trade, employment, and price
In the first half of 2013, faced with the complicated and
volatile economic environment at home and abroad, the
Chinese economy performed moderately well.
According to the preliminary estimation, the gross
domestic product (GDP) of China in the first half of this
year was 24,801 billion yuan, recording a year-on-year
increase of 7.6 per cent as compared to 7.9 per cent
during the same period last year. However, policy
makers still seem comfortable with allowing growth to
cool to "sustainable levels". Consequently, even in the
face of apparent slowing growth, the Central Bank has
resorted to credit tightening, giving precedence to
concerns over banking sector's asset quality.
Specifically, the authorities have mentioned property
sector controls and new rules to curb misuse of public
funds as being responsible for lower growth in the short
term. They seem confident of growth meeting the
official target of 7.5 per cent for the entire year.
Growth of the first quarter was 7.7 per cent, and 7.5 per
cent for the second quarter. Primary industry was up by
3.0 per cent, while secondary industry grew by 7.6 per
cent in the first-half of the current fiscal. Tertiary sector
has performed well, growing by a robust 8.3 per cent
during the comparable period.
As per the latest country assessment report published
by the International Monetary Fund (IMF), China's
economy is expected to grow by 7.75 per cent in the
current year- broadly the same pace as last year. The
report said that the resilience of China's economy since
5
able to reap this economic advantage, its investment
climate needs to improve, in addition to mending its
governance and relaxing policy requirements.
developments in key trading partners. India is widely
expected to be a key beneficiary of this demographic
change in China as manufacturing activity is likely to
shift in the wake of rising labour costs. But for India to be
CPI Inflation in the First-Half
In the first half, the consumer price went up by 2.4
percent year-on-year, maintaining the same level as that
in the first quarter and 0.9 percentage point lower than
that in the same period of 2012. Specifically, the price
went up by 2.4 per cent in cities and 2.5 per cent in rural
areas. Grouped by commodity categories, prices for
food rose most to the tune of 4.0 per cent, while
housing prices were up 2.9 per cent in the first-half 2013.
In terms of food prices, grain grew up by 5.1 per cent, oil
up by 3.3 per cent, pork down by 3.7 per cent and fresh
vegetables up by 2.3 per cent in the reporting period.
As far as investments are concerned, in the first half, the
investment in fixed assets (excluding rural households)
was 18,132 billion yuan, recording a year-on-year growth
of 20.1 per cent, which was 0.3 percentage point lower
than that in the same period of 2012. Of this total,
investment in the state-owned and state holding
enterprises reached 5,734 billion yuan, an increase of
17.5 per cent; private investment reached 11,558 billion
yuan, up by 23.4 per cent. Total retail sales of consumer
goods registered an increase of 12.7 per cent in the first-
half of 2013, which was 1.7 percentage points lower than
the same period last year.
JULY 2013
1Q 12 2Q 12 3Q 12 4Q 12 1Q 13 2Q 13
8.0
7.5
7.0
7.6
7.4
7.9
7.7
7.5
y-o-y%
China's GDP Growth is Moderating
Source: National Bureau of Statistics
Jan-
12
Feb
-12
Mar
-12
Apr
-12
May
-12
Jun-
12
Jul-1
2
Aug
-12
Sep
-12
Oct
-12
Nov
-12
Dec
-12
Jan-
12
Feb
-13
Mar
-13
Apr
-13
May
-13
Jun-
13
5
4
3
2
1
4.5
2.7
y-o-y%
CPI Inflation in China
Source: National Bureau of Statistics
4ECONOMY MATTERS
GLOBAL TRENDS
China's Economy in the First Half of 2013: Stable and Moderate Growth
the 2008 financial crisis had provided a welcome boost
to global demand, and substantial progress has been
made in rebalancing China's external accounts.
However, it warned that the pattern of economic
activity in the world's second largest economy has
become too reliant on investment and credit, resulting
in rising domestic vulnerabilities in the financial sector,
local government finances, and real estate. Further, the
report says that in addition to the Chinese authorities
announcing broad range of reforms and policy
objectives for 2013 to contain risks and balance growth,
priority should now be focused on devising specific
action plans and implementing them swiftly.
Further, in an interesting observation by the report,
China is at the dawn of a demographic shift as the
economy will soon start to be weighed down by a
shrinking workforce and aging population. The working
age (15-64) population will start to fall in less than a
decade due to declining fertility, reflecting the one-child
policy. The cohort of 25-39 year olds-the core industrial
workers-will shrink even faster, with implications for the
pattern of growth reliant on building new factories and
finding a ready supply of workers. These demographic
changes imply that China will reach a point when the
supply of plentiful low-cost labor is exhausted-toward
the end of the decade. As the surplus labor dwindles,
labor cost will rise, which would affect prices, incomes,
and corporate profits in China and would have
implications for trade, employment, and price
In the first half of 2013, faced with the complicated and
volatile economic environment at home and abroad, the
Chinese economy performed moderately well.
According to the preliminary estimation, the gross
domestic product (GDP) of China in the first half of this
year was 24,801 billion yuan, recording a year-on-year
increase of 7.6 per cent as compared to 7.9 per cent
during the same period last year. However, policy
makers still seem comfortable with allowing growth to
cool to "sustainable levels". Consequently, even in the
face of apparent slowing growth, the Central Bank has
resorted to credit tightening, giving precedence to
concerns over banking sector's asset quality.
Specifically, the authorities have mentioned property
sector controls and new rules to curb misuse of public
funds as being responsible for lower growth in the short
term. They seem confident of growth meeting the
official target of 7.5 per cent for the entire year.
Growth of the first quarter was 7.7 per cent, and 7.5 per
cent for the second quarter. Primary industry was up by
3.0 per cent, while secondary industry grew by 7.6 per
cent in the first-half of the current fiscal. Tertiary sector
has performed well, growing by a robust 8.3 per cent
during the comparable period.
As per the latest country assessment report published
by the International Monetary Fund (IMF), China's
economy is expected to grow by 7.75 per cent in the
current year- broadly the same pace as last year. The
report said that the resilience of China's economy since
5
able to reap this economic advantage, its investment
climate needs to improve, in addition to mending its
governance and relaxing policy requirements.
developments in key trading partners. India is widely
expected to be a key beneficiary of this demographic
change in China as manufacturing activity is likely to
shift in the wake of rising labour costs. But for India to be
CPI Inflation in the First-Half
In the first half, the consumer price went up by 2.4
percent year-on-year, maintaining the same level as that
in the first quarter and 0.9 percentage point lower than
that in the same period of 2012. Specifically, the price
went up by 2.4 per cent in cities and 2.5 per cent in rural
areas. Grouped by commodity categories, prices for
food rose most to the tune of 4.0 per cent, while
housing prices were up 2.9 per cent in the first-half 2013.
In terms of food prices, grain grew up by 5.1 per cent, oil
up by 3.3 per cent, pork down by 3.7 per cent and fresh
vegetables up by 2.3 per cent in the reporting period.
As far as investments are concerned, in the first half, the
investment in fixed assets (excluding rural households)
was 18,132 billion yuan, recording a year-on-year growth
of 20.1 per cent, which was 0.3 percentage point lower
than that in the same period of 2012. Of this total,
investment in the state-owned and state holding
enterprises reached 5,734 billion yuan, an increase of
17.5 per cent; private investment reached 11,558 billion
yuan, up by 23.4 per cent. Total retail sales of consumer
goods registered an increase of 12.7 per cent in the first-
half of 2013, which was 1.7 percentage points lower than
the same period last year.
JULY 2013
1Q 12 2Q 12 3Q 12 4Q 12 1Q 13 2Q 13
8.0
7.5
7.0
7.6
7.4
7.9
7.7
7.5
y-o-y%
China's GDP Growth is Moderating
Source: National Bureau of Statistics
Jan-
12
Feb
-12
Mar
-12
Apr
-12
May
-12
Jun-
12
Jul-1
2
Aug
-12
Sep
-12
Oct
-12
Nov
-12
Dec
-12
Jan-
12
Feb
-13
Mar
-13
Apr
-13
May
-13
Jun-
13
5
4
3
2
1
4.5
2.7
y-o-y%
CPI Inflation in China
Source: National Bureau of Statistics
7 JULY 2013
have recorded the steepest declines. Noteworthy, the
hike in interest rates in Brazil have come on the back of
slowing growth indicators including the decline of GDP
for the first quarter of the current year to 0.5 per cent.
expansion in recent years, have continued to decline.
Sales in the articles of personal and domestic use
category as well as in the fuels and lubricants category
6ECONOMY MATTERS
as was planned. The policymakers in China have
indicated that they will continue to maintain proactive
fiscal policy and a prudent monetary policy in 2013 in
order to lift the economic growth to 7.5 per cent for the
year. China adopted a proactive fiscal policy and a
moderately easy monetary policy to stimulate the
economy due to the impact of the global financial crisis
in 2009 and 2010, which marked a shift from the prudent
fiscal policy and tight monetary policy implemented in
2008 for the purpose of bringing down inflation. To
implement the proactive fiscal policy in the current year,
the government is expected to increase the deficit and
government debt in combination with tax reform and
structural tax cuts, as well as optimize government
spending and improve management over local
government borrowing.
Firm recovery in China is very critical for the global
economic prospects. The policy makers in the world's
second largest economy would need to adopt
unconventional policy measures to sustain the high
economic growth, which the country has seen in the last
many years. The rebalancing of economic growth in
favor of domestic consumption will be crucial in order to
achieve this.
However, despite subdued inflationary pressures,
monetary authority in China (People's Bank of China,
PBoC) stood pat and refrained from infusing easy
liquidity as the PBoC wanted to encourage banks to be
more prudent. Specifically, PBoC was concerned that
banks were taking greater risks and increasing their off-
balance sheet assets. Recent statements of PBoC
officials and other Government figures seem to suggest
that authorities are determined to curb off-balance
sheet lending by banks and seem willing to even sacrifice
a bit of growth in order to improve the banking sector's
health. By the end of June, the balance of broad money
(M2) was 105 trillion yuan, a year-on-year growth of 14.0
per cent, which was 1.8 percentage points lower than
that in the previous month or 0.2 percentage points
higher than that at the end of the previous year.
As a whole, the first half of 2013 witnessed a generally
stable growth of overall economy with major indicators
falling within the rational range of annual expectation.
However, the economy is still faced with grim and
complicated economic situation. The rebalancing
towards domestic consumption from an export and
investment-led growth path has not been as successful
In the recent months, Central Banks of major economies
have stepped up their expansionary monetary policies
to deal with global growth slowdown. Considering the
continued downward trends in inflation and stagnant
growth, policies have been primarily aimed at monetary
easing. In April 2013, Bank of Japan outlined an
aggressive monetary easing framework aimed at
ending deflation. In contrast, several economies across
the globe have witnessed a surge in interest rates in
their attempts to stem capital outflows and combat
inflation. Emerging economies such as Brazil, Indonesia
and Turkey are the economies that have raised interest
rates as policy makers in these economies have
attempted to take steps to stem capital outflows
sparked by the concern that the US Federal Reserve will
start to scale back liquidity injections. Reserve Bank of
India also announced several liquidity tightening
measures in July 2013 in order to arrest the fall in Rupee.
Additionally, these economies have been also plagued
with high inflation along with declining purchasing
power, low consumer confidence, falling sales and slow
Some Central Banks Turn the Tide; Raise Interest Ratesgrowth. In this article, we will discuss the economic
scenario prevailing in these economies, which led the
respective Central Banks to raise interest rates in the
past few months, as opposed to the general trend of
paring rates witnessed across most global economies.
Brazil is raising borrowing costs this year as above-
target inflation undercuts months of government
stimulus by curbing retail sales growth. In July 2013, the
central bank of Brazil raised the benchmark policy rate a
third consecutive time to 8.5 per cent since April 2013
amidst inflation concerns. The central bank targets
inflation at 4.5 percent, plus or minus two percentage
points. According to the latest data available, Brazil
consumer prices increased by 6.7 per cent in June 2013
as compared to same period last year, the fastest pace
since October 2011. High inflation has thus started to
erode the purchasing power and consumption. As a
result, retail sales, the harbinger of Brazil's economic
Brazil
Monetary Policy Changes (%)
14
12
10
8
6
Jan-
08
Jul-0
8
Jan-
09
Jul-0
9
Jan-
10
Jul-1
0
Jan-
11
Jul-1
1
Jan-
12
Jul-1
2
Jan-
13
Jul-1
3
Jan-
12
Mar-1
2
May-1
2
Jul-1
2
Sep-1
2
Nov-1
2
Jan-
13
Mar-1
3
May-1
3
8
6
4
2
0
6.26.7
Source: Banco Central Do Brasil
CPI Inflation in Brazil
3.5-5.5 per cent for 2013. Inflationary pressures have
exacerbated mainly on account of the recent decision
by the government of Indonesia to increase prices of
subsided fuel. In addition, the hike was also aimed to
provide much-needed support to the flagging Rupiah,
which has tumbled against the dollar owing to huge
outflows of capital. In 2012, the Rupiah was the worst
performing currency amongst emerging Asia, shedding
6 per cent against the dollar.
Indonesia
Apart from Brazil, Indonesia is another major emerging
economy which has seen rise in interest rates in the past
few months. Followed by the first hike in March this
year, the benchmark policy rate was raised again by 50
basis points to 6.50 per cent in July 2013, mainly to
combat rising inflation which rose to a high of 8.6 per
cent in July 2013 as against the inflation target range of
10
9
8
7
6
5
0
01-J
an-0
8
01-D
ec-0
8
01-N
ov-0
9
01-O
ct-1
0
01-S
ep-1
1
01-A
ug-1
2
01-J
ul-1
3
6.50%
Monetary Policy Changes (%)
Jan-
12
Mar-1
2
May-1
2
Jul-1
2
Sep-1
2
Nov-1
2
Jan-
13
Mar-1
3
May-1
3
10
8
6
4
2
0
8.6
y-o-y%
CPI Inflation in Indonesia
Source: Bank Indonesia
(y-o-y%)
7 JULY 2013
have recorded the steepest declines. Noteworthy, the
hike in interest rates in Brazil have come on the back of
slowing growth indicators including the decline of GDP
for the first quarter of the current year to 0.5 per cent.
expansion in recent years, have continued to decline.
Sales in the articles of personal and domestic use
category as well as in the fuels and lubricants category
6ECONOMY MATTERS
as was planned. The policymakers in China have
indicated that they will continue to maintain proactive
fiscal policy and a prudent monetary policy in 2013 in
order to lift the economic growth to 7.5 per cent for the
year. China adopted a proactive fiscal policy and a
moderately easy monetary policy to stimulate the
economy due to the impact of the global financial crisis
in 2009 and 2010, which marked a shift from the prudent
fiscal policy and tight monetary policy implemented in
2008 for the purpose of bringing down inflation. To
implement the proactive fiscal policy in the current year,
the government is expected to increase the deficit and
government debt in combination with tax reform and
structural tax cuts, as well as optimize government
spending and improve management over local
government borrowing.
Firm recovery in China is very critical for the global
economic prospects. The policy makers in the world's
second largest economy would need to adopt
unconventional policy measures to sustain the high
economic growth, which the country has seen in the last
many years. The rebalancing of economic growth in
favor of domestic consumption will be crucial in order to
achieve this.
However, despite subdued inflationary pressures,
monetary authority in China (People's Bank of China,
PBoC) stood pat and refrained from infusing easy
liquidity as the PBoC wanted to encourage banks to be
more prudent. Specifically, PBoC was concerned that
banks were taking greater risks and increasing their off-
balance sheet assets. Recent statements of PBoC
officials and other Government figures seem to suggest
that authorities are determined to curb off-balance
sheet lending by banks and seem willing to even sacrifice
a bit of growth in order to improve the banking sector's
health. By the end of June, the balance of broad money
(M2) was 105 trillion yuan, a year-on-year growth of 14.0
per cent, which was 1.8 percentage points lower than
that in the previous month or 0.2 percentage points
higher than that at the end of the previous year.
As a whole, the first half of 2013 witnessed a generally
stable growth of overall economy with major indicators
falling within the rational range of annual expectation.
However, the economy is still faced with grim and
complicated economic situation. The rebalancing
towards domestic consumption from an export and
investment-led growth path has not been as successful
In the recent months, Central Banks of major economies
have stepped up their expansionary monetary policies
to deal with global growth slowdown. Considering the
continued downward trends in inflation and stagnant
growth, policies have been primarily aimed at monetary
easing. In April 2013, Bank of Japan outlined an
aggressive monetary easing framework aimed at
ending deflation. In contrast, several economies across
the globe have witnessed a surge in interest rates in
their attempts to stem capital outflows and combat
inflation. Emerging economies such as Brazil, Indonesia
and Turkey are the economies that have raised interest
rates as policy makers in these economies have
attempted to take steps to stem capital outflows
sparked by the concern that the US Federal Reserve will
start to scale back liquidity injections. Reserve Bank of
India also announced several liquidity tightening
measures in July 2013 in order to arrest the fall in Rupee.
Additionally, these economies have been also plagued
with high inflation along with declining purchasing
power, low consumer confidence, falling sales and slow
Some Central Banks Turn the Tide; Raise Interest Ratesgrowth. In this article, we will discuss the economic
scenario prevailing in these economies, which led the
respective Central Banks to raise interest rates in the
past few months, as opposed to the general trend of
paring rates witnessed across most global economies.
Brazil is raising borrowing costs this year as above-
target inflation undercuts months of government
stimulus by curbing retail sales growth. In July 2013, the
central bank of Brazil raised the benchmark policy rate a
third consecutive time to 8.5 per cent since April 2013
amidst inflation concerns. The central bank targets
inflation at 4.5 percent, plus or minus two percentage
points. According to the latest data available, Brazil
consumer prices increased by 6.7 per cent in June 2013
as compared to same period last year, the fastest pace
since October 2011. High inflation has thus started to
erode the purchasing power and consumption. As a
result, retail sales, the harbinger of Brazil's economic
Brazil
Monetary Policy Changes (%)
14
12
10
8
6
Jan-
08
Jul-0
8
Jan-
09
Jul-0
9
Jan-
10
Jul-1
0
Jan-
11
Jul-1
1
Jan-
12
Jul-1
2
Jan-
13
Jul-1
3
Jan-
12
Mar-1
2
May-1
2
Jul-1
2
Sep-1
2
Nov-1
2
Jan-
13
Mar-1
3
May-1
3
8
6
4
2
0
6.26.7
Source: Banco Central Do Brasil
CPI Inflation in Brazil
3.5-5.5 per cent for 2013. Inflationary pressures have
exacerbated mainly on account of the recent decision
by the government of Indonesia to increase prices of
subsided fuel. In addition, the hike was also aimed to
provide much-needed support to the flagging Rupiah,
which has tumbled against the dollar owing to huge
outflows of capital. In 2012, the Rupiah was the worst
performing currency amongst emerging Asia, shedding
6 per cent against the dollar.
Indonesia
Apart from Brazil, Indonesia is another major emerging
economy which has seen rise in interest rates in the past
few months. Followed by the first hike in March this
year, the benchmark policy rate was raised again by 50
basis points to 6.50 per cent in July 2013, mainly to
combat rising inflation which rose to a high of 8.6 per
cent in July 2013 as against the inflation target range of
10
9
8
7
6
5
0
01-J
an-0
8
01-D
ec-0
8
01-N
ov-0
9
01-O
ct-1
0
01-S
ep-1
1
01-A
ug-1
2
01-J
ul-1
3
6.50%
Monetary Policy Changes (%)
Jan-
12
Mar-1
2
May-1
2
Jul-1
2
Sep-1
2
Nov-1
2
Jan-
13
Mar-1
3
May-1
3
10
8
6
4
2
0
8.6
y-o-y%
CPI Inflation in Indonesia
Source: Bank Indonesia
(y-o-y%)
8ECONOMY MATTERS
Turkey in June 2013 stood at 8.3 percent, which is higher
than the estimated course of inflation. This has been
mainly attributed to the developments in the
unprocessed food prices. In addition, the Turkish Lira
has depreciated by 7.4 per cent this year making it
weakest among emerging market currencies in Africa,
Europe and the Middle-East. Hence, the central bank
deemed it necessary to adopt a flexible monetary policy
framework for combating inflation and stemming the
decline in Lira.
Turkey
Recently, the Central Bank of Turkey too raised the key
lending rates for the first time in nearly two years, as it
joined a growing list of emerging-market central banks
forced to tighten policy after weeks of market pressure.
The bank's Monetary Policy Committee raised its
overnight lending rate by 0.75 percentage point to 7.25
per cent and signaled that it could tighten further in
order to prevent inflation from rising further. Inflation in
To conclude, we have seen that three emerging
economies have gone against the tide in raising interest
rates to support their currencies after a huge sell off
sparked by signals from the Federal Reserve's that it
might start to taper its multibillion-dollar bond buying
program in addition to arresting the inflationary
pressures in their respective economies. Their decision
has also underscored the dilemma facing developing
economies currently whether to focus on inflation or
growth. Investors too have largely welcomed this step
as the strong policy signals will not only help banks
regain their credibility but also encourage market
confidence.
Dec
-11
Sep
-10
Mar
-11
Jun-
11
Sep
-11
Dec
-11
Mar
-12
Jun-
12
Sep
-12
Dec
-12
Mar
-13
Jun-
13
7.25
8.75
14
12
10
8
6
Monetary Policy Changes (%)
Source: Central Bank of Turkey
Other Global Developments During the Month
v
v
v
v
In US, non-farm payrolls (NFP) increased by 162K in July 2013, lower than market expectations of an increase of
185K. Total job addition for May 2013 was revised lower to 176K from 195K earlier, while that for June 2013 was
revised to 188K from 195K. As per the household survey, the unemployment rate fell by 20 bps to 7.4 per cent
in July 2013, the lowest level since December 2008.
Both the European Central Bank (ECB) and Bank of England (BoE) kept their key policy rate unchanged at 0.50
per cent in their latest monetary policy reviews held on August 1, 2013.
Meanwhile, the Reserve Bank of Australia (RBA) reduced the benchmark rate by 25 bps to 2.5 per cent in its
meeting held on August 6, 2013. The rate cut was precipitated due to below trend domestic growth along with
inflation remaining within the target levels.
UK construction PMI leapt to 57.0 in July 2013, up from 51.0 in June and its strongest level since June 2010, led
by a surge in residential building. Meanwhile, China's non-manufacturing PMI rebounded to 54.1 in July 2013,
up from 53.9 in June 2013, after falling for three consecutive months. US manufacturing sector PMI too
increased by 4.5 points in July to 55.4, its highest level in two years.
DOMESTIC TRENDS
Monsoon Update: So Far So Good
September. The below graph captures the rain gap,
defined as the percentage deviation from the long-
period average (LPA) vis-à-vis the agriculture growth in
the last decade. 2002-03, 2004-05 and 2009-10 were
particularly bad years in terms of annual rainfall received
hence agricultural growth remained subdued during
those years. Last year, the rainfall gap was 8 per cent
below the LPA resulting in an anemic 1.9 per cent
growth for the farm sector.
With the Indian agriculture continuing to be driven by
the vagaries of monsoons, there is no gainsaying the
importance of normal monsoons for the agricultural
growth. Indian economy still remains a gamble on the
monsoons, as Lord Curzon once famously remarked.
Originating from the southern parts of the Indian
Ocean, the monsoons in India typically begin in end
May/early June and last for about four months till end-
Percentage growth in Agriculture % monsoon deviation from LPA
15
10
5
0
-5
-10
-15
-20
2000
-01
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
2007
-08
2008
-09
2009
-10
2010
-11
2011
-12
2012
-13
Source: Indian Meteorological Department (IMD) Note: Highlighted years were the drought years
India's Rainfall Gap (%)
9 JULY 2013
8ECONOMY MATTERS
Turkey in June 2013 stood at 8.3 percent, which is higher
than the estimated course of inflation. This has been
mainly attributed to the developments in the
unprocessed food prices. In addition, the Turkish Lira
has depreciated by 7.4 per cent this year making it
weakest among emerging market currencies in Africa,
Europe and the Middle-East. Hence, the central bank
deemed it necessary to adopt a flexible monetary policy
framework for combating inflation and stemming the
decline in Lira.
Turkey
Recently, the Central Bank of Turkey too raised the key
lending rates for the first time in nearly two years, as it
joined a growing list of emerging-market central banks
forced to tighten policy after weeks of market pressure.
The bank's Monetary Policy Committee raised its
overnight lending rate by 0.75 percentage point to 7.25
per cent and signaled that it could tighten further in
order to prevent inflation from rising further. Inflation in
To conclude, we have seen that three emerging
economies have gone against the tide in raising interest
rates to support their currencies after a huge sell off
sparked by signals from the Federal Reserve's that it
might start to taper its multibillion-dollar bond buying
program in addition to arresting the inflationary
pressures in their respective economies. Their decision
has also underscored the dilemma facing developing
economies currently whether to focus on inflation or
growth. Investors too have largely welcomed this step
as the strong policy signals will not only help banks
regain their credibility but also encourage market
confidence.
Dec
-11
Sep
-10
Mar
-11
Jun-
11
Sep
-11
Dec
-11
Mar
-12
Jun-
12
Sep
-12
Dec
-12
Mar
-13
Jun-
13
7.25
8.75
14
12
10
8
6
Monetary Policy Changes (%)
Source: Central Bank of Turkey
Other Global Developments During the Month
v
v
v
v
In US, non-farm payrolls (NFP) increased by 162K in July 2013, lower than market expectations of an increase of
185K. Total job addition for May 2013 was revised lower to 176K from 195K earlier, while that for June 2013 was
revised to 188K from 195K. As per the household survey, the unemployment rate fell by 20 bps to 7.4 per cent
in July 2013, the lowest level since December 2008.
Both the European Central Bank (ECB) and Bank of England (BoE) kept their key policy rate unchanged at 0.50
per cent in their latest monetary policy reviews held on August 1, 2013.
Meanwhile, the Reserve Bank of Australia (RBA) reduced the benchmark rate by 25 bps to 2.5 per cent in its
meeting held on August 6, 2013. The rate cut was precipitated due to below trend domestic growth along with
inflation remaining within the target levels.
UK construction PMI leapt to 57.0 in July 2013, up from 51.0 in June and its strongest level since June 2010, led
by a surge in residential building. Meanwhile, China's non-manufacturing PMI rebounded to 54.1 in July 2013,
up from 53.9 in June 2013, after falling for three consecutive months. US manufacturing sector PMI too
increased by 4.5 points in July to 55.4, its highest level in two years.
DOMESTIC TRENDS
Monsoon Update: So Far So Good
September. The below graph captures the rain gap,
defined as the percentage deviation from the long-
period average (LPA) vis-à-vis the agriculture growth in
the last decade. 2002-03, 2004-05 and 2009-10 were
particularly bad years in terms of annual rainfall received
hence agricultural growth remained subdued during
those years. Last year, the rainfall gap was 8 per cent
below the LPA resulting in an anemic 1.9 per cent
growth for the farm sector.
With the Indian agriculture continuing to be driven by
the vagaries of monsoons, there is no gainsaying the
importance of normal monsoons for the agricultural
growth. Indian economy still remains a gamble on the
monsoons, as Lord Curzon once famously remarked.
Originating from the southern parts of the Indian
Ocean, the monsoons in India typically begin in end
May/early June and last for about four months till end-
Percentage growth in Agriculture % monsoon deviation from LPA
15
10
5
0
-5
-10
-15
-20
2000
-01
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
2007
-08
2008
-09
2009
-10
2010
-11
2011
-12
2012
-13
Source: Indian Meteorological Department (IMD) Note: Highlighted years were the drought years
India's Rainfall Gap (%)
9 JULY 2013
positive implications for the domestic poultry industry.
Kharif crop output touched an all-time high of 131.3
million tonnes in 2011-12. But kharif production had
fallen in 2012-13 because of the drought in Karnataka,
Maharashtra, Gujarat and Rajasthan. Timely sowing this
year will ensure crops get adequate time to mature. The
higher kharif output this year is expected to cool food
inflation as well.
The area under cotton, another important kharif crop,
has surged by 7.3 per cent to 108.5 lh, and this bodes well
for the textile industry. In 2012-13, domestic cotton
output had declined four per cent to 34 million bales
owing to a drought in the main cotton producing states
of Gujarat and Maharashtra. This had also impacted
cotton exports last year. Further, the coverage of coarse
cereals went up by 20.1 per cent to 163.1 lh. This has
11 JULY 2013
deficiency as "below normal". Anything lower, or less
than 81 cm, usually portends drought conditions.
The cumulative rainfall in the first two months of South-
West monsoons (June-July) was healthy, at 16.7 per cent
above LPA as compared to 19 per cent below LPA in the
same period last year for the country as a whole. Rainfall
was excess/normal in 30 and deficient/scanty in 6 out of
36 meteorological sub-divisions. However, the spatial
distribution of the monsoon has been little skewed so
far, with east and north-eastern states, Haryana and
Tamil Nadu receiving deficient rainfall so far till July 2013.
Maximum deficiency in rainfall was seen in Assam at 40
per cent below LPA, followed by Bihar and Haryana. In
fact, the Delhi-Haryana-Chandigarh sub-division is
facing 25 per cent rainfall deficiency, which provides the
sole exception to the otherwise good rainfall in the
north-west India region, which has recorded 25 per cent
surplus rain. In contrast, states such as Uttarakhand
have been ravaged by devastating floods, which saw
thousands of people losing their lives.
Though the occurrence of normal monsoon is pivotal in
supporting the growth rate of the farm sector every
year, this fiscal it assumes greater importance in the
context of the macroeconomic challenges facing the
economy. As rainfall is the main source of irrigation for
55 per cent of arable land, normal rainfall received so far
has alleviated to some extent the fear of exacerbating
inflationary pressures. As for the current fiscal, as per
the Indian Meteorological Department's (IMD) initial
forecast released in April 2013, normal monsoon was
expected this year at 98 per cent of the LPA of 89 cm,
with a model error of plus or minus five per cent. This
was certainly a good piece of news for the economy
devoid of any silver linings in the past few quarters.
Adding to this good news was the recently released
IMD's mid-season long range forecast (LRF) for 2013
South-West monsoons, forecasting normal rainfall for
August and September. The meteorological
department classifies rainfall within a 4 per cent
window of 89 cm as normal and a 5-15 per cent
100
80
60
20
0
-20
-40
-60
-80
June 1- July 31, 2012 June 1- July 31, 2013
Ass
am
Bih
ar
Har
yana
Tam
il N
adu
Wes
t Ben
gal
Pun
jab
J &
K
Him
acha
l
All
Indi
a
Oris
sa
And
hra
Pra
desh
Kar
anat
aka
Raj
asth
an
Utta
r P
rade
sh
Guj
arat
Kar
ala
Uttr
anch
al
Mah
aras
htra
Mad
hya
Pra
desh
%
Source: IMD & CII calculations
State-Wise Rainfall Deviation from LPA
Cooperation reported that the sowing of kharif crops in
the country has touched 819.9 lakh hectares (lh) as on
02 August 2013, higher when compared to 734.5 lh sown
during the same period last year. Sowing of all the major
kharif crops was higher so far as compared to the
previous fiscal except for sugarcane. The sowing of rice,
the main kharif crop, stood at 238.8 lh, up 3.2 per cent
from the previous year. Over the same period, sowing of
pulses was up by 26.2 per cent and of oilseeds by 19.6
per cent.
Concomitant with relatively strong progress in
monsoons, kharif crop production in the country is
expected to hit a record this year on higher than
expected rains followed by record sowing. Kharif
sowing starts with the onset of June and crop is
harvested during September-October. Past experience
has shown that July rainfall is critical since most sowing
takes place by July, although late sowing continues well
into August. Department of Agriculture and
Crop Area sown in 2013-14 (lakh hectares) Area sown in 2012-13 (lakh hectres) y-o-y% Change
Rice 238.9 231.4 3.2
Pulses 79.5 63.0 26.2
Coarse Cereals 163.1 135.8 20.1
Oilseeds 173.2 144.9 19.6
Sugarcane 48.5 50.1 -3.1
Cotton 108.5 101.1 7.3
Jute & Mesta 8.3 8.4 -0.7
Total 820.0 734.6 11.6
Source: Ministry of Agriculture
Trend in Sowing of Kharif Crops (As on August 2, 2013)
Outlook
The progress of South-West monsoon has been good so far, with the overall country receiving 17 per cent rainfall
above LPA till end of July 2013. However, the skewed spatial pattern of rainfall cannot be missed as we have seen
excess rains causing floods in states such as Uttarakhand, while below normal rains in states such as Assam,
Haryana, West Bengal etc have created problems. Notwithstanding this uneven distribution of rainfall, the sowing
of major kharif crops has remained robust so far, raising hopes for another year of bumper harvest of food grains.
This news of above normal monsoon has come as a silver lining for the otherwise beleaguered economy and should
in all probability have a positive impact on the overall growth prospects of the economy, in addition to cooling of
food inflation.
10ECONOMY MATTERS
positive implications for the domestic poultry industry.
Kharif crop output touched an all-time high of 131.3
million tonnes in 2011-12. But kharif production had
fallen in 2012-13 because of the drought in Karnataka,
Maharashtra, Gujarat and Rajasthan. Timely sowing this
year will ensure crops get adequate time to mature. The
higher kharif output this year is expected to cool food
inflation as well.
The area under cotton, another important kharif crop,
has surged by 7.3 per cent to 108.5 lh, and this bodes well
for the textile industry. In 2012-13, domestic cotton
output had declined four per cent to 34 million bales
owing to a drought in the main cotton producing states
of Gujarat and Maharashtra. This had also impacted
cotton exports last year. Further, the coverage of coarse
cereals went up by 20.1 per cent to 163.1 lh. This has
11 JULY 2013
deficiency as "below normal". Anything lower, or less
than 81 cm, usually portends drought conditions.
The cumulative rainfall in the first two months of South-
West monsoons (June-July) was healthy, at 16.7 per cent
above LPA as compared to 19 per cent below LPA in the
same period last year for the country as a whole. Rainfall
was excess/normal in 30 and deficient/scanty in 6 out of
36 meteorological sub-divisions. However, the spatial
distribution of the monsoon has been little skewed so
far, with east and north-eastern states, Haryana and
Tamil Nadu receiving deficient rainfall so far till July 2013.
Maximum deficiency in rainfall was seen in Assam at 40
per cent below LPA, followed by Bihar and Haryana. In
fact, the Delhi-Haryana-Chandigarh sub-division is
facing 25 per cent rainfall deficiency, which provides the
sole exception to the otherwise good rainfall in the
north-west India region, which has recorded 25 per cent
surplus rain. In contrast, states such as Uttarakhand
have been ravaged by devastating floods, which saw
thousands of people losing their lives.
Though the occurrence of normal monsoon is pivotal in
supporting the growth rate of the farm sector every
year, this fiscal it assumes greater importance in the
context of the macroeconomic challenges facing the
economy. As rainfall is the main source of irrigation for
55 per cent of arable land, normal rainfall received so far
has alleviated to some extent the fear of exacerbating
inflationary pressures. As for the current fiscal, as per
the Indian Meteorological Department's (IMD) initial
forecast released in April 2013, normal monsoon was
expected this year at 98 per cent of the LPA of 89 cm,
with a model error of plus or minus five per cent. This
was certainly a good piece of news for the economy
devoid of any silver linings in the past few quarters.
Adding to this good news was the recently released
IMD's mid-season long range forecast (LRF) for 2013
South-West monsoons, forecasting normal rainfall for
August and September. The meteorological
department classifies rainfall within a 4 per cent
window of 89 cm as normal and a 5-15 per cent
100
80
60
20
0
-20
-40
-60
-80
June 1- July 31, 2012 June 1- July 31, 2013
Ass
am
Bih
ar
Har
yana
Tam
il N
adu
Wes
t Ben
gal
Pun
jab
J &
K
Him
acha
l
All
Indi
a
Oris
sa
And
hra
Pra
desh
Kar
anat
aka
Raj
asth
an
Utta
r P
rade
sh
Guj
arat
Kar
ala
Uttr
anch
al
Mah
aras
htra
Mad
hya
Pra
desh
%
Source: IMD & CII calculations
State-Wise Rainfall Deviation from LPA
Cooperation reported that the sowing of kharif crops in
the country has touched 819.9 lakh hectares (lh) as on
02 August 2013, higher when compared to 734.5 lh sown
during the same period last year. Sowing of all the major
kharif crops was higher so far as compared to the
previous fiscal except for sugarcane. The sowing of rice,
the main kharif crop, stood at 238.8 lh, up 3.2 per cent
from the previous year. Over the same period, sowing of
pulses was up by 26.2 per cent and of oilseeds by 19.6
per cent.
Concomitant with relatively strong progress in
monsoons, kharif crop production in the country is
expected to hit a record this year on higher than
expected rains followed by record sowing. Kharif
sowing starts with the onset of June and crop is
harvested during September-October. Past experience
has shown that July rainfall is critical since most sowing
takes place by July, although late sowing continues well
into August. Department of Agriculture and
Crop Area sown in 2013-14 (lakh hectares) Area sown in 2012-13 (lakh hectres) y-o-y% Change
Rice 238.9 231.4 3.2
Pulses 79.5 63.0 26.2
Coarse Cereals 163.1 135.8 20.1
Oilseeds 173.2 144.9 19.6
Sugarcane 48.5 50.1 -3.1
Cotton 108.5 101.1 7.3
Jute & Mesta 8.3 8.4 -0.7
Total 820.0 734.6 11.6
Source: Ministry of Agriculture
Trend in Sowing of Kharif Crops (As on August 2, 2013)
Outlook
The progress of South-West monsoon has been good so far, with the overall country receiving 17 per cent rainfall
above LPA till end of July 2013. However, the skewed spatial pattern of rainfall cannot be missed as we have seen
excess rains causing floods in states such as Uttarakhand, while below normal rains in states such as Assam,
Haryana, West Bengal etc have created problems. Notwithstanding this uneven distribution of rainfall, the sowing
of major kharif crops has remained robust so far, raising hopes for another year of bumper harvest of food grains.
This news of above normal monsoon has come as a silver lining for the otherwise beleaguered economy and should
in all probability have a positive impact on the overall growth prospects of the economy, in addition to cooling of
food inflation.
10ECONOMY MATTERS
On the expenditure front, the non-plan expenditure
was at Rs 2,674 billion in the April-June 2013 quarter,
which is 24 per cent of the BE of Rs 11,099.8 billion. This
was 23.2 per cent in the corresponding period last year.
Also, the plan expenditure was higher than what it was
in June 2012. The Centre's plan expenditure was Rs
1,148.3 billion in the first quarter of the current fiscal
which was 20.7 per cent of the BE of Rs 5,553 billion. The
upside risk to non-plan expenditure has increased
significantly in the wake of expected implementation of
the Food Security Bill. Additionally, the recent
weakening of the Rupee has raised the upside risk to the
oil import bill, which would pull up the oil subsides too.
Owing to the slow growth witnessed currently, growth
in revenue receipts has at best remained tepid. In the
first quarter of the current fiscal, the revenue receipt
stood at Rs 1172.3 billion which is 11.1 per cent of the BE of
Rs 10,563.3 billion, against 12.7 per cent in April-June
2012 quarter. Tax collections have also remained muted.
Tax revenue stood at only Rs 1,019.1 billion which was
11.5 per cent of the BE of Rs 8840.8 billion in the first-
quarter. However, there was a surge in corporate tax
collection as Rs 507.3 billion was collected till June, two
per cent higher than Rs 494.1 billion collected in the
corresponding period last year. Non-tax revenue
receipts on the other hand stood at Rs 153.2 billion in
the reporting quarter, which was 8.9 per cent of the BE
as compared to 8.6 per cent in same period of last year.
Disinvestment proceeds so far have also remained
under Rs 10 billion, against the target of Rs 400 billion
for the year.
The government was able to deftly trim the fiscal deficit
for 2012-13 at 4.9 per cent of GDP, way below the revised
estimates of 5.2 per cent, mainly due to significant
expenditure compression coupled with higher mop-up
by the way of non-tax revenue collection. In order to
meet the current year target of 4.8 per cent of GDP,
government needs to take major initiatives to prop up
both tax and non tax revenues, so that the onus does
not entirely fall on expenditure moderation. As per the
government's fiscal consolidation plan, fiscal deficit is
expected to decline by 0.6 percentage points every year
to reach 3.0 per cent of GDP in 2016-17.
As per the latest numbers released by the Controller
General of Accounts (CGA), Centre's fiscal deficit during
the first quarter jumped to Rs 2,628 billion or almost half
of the budgeted target for the entire 2013-14 as
compared to 37 per cent in the same period of last fiscal.
The main reason for the high fiscal gap during April-June
was the sluggish revenue growth even though
government spending remained robust. While total
expenditure in the April-June quarter in the current year
stood at 23 per cent of the budget estimate (BE) as
compared to 20.9 per cent in the corresponding period
last year, total receipts have come down from 12.4 per
cent of the BE to 10.6 per cent of the BE in the first
quarter of the current fiscal. Grim revenue growth is
attributable to the sluggish economic growth. Further,
net government market borrowings in the first-quarter
stood at Rs 1,763 billion, which was 35 per cent of the
budgeted levels for the year.
12ECONOMY MATTERS
First Quarter Fiscal Deficit Hits a Record High
(Rs billion) Budget Estimates (BE) April-June (Actual) Percentage to Budget Estimates
2013-14 2013-14 2012-13 2013-14
1. Revenue Receipts (i+ii) 10563.3 1172.3 12.7% 11.1%
(i) Tax Revenue (net) 8840.8 1019.1 13.6% 11.5%
(ii) Non-Tax Revenue 1722.5 153.2 8.6% 8.9%
2. Non-Plan Expenditure 11099.8 2674.0 23.2% 24.1%
3. Plan Expenditure 5553.2 1148.3 16.5% 20.7%
6. Total Expenditure 16653.0 3822.3 20.9% 23.0%
7. Revenue Deficit 3798.4 2104.8 43.6% 55.4%
9. Gross Fiscal Deficit 5425.0 2628.2 37.1% 48.4%
Fiscal Trends in the First Quarter of 2013-14
Source: Controller General of Accounts (CGA)
to 0.5 per cent of the NDTL of the banking system,
reckoned at Rs 375 billion for this purpose. The
allocation to individual banks will be made in
proportion to their bids, subject to the overall
ceiling. This change in LAF came into effect from
July 24, 2013.
The Reserve Bank will conduct Open Market Sales
of Government of India Securities of Rs 120 billion
on July 18, 2013. Details of the securities included for
the OMO sale auction will be announced through a
separate press release tomorrow.
The RBI also raised the daily balance requirement
for the Cash Reserve Ratio to 99 per cent from 70 thper cent, effective July 27 , 2013.
Additionally, the RBI will also auction Rs 60 billion of
Cash Management Bills.
n
n
n
(A). Monetary Tightening
Measures Announced by the RBI
n
n
In the month of July 2013, the Reserve Bank of India
(RBI) announced policy measures to support the Rupee
that has been has been witnessing heavy depreciation
pressure over the last 2 months. Against this backdrop,
the following measures have been announced:
The Marginal Standing Facility (MSF) rate was
recalibrated with immediate effect to be 300 basis
points above the policy repo rate under the
Liquidity Adjustment Facility (LAF). Consequently,
the MSF rate will now be 10.25 per cent.
Accordingly, the Bank Rate also stands adjusted to
10.25 per cent with immediate effect.
The overall allocation of funds under the LAF limited
13 JULY2013
Outlook
Given the current trends, significant shortfall in tax revenues is likely in the current fiscal. Realisation of budgeted
disinvestment proceeds crucially hinges on market conditions. It should, however, be kept in mind that the fiscal
consolidation should not happen at the cost of curtailing government expenditure on plan/capital heads, which,
along with removal of structural impediments, is critical for crowding in private investment to pull the economy out
of the current slowdown.
Key Policy Developments During the Month
CII View
With these measures, the RBI's intention is to tighten the liquidity scenario further and shift the operating interest
rate from repo (i.e. 7.25 per cent) previously to Marginal Standing Facility (i.e. 10.25 per cent) now. With the advent
of tighter liquidity conditions in the system, cost of funding for financial institutions is likely to go up. Along with
this, tighter liquidity also means that interest rates across the board will witness an uptick, which is a negative for
growth. Since this kind of tightening of liquidity is effectively a reversal in the accommodative monetary policy, this
is likely to have adverse growth concerns given the fact that our recovery is now nascent at best.
Cabinet on July 16th and August 2nd, 2013 approved the
proposal for reviewing FDI (Foreign Direct Investment)
caps and routes across various sectors, which are
summed up below.
(B). Relaxation of FDI Norms for
Some Sectors
In order to relax foreign investment norms, the Union
On the expenditure front, the non-plan expenditure
was at Rs 2,674 billion in the April-June 2013 quarter,
which is 24 per cent of the BE of Rs 11,099.8 billion. This
was 23.2 per cent in the corresponding period last year.
Also, the plan expenditure was higher than what it was
in June 2012. The Centre's plan expenditure was Rs
1,148.3 billion in the first quarter of the current fiscal
which was 20.7 per cent of the BE of Rs 5,553 billion. The
upside risk to non-plan expenditure has increased
significantly in the wake of expected implementation of
the Food Security Bill. Additionally, the recent
weakening of the Rupee has raised the upside risk to the
oil import bill, which would pull up the oil subsides too.
Owing to the slow growth witnessed currently, growth
in revenue receipts has at best remained tepid. In the
first quarter of the current fiscal, the revenue receipt
stood at Rs 1172.3 billion which is 11.1 per cent of the BE of
Rs 10,563.3 billion, against 12.7 per cent in April-June
2012 quarter. Tax collections have also remained muted.
Tax revenue stood at only Rs 1,019.1 billion which was
11.5 per cent of the BE of Rs 8840.8 billion in the first-
quarter. However, there was a surge in corporate tax
collection as Rs 507.3 billion was collected till June, two
per cent higher than Rs 494.1 billion collected in the
corresponding period last year. Non-tax revenue
receipts on the other hand stood at Rs 153.2 billion in
the reporting quarter, which was 8.9 per cent of the BE
as compared to 8.6 per cent in same period of last year.
Disinvestment proceeds so far have also remained
under Rs 10 billion, against the target of Rs 400 billion
for the year.
The government was able to deftly trim the fiscal deficit
for 2012-13 at 4.9 per cent of GDP, way below the revised
estimates of 5.2 per cent, mainly due to significant
expenditure compression coupled with higher mop-up
by the way of non-tax revenue collection. In order to
meet the current year target of 4.8 per cent of GDP,
government needs to take major initiatives to prop up
both tax and non tax revenues, so that the onus does
not entirely fall on expenditure moderation. As per the
government's fiscal consolidation plan, fiscal deficit is
expected to decline by 0.6 percentage points every year
to reach 3.0 per cent of GDP in 2016-17.
As per the latest numbers released by the Controller
General of Accounts (CGA), Centre's fiscal deficit during
the first quarter jumped to Rs 2,628 billion or almost half
of the budgeted target for the entire 2013-14 as
compared to 37 per cent in the same period of last fiscal.
The main reason for the high fiscal gap during April-June
was the sluggish revenue growth even though
government spending remained robust. While total
expenditure in the April-June quarter in the current year
stood at 23 per cent of the budget estimate (BE) as
compared to 20.9 per cent in the corresponding period
last year, total receipts have come down from 12.4 per
cent of the BE to 10.6 per cent of the BE in the first
quarter of the current fiscal. Grim revenue growth is
attributable to the sluggish economic growth. Further,
net government market borrowings in the first-quarter
stood at Rs 1,763 billion, which was 35 per cent of the
budgeted levels for the year.
12ECONOMY MATTERS
First Quarter Fiscal Deficit Hits a Record High
(Rs billion) Budget Estimates (BE) April-June (Actual) Percentage to Budget Estimates
2013-14 2013-14 2012-13 2013-14
1. Revenue Receipts (i+ii) 10563.3 1172.3 12.7% 11.1%
(i) Tax Revenue (net) 8840.8 1019.1 13.6% 11.5%
(ii) Non-Tax Revenue 1722.5 153.2 8.6% 8.9%
2. Non-Plan Expenditure 11099.8 2674.0 23.2% 24.1%
3. Plan Expenditure 5553.2 1148.3 16.5% 20.7%
6. Total Expenditure 16653.0 3822.3 20.9% 23.0%
7. Revenue Deficit 3798.4 2104.8 43.6% 55.4%
9. Gross Fiscal Deficit 5425.0 2628.2 37.1% 48.4%
Fiscal Trends in the First Quarter of 2013-14
Source: Controller General of Accounts (CGA)
to 0.5 per cent of the NDTL of the banking system,
reckoned at Rs 375 billion for this purpose. The
allocation to individual banks will be made in
proportion to their bids, subject to the overall
ceiling. This change in LAF came into effect from
July 24, 2013.
The Reserve Bank will conduct Open Market Sales
of Government of India Securities of Rs 120 billion
on July 18, 2013. Details of the securities included for
the OMO sale auction will be announced through a
separate press release tomorrow.
The RBI also raised the daily balance requirement
for the Cash Reserve Ratio to 99 per cent from 70 thper cent, effective July 27 , 2013.
Additionally, the RBI will also auction Rs 60 billion of
Cash Management Bills.
n
n
n
(A). Monetary Tightening
Measures Announced by the RBI
n
n
In the month of July 2013, the Reserve Bank of India
(RBI) announced policy measures to support the Rupee
that has been has been witnessing heavy depreciation
pressure over the last 2 months. Against this backdrop,
the following measures have been announced:
The Marginal Standing Facility (MSF) rate was
recalibrated with immediate effect to be 300 basis
points above the policy repo rate under the
Liquidity Adjustment Facility (LAF). Consequently,
the MSF rate will now be 10.25 per cent.
Accordingly, the Bank Rate also stands adjusted to
10.25 per cent with immediate effect.
The overall allocation of funds under the LAF limited
13 JULY2013
Outlook
Given the current trends, significant shortfall in tax revenues is likely in the current fiscal. Realisation of budgeted
disinvestment proceeds crucially hinges on market conditions. It should, however, be kept in mind that the fiscal
consolidation should not happen at the cost of curtailing government expenditure on plan/capital heads, which,
along with removal of structural impediments, is critical for crowding in private investment to pull the economy out
of the current slowdown.
Key Policy Developments During the Month
CII View
With these measures, the RBI's intention is to tighten the liquidity scenario further and shift the operating interest
rate from repo (i.e. 7.25 per cent) previously to Marginal Standing Facility (i.e. 10.25 per cent) now. With the advent
of tighter liquidity conditions in the system, cost of funding for financial institutions is likely to go up. Along with
this, tighter liquidity also means that interest rates across the board will witness an uptick, which is a negative for
growth. Since this kind of tightening of liquidity is effectively a reversal in the accommodative monetary policy, this
is likely to have adverse growth concerns given the fact that our recovery is now nascent at best.
Cabinet on July 16th and August 2nd, 2013 approved the
proposal for reviewing FDI (Foreign Direct Investment)
caps and routes across various sectors, which are
summed up below.
(B). Relaxation of FDI Norms for
Some Sectors
In order to relax foreign investment norms, the Union
15
Prospects Sink as Firms Struggle to Shield Their Bottom Line
extracted from the Ace Equity database as on July 31,
2013.
Growth in net sales, on an aggregate basis, dropped to
5.0 per cent in the first quarter of 2013-14, as compared
to 19.3 per cent in the first quarter of the previous fiscal.
As a result of depressed domestic demand as well as
weak export growth, this downward trend in growth of
net sales has been persistent for more than ten quarters
now. While the net sales growth in manufacturing sector
plunged to 0.6 per cent in the first quarter of the current
fiscal, as compared to a growth of 14.6 per cent in the
comparable quarter last year, the growth in net sales in
the service sector moderated sharply to 11.0 per cent as
compared to 26.1 per cent in the first quarter of 2012-13.
Indian firms remain plagued by stagnant net sales and
poor domestic demand, in the face of headwinds such as
sliding rupee, weak export growth and high retail
inflation in the first quarter of the current fiscal. While
revenues have been plummeting sharply, corporate
sector continues to pull expenses down against the
backdrop of a clouded economic outlook. In face of
dwindling net sales growth, rise in profitability came as
the much needed respite, attributable mainly to
moderation in expenditure costs.
The analysis of the corporate in this section factors in the
financial performance during the first quarter of 2013-14
and uses a balanced panel of 358 manufacturing
companies (excluding oil & gas) and 166 services firms
CORPORATE PERFORMANCE
JULY 201314ECONOMY MATTERS
Sector Cap Route
1. Petroleum and Natural Gas and Refining 49% Automatic
2. Commodity Exchanges 49% Automatic
3. Power Exchanges 49% Automatic
4. Stock Exchanges, Depositories, Corporation 49% Automatic
5. Asset Reconstruction companies Upto 49% Automatic49% to 100% FIPB
6. Credit Information companies 74% Automatic
7. Single Brand Retail trading Upto 49% Automatic49% to 100% FIPB
8. Basic and Cellular Services, etc. Upto 49% Automatic49% to 100% FIPB
9. Courier Services 100% Automatic
10. Defence Production CCS may approve proposals on case to case basis beyond 26% which
are likely to result in access to modernand state of the art technology in the
country.
11. Telecom Services Upto 49% Automatic49% to 74% FIPB
Source: Press Information Bureau (PIB)
Government Relaxes FDI Norms for Some Sectors
CII View
CII welcomes the decision of the Cabinet to endorse the announcements of the government on raising caps on FDI
for a wide array of sectors and also for moving sectors into the automatic route. This is a commentary on the
commitment of the government to taking reforms forward at a time when the economy is in need of many such
measures. The present situation on the current account deficit front necessitates greater foreign funds flow and
therefore, CII hopes that we shall see FDI interests in these sectors soon, keeping with the medium-term promise
that India presents.
Growth in Net Sales (y-o-y%)
0 5 10 15 20 25 30
Manufacturing
Services
Aggregate
14.6
0.6
26.1
11.0
19.3
5.0
FY14Q1
FY13Q1
Source: Ace Equity database & CII calculations
15
Prospects Sink as Firms Struggle to Shield Their Bottom Line
extracted from the Ace Equity database as on July 31,
2013.
Growth in net sales, on an aggregate basis, dropped to
5.0 per cent in the first quarter of 2013-14, as compared
to 19.3 per cent in the first quarter of the previous fiscal.
As a result of depressed domestic demand as well as
weak export growth, this downward trend in growth of
net sales has been persistent for more than ten quarters
now. While the net sales growth in manufacturing sector
plunged to 0.6 per cent in the first quarter of the current
fiscal, as compared to a growth of 14.6 per cent in the
comparable quarter last year, the growth in net sales in
the service sector moderated sharply to 11.0 per cent as
compared to 26.1 per cent in the first quarter of 2012-13.
Indian firms remain plagued by stagnant net sales and
poor domestic demand, in the face of headwinds such as
sliding rupee, weak export growth and high retail
inflation in the first quarter of the current fiscal. While
revenues have been plummeting sharply, corporate
sector continues to pull expenses down against the
backdrop of a clouded economic outlook. In face of
dwindling net sales growth, rise in profitability came as
the much needed respite, attributable mainly to
moderation in expenditure costs.
The analysis of the corporate in this section factors in the
financial performance during the first quarter of 2013-14
and uses a balanced panel of 358 manufacturing
companies (excluding oil & gas) and 166 services firms
CORPORATE PERFORMANCE
JULY 201314ECONOMY MATTERS
Sector Cap Route
1. Petroleum and Natural Gas and Refining 49% Automatic
2. Commodity Exchanges 49% Automatic
3. Power Exchanges 49% Automatic
4. Stock Exchanges, Depositories, Corporation 49% Automatic
5. Asset Reconstruction companies Upto 49% Automatic49% to 100% FIPB
6. Credit Information companies 74% Automatic
7. Single Brand Retail trading Upto 49% Automatic49% to 100% FIPB
8. Basic and Cellular Services, etc. Upto 49% Automatic49% to 100% FIPB
9. Courier Services 100% Automatic
10. Defence Production CCS may approve proposals on case to case basis beyond 26% which
are likely to result in access to modernand state of the art technology in the
country.
11. Telecom Services Upto 49% Automatic49% to 74% FIPB
Source: Press Information Bureau (PIB)
Government Relaxes FDI Norms for Some Sectors
CII View
CII welcomes the decision of the Cabinet to endorse the announcements of the government on raising caps on FDI
for a wide array of sectors and also for moving sectors into the automatic route. This is a commentary on the
commitment of the government to taking reforms forward at a time when the economy is in need of many such
measures. The present situation on the current account deficit front necessitates greater foreign funds flow and
therefore, CII hopes that we shall see FDI interests in these sectors soon, keeping with the medium-term promise
that India presents.
Growth in Net Sales (y-o-y%)
0 5 10 15 20 25 30
Manufacturing
Services
Aggregate
14.6
0.6
26.1
11.0
19.3
5.0
FY14Q1
FY13Q1
Source: Ace Equity database & CII calculations
16ECONOMY MATTERS 17 JULY 2013
The cost of services and raw materials component
displayed a de-growth to the tune of 4.7 per cent in the
first quarter of 2013-14 as compared to a growth of 13.7
per cent in the corresponding quarter last year.
Similarly, salaries & wages too showed a deceleration in
growth which stood at 15.4 per cent in the reporting
quarter as compared to a growth of 20.9 per cent same
period last year. This could be an early indication of
slowdown impacting the growth in income, even as the
retail inflation continues to hover around the double-
digit mark.
The expenditure costs of the firms, on an aggregate
basis, witnessed moderation to 3.1 per cent in the
reporting quarter, as compared to 20.1 per cent in the
comparable time period last year. This came as a
breather and fairly cushioned the severe impact of lower
net sales growth during the quarter. The decline in
growth of expenditure costs was driven largely by a
decline in the growth of interest cost, which stood at 8.4
per cent in the first quarter of 2013-14 as compared 30.1
per cent in the same period last year. This mirrors the
reduction in interest rates by the RBI in the recent
months and also the slowdown in new projects.
Growth in Expenditure (y-o-y%)
-4.7
20.9
13.7
15.4
25.1
16.4
FY
13Q
1
FY
13Q
2
FY
13Q
3
FY
13Q
4
FY
14Q
1
FY
13Q
1
FY
13Q
2
FY
13Q
3
FY
13Q
4
FY
14Q
1
FY
13Q
1
FY
13Q
2
FY
13Q
3
FY
13Q
4
FY
14Q
1
Services & Raw Materials Wages & Salaries Interest
Source: Ace Equity database & CII calculations
firms, PAT growth moderated to 14.0 per cent as
compared to a growth of 18.8 per cent in the first
quarter of previous year.
Growth in operating profits (profits earned from a firm's
core business operations excluding investments and the
effects of depreciation, interest and taxes) on an
aggregate basis saw a slight moderation to 12.1 per cent
in the April-June, 2013 quarter as compared to a growth
13.9 per cent in the first quarter of last year. PAT growth
decelerated at a much faster rate than growth in
operating profits due to high interest rates prevailing in
the economy.
Encouraging signs were displayed by an improvement in
the bottom line growth across the firms on an aggregate
basis, despite a dip in Profit after Tax (PAT) growth in
service sector, attributable to the improvement in
profitability in the manufacturing sector. The growth in
profitability on an aggregate basis stood at a healthy 12.4
per cent in the reporting quarter as compared to a
growth of 5.7 per cent in the comparable quarter of
previous fiscal. This was driven by an improved PAT
growth to the tune of 10.9 per cent in the manufacturing
sector against a contraction of 4.0 per cent in the first
quarter of 2012-13. However, across the service sector
Growth in PAT (y-o-y%)
Source: Ace Equity database & CII calculations
Growth in PBDIT (y-o-y%)
-10 -5 0 5 10 15 20
-4.0
10.9
18.8
14.0
5.712.4
FY14Q1
FY13Q1
Manufacturing
Services
Aggregate
Manufacturing
Services
Aggregate
FY14Q1
FY13Q1
0 5 10 15 20 25
4.9
1.5
22.5
20.6
13.9
12.1
profitability, despite falling net sales, has been possible
only since the contraction in outlays has surpassed
contraction in net sales. Consequently, ignoring the
anomalous data for the third quarter of 2012-13, the
growth in PAT has shown an upward trend since the
decline in growth of expenditure costs has exceeded
the decline in growth of net sales.
For over two previous financial years, growth in net sales
has shown a consistent decline. Interest rate cuts,
moderation in cost of services and raw materials and
cost efficient measures employed by the firms in order
to mitigate the poor demand scenario, have yielded in
simultaneous stable reduction in expenditure costs.
However, the growth of profitability has displayed
varying trends. Our analysis reveals that a rise in
Growth on Aggregate Basis (y-o-y%)
0
10
20
30
40
-10
-30
-20
22.8
5.7
12.4
FY12Q1 FY12Q2 FY12Q3 FY12Q4 FY13Q1 FY13Q2 FY13Q3 FY13Q4 FY14Q1
Net Sales Expenditure PAT
Source: Ace Equity database & CII calculations
quarter as compared with corresponding quarter in the
previous year. The betterment in margins mirrored the
improved profitability in the reporting quarter.
Both net margin (ratio of PAT to net sales) and gross
margins (ratio of operating profits to net sales) saw an
improvement across manufacturing as well as service
firms, and thus also on aggregate basis in the reporting
16ECONOMY MATTERS 17 JULY 2013
The cost of services and raw materials component
displayed a de-growth to the tune of 4.7 per cent in the
first quarter of 2013-14 as compared to a growth of 13.7
per cent in the corresponding quarter last year.
Similarly, salaries & wages too showed a deceleration in
growth which stood at 15.4 per cent in the reporting
quarter as compared to a growth of 20.9 per cent same
period last year. This could be an early indication of
slowdown impacting the growth in income, even as the
retail inflation continues to hover around the double-
digit mark.
The expenditure costs of the firms, on an aggregate
basis, witnessed moderation to 3.1 per cent in the
reporting quarter, as compared to 20.1 per cent in the
comparable time period last year. This came as a
breather and fairly cushioned the severe impact of lower
net sales growth during the quarter. The decline in
growth of expenditure costs was driven largely by a
decline in the growth of interest cost, which stood at 8.4
per cent in the first quarter of 2013-14 as compared 30.1
per cent in the same period last year. This mirrors the
reduction in interest rates by the RBI in the recent
months and also the slowdown in new projects.
Growth in Expenditure (y-o-y%)
-4.7
20.9
13.7
15.4
25.1
16.4
FY
13Q
1
FY
13Q
2
FY
13Q
3
FY
13Q
4
FY
14Q
1
FY
13Q
1
FY
13Q
2
FY
13Q
3
FY
13Q
4
FY
14Q
1
FY
13Q
1
FY
13Q
2
FY
13Q
3
FY
13Q
4
FY
14Q
1
Services & Raw Materials Wages & Salaries Interest
Source: Ace Equity database & CII calculations
firms, PAT growth moderated to 14.0 per cent as
compared to a growth of 18.8 per cent in the first
quarter of previous year.
Growth in operating profits (profits earned from a firm's
core business operations excluding investments and the
effects of depreciation, interest and taxes) on an
aggregate basis saw a slight moderation to 12.1 per cent
in the April-June, 2013 quarter as compared to a growth
13.9 per cent in the first quarter of last year. PAT growth
decelerated at a much faster rate than growth in
operating profits due to high interest rates prevailing in
the economy.
Encouraging signs were displayed by an improvement in
the bottom line growth across the firms on an aggregate
basis, despite a dip in Profit after Tax (PAT) growth in
service sector, attributable to the improvement in
profitability in the manufacturing sector. The growth in
profitability on an aggregate basis stood at a healthy 12.4
per cent in the reporting quarter as compared to a
growth of 5.7 per cent in the comparable quarter of
previous fiscal. This was driven by an improved PAT
growth to the tune of 10.9 per cent in the manufacturing
sector against a contraction of 4.0 per cent in the first
quarter of 2012-13. However, across the service sector
Growth in PAT (y-o-y%)
Source: Ace Equity database & CII calculations
Growth in PBDIT (y-o-y%)
-10 -5 0 5 10 15 20
-4.0
10.9
18.8
14.0
5.712.4
FY14Q1
FY13Q1
Manufacturing
Services
Aggregate
Manufacturing
Services
Aggregate
FY14Q1
FY13Q1
0 5 10 15 20 25
4.9
1.5
22.5
20.6
13.9
12.1
profitability, despite falling net sales, has been possible
only since the contraction in outlays has surpassed
contraction in net sales. Consequently, ignoring the
anomalous data for the third quarter of 2012-13, the
growth in PAT has shown an upward trend since the
decline in growth of expenditure costs has exceeded
the decline in growth of net sales.
For over two previous financial years, growth in net sales
has shown a consistent decline. Interest rate cuts,
moderation in cost of services and raw materials and
cost efficient measures employed by the firms in order
to mitigate the poor demand scenario, have yielded in
simultaneous stable reduction in expenditure costs.
However, the growth of profitability has displayed
varying trends. Our analysis reveals that a rise in
Growth on Aggregate Basis (y-o-y%)
0
10
20
30
40
-10
-30
-20
22.8
5.7
12.4
FY12Q1 FY12Q2 FY12Q3 FY12Q4 FY13Q1 FY13Q2 FY13Q3 FY13Q4 FY14Q1
Net Sales Expenditure PAT
Source: Ace Equity database & CII calculations
quarter as compared with corresponding quarter in the
previous year. The betterment in margins mirrored the
improved profitability in the reporting quarter.
Both net margin (ratio of PAT to net sales) and gross
margins (ratio of operating profits to net sales) saw an
improvement across manufacturing as well as service
firms, and thus also on aggregate basis in the reporting
18ECONOMY MATTERS
Simultaneously, there are also expectations of some
more economic reforms from the policymakers that
would elevate the economy, help pick-up sales and
boost the infrastructure and profitability for the Indian
corporate in the months to come.
Struck with lackluster demand in the economy,
diminishing balance of trade, burgeoning trade deficit,
weak sales, efforts are in force by firms to improve their
own production efficiencies and employ cost effective
measures to tide over the current difficult times.
The textile and clothing (T&C) industry is one of the
leading sectors of the Indian economy and constitutes
major part of the industrial sector. It contributes
significantly to the industrial output, employment
generation and foreign exchange earnings in India.
About 14 per cent of industrial production, 4 per cent of
GDP, 9 per cent of excise collections and 11 per cent of
the country's export earnings are contributed by the
T&C sector. It is also the second largest provider of
employment, after the agricultural sector, with direct
employment of over 35 million people (another 50
million are engaged in allied activities), which includes a
substantial number of SC/ST, women, and economically
weaker section of population. India's position in the
global T&C scenario is indeed praiseworthy as it remains
the world's second largest producer of textiles after
China. It is also the world's largest producer of jute,
second largest producer of silk, third largest producer of
cotton-after China and the US. In the man-made fibre
sector, India is the third largest producer of Cellulosic
Fibre/Yarn and fifth largest producer of Synthetic Fibres.
However the sector faced severe headwinds from the
global financial crisis of 2008-09, only to recover in the
subsequent years but once again face the heat from the
current bout of slowdown. Exports especially faced the
major brunt of the slowdown, with T&C exports
declining by over 4 per cent in 2008-09. Due to the
stimulus doled out by the government, exports picked
up in the subsequent years, growing by a massive 57 per
cent by 2011-12. However, during the calendar year 2012,
the volatility in the EU market severely affected India's
SECTOR IN FOCUS
TextilesT&C exports to EU, resulting in a US$1.3 billion shortfall
of India's T&C exports to EU. In 2012-13, textiles exports
fell by 4.8 per cent over the previous year. Thus, the
textile sector is still facing headwinds, due to weak
demand in global markets, mainly from US and Europe.
The major sub-sectors of the textiles sector are cotton
industry, the jute & jute textiles industry, the man-made
fibre / filament yarn industry, the wool & woolen textiles
industry, the sericulture & silk textiles industry, and the
handlooms & handicrafts. These segments have all
registered positive growth in output post the Multi-
Fibre Agreement (MFA) regime, which expired on
January 1, 2005. Under the MFA regime, India and other
developing countries had faced restrictions on exports
of yarn, textiles and apparels from the developed world.
Cotton textiles continue to form the predominant
base of the Indian textile industry, though other
types of fabric have gained share in recent years. It is
one of the principal crops of India and plays a vital role in
the country's economic growth by providing substantial
employment and making significant contributions to
export earnings. There has been a significant yield
improvement in India since the adoption of genetically
modified (GM) and hybrid cotton (BT) varieties in 2003-
04. Consequent to the introduction of these new and
superior varieties of cotton, the sector was able to
Trends in Production
Cotton
19 JULY 2013
Manufacturing
Services
Aggregate
0 5 10 15 20
FY14Q1
FY13Q1
11.7
12.8
14.1
14.5
12.713.6
Source: Ace Equity database & CII calculations
Gross Margin (%) Net Margin (%)
Manufacturing
Services
Aggregate
0 10 20 30 40
18.8
19.0
30.9
33.6
24.025.7
FY14Q1
FY13Q1
18ECONOMY MATTERS
Simultaneously, there are also expectations of some
more economic reforms from the policymakers that
would elevate the economy, help pick-up sales and
boost the infrastructure and profitability for the Indian
corporate in the months to come.
Struck with lackluster demand in the economy,
diminishing balance of trade, burgeoning trade deficit,
weak sales, efforts are in force by firms to improve their
own production efficiencies and employ cost effective
measures to tide over the current difficult times.
The textile and clothing (T&C) industry is one of the
leading sectors of the Indian economy and constitutes
major part of the industrial sector. It contributes
significantly to the industrial output, employment
generation and foreign exchange earnings in India.
About 14 per cent of industrial production, 4 per cent of
GDP, 9 per cent of excise collections and 11 per cent of
the country's export earnings are contributed by the
T&C sector. It is also the second largest provider of
employment, after the agricultural sector, with direct
employment of over 35 million people (another 50
million are engaged in allied activities), which includes a
substantial number of SC/ST, women, and economically
weaker section of population. India's position in the
global T&C scenario is indeed praiseworthy as it remains
the world's second largest producer of textiles after
China. It is also the world's largest producer of jute,
second largest producer of silk, third largest producer of
cotton-after China and the US. In the man-made fibre
sector, India is the third largest producer of Cellulosic
Fibre/Yarn and fifth largest producer of Synthetic Fibres.
However the sector faced severe headwinds from the
global financial crisis of 2008-09, only to recover in the
subsequent years but once again face the heat from the
current bout of slowdown. Exports especially faced the
major brunt of the slowdown, with T&C exports
declining by over 4 per cent in 2008-09. Due to the
stimulus doled out by the government, exports picked
up in the subsequent years, growing by a massive 57 per
cent by 2011-12. However, during the calendar year 2012,
the volatility in the EU market severely affected India's
SECTOR IN FOCUS
TextilesT&C exports to EU, resulting in a US$1.3 billion shortfall
of India's T&C exports to EU. In 2012-13, textiles exports
fell by 4.8 per cent over the previous year. Thus, the
textile sector is still facing headwinds, due to weak
demand in global markets, mainly from US and Europe.
The major sub-sectors of the textiles sector are cotton
industry, the jute & jute textiles industry, the man-made
fibre / filament yarn industry, the wool & woolen textiles
industry, the sericulture & silk textiles industry, and the
handlooms & handicrafts. These segments have all
registered positive growth in output post the Multi-
Fibre Agreement (MFA) regime, which expired on
January 1, 2005. Under the MFA regime, India and other
developing countries had faced restrictions on exports
of yarn, textiles and apparels from the developed world.
Cotton textiles continue to form the predominant
base of the Indian textile industry, though other
types of fabric have gained share in recent years. It is
one of the principal crops of India and plays a vital role in
the country's economic growth by providing substantial
employment and making significant contributions to
export earnings. There has been a significant yield
improvement in India since the adoption of genetically
modified (GM) and hybrid cotton (BT) varieties in 2003-
04. Consequent to the introduction of these new and
superior varieties of cotton, the sector was able to
Trends in Production
Cotton
19 JULY 2013
Manufacturing
Services
Aggregate
0 5 10 15 20
FY14Q1
FY13Q1
11.7
12.8
14.1
14.5
12.713.6
Source: Ace Equity database & CII calculations
Gross Margin (%) Net Margin (%)
Manufacturing
Services
Aggregate
0 10 20 30 40
18.8
19.0
30.9
33.6
24.025.7
FY14Q1
FY13Q1
21
which muga with its golden yellow glitter is unique and
prerogative of India. During 2012-13 (April- Jan'13), raw
silk production in the country was 17,887 MT compared
to 17,483 MT in 2011-12 recording an increase of 2.3 per
cent. Weak demand due to growth slowdown,
weakening of Indian Rupee, higher production costs and
tough competition from China are some of the problems thplaguing the sector currently. The 12 Five year plan has
taken some important steps to address these problems
such as inclusion of sericulture industry as agriculture &
allied activity under Rashtriya Krishi Vikas Yojana (RKVY).
Sericulture & Silk
India is the second largest producer of silk in the world
and has 17.5 per cent share in global raw silk production,
only next to China. It is also the largest consumer of raw
silk in the world. But as production lags behind
consumption, the balance is imported from China. India
has the unique distinction of being the only country
producing all the five known commercial silks, namely,
mulberry, tropical tasar, oak tasar, eri and muga, of
Rajasthan, Punjab, Jammu & Kashmir, Karnataka,
Gujarat, Uttar Pradesh, Uttaranchal, Andhra Pradesh,
Maharashtra and Haryana. India is the seventh-largest
producer of wool and accounts for nearly 2 per cent of
total world production.
Wool
The woolen sector is a highly organized and
decentralized sector and major part of this industry is
rural based. The main wool producing states of India are
the organized mills and the decentralized hosiery sector
is very limited, India depends largely on import;
Australia and New Zealand being the major suppliers.
The production trends of this industry have been largely
inconsistent over the last few years. Since the
indigenous production of fine quality wool required by
20ECONOMY MATTERS
production levels in the last fiscal, the increase in cotton
production over the past years has shifted India from
being a small net importer of cotton in the early 2000s to
being a substantial net exporter in recent years.
Currently, India is the second largest exporter of cotton
behind the US.
increase its production levels over the years. However,
in the financial year 2012-13, cotton production is
expected to moderate to 334 lakh Bales as compared to
353 lakh bales in 2011-12, mainly due to lower cotton
prices leading to lower cultivation area and slower
global demand. Notwithstanding the decline in
Source: Based on reports of Ministry of Textiles and Cotton Advisory Board (2012-13)
Production of Cotton
estimated world production. Bulk of the manufactured
jute goods is predominantly being used in packaging
purposes in domestic market. Between 2008-09 and
2012-13, jute production shrank by 2.6 per cent. Further,
Bangladesh has emerged as a significant competitor to
the traditional jute industry in India. Thus, in years to
come it is imperative that concerted efforts are taken by
the government to improve the sectors output.
Furthering of the National Jute Policy announced in 2005
is an important step in this direction.
Jute
The Jute industry occupies an important place in the
national economy of India. It is one of the major
industries in the eastern region, particularly in West
Bengal and Raw jute crop is an important cash crop to
the farmers. Cultivation of raw jute crop provides not
only fibre which has industrial use, but jute stick which is
used as fuel and building material by the farming
community. India is the leading jute goods producing
country in the world, accounting for about 70 per cent of
Trends in Production of Jute Goods
Source: Office of the Jute Commissioner, MoT
JULY 2013
Production of Raw Silk
Source: Central Silk Board
Lakh Bales
400
300
200
Production of Cotton
2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
Qty. in 000'
M.tons
2000
1800
1600
1400
1200
1000
Total Production
MT
25000
20000
15000
Total Raw Silk Produce
2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
The Woollen Industry in India Broadly Falls Under Two Sectors:
Organised Sector Decentralized Sector
Composite Mills Hosiery and Knitting
Combing units Powerlooms
Worsted and non worsted spinning units Hand Knotted Carpets, Druggets and Namdahs
Knitwear and Woven Garments Units Independent dyeing process houses
Machine made carpets manufacturing units
21
which muga with its golden yellow glitter is unique and
prerogative of India. During 2012-13 (April- Jan'13), raw
silk production in the country was 17,887 MT compared
to 17,483 MT in 2011-12 recording an increase of 2.3 per
cent. Weak demand due to growth slowdown,
weakening of Indian Rupee, higher production costs and
tough competition from China are some of the problems thplaguing the sector currently. The 12 Five year plan has
taken some important steps to address these problems
such as inclusion of sericulture industry as agriculture &
allied activity under Rashtriya Krishi Vikas Yojana (RKVY).
Sericulture & Silk
India is the second largest producer of silk in the world
and has 17.5 per cent share in global raw silk production,
only next to China. It is also the largest consumer of raw
silk in the world. But as production lags behind
consumption, the balance is imported from China. India
has the unique distinction of being the only country
producing all the five known commercial silks, namely,
mulberry, tropical tasar, oak tasar, eri and muga, of
Rajasthan, Punjab, Jammu & Kashmir, Karnataka,
Gujarat, Uttar Pradesh, Uttaranchal, Andhra Pradesh,
Maharashtra and Haryana. India is the seventh-largest
producer of wool and accounts for nearly 2 per cent of
total world production.
Wool
The woolen sector is a highly organized and
decentralized sector and major part of this industry is
rural based. The main wool producing states of India are
the organized mills and the decentralized hosiery sector
is very limited, India depends largely on import;
Australia and New Zealand being the major suppliers.
The production trends of this industry have been largely
inconsistent over the last few years. Since the
indigenous production of fine quality wool required by
20ECONOMY MATTERS
production levels in the last fiscal, the increase in cotton
production over the past years has shifted India from
being a small net importer of cotton in the early 2000s to
being a substantial net exporter in recent years.
Currently, India is the second largest exporter of cotton
behind the US.
increase its production levels over the years. However,
in the financial year 2012-13, cotton production is
expected to moderate to 334 lakh Bales as compared to
353 lakh bales in 2011-12, mainly due to lower cotton
prices leading to lower cultivation area and slower
global demand. Notwithstanding the decline in
Source: Based on reports of Ministry of Textiles and Cotton Advisory Board (2012-13)
Production of Cotton
estimated world production. Bulk of the manufactured
jute goods is predominantly being used in packaging
purposes in domestic market. Between 2008-09 and
2012-13, jute production shrank by 2.6 per cent. Further,
Bangladesh has emerged as a significant competitor to
the traditional jute industry in India. Thus, in years to
come it is imperative that concerted efforts are taken by
the government to improve the sectors output.
Furthering of the National Jute Policy announced in 2005
is an important step in this direction.
Jute
The Jute industry occupies an important place in the
national economy of India. It is one of the major
industries in the eastern region, particularly in West
Bengal and Raw jute crop is an important cash crop to
the farmers. Cultivation of raw jute crop provides not
only fibre which has industrial use, but jute stick which is
used as fuel and building material by the farming
community. India is the leading jute goods producing
country in the world, accounting for about 70 per cent of
Trends in Production of Jute Goods
Source: Office of the Jute Commissioner, MoT
JULY 2013
Production of Raw Silk
Source: Central Silk Board
Lakh Bales
400
300
200
Production of Cotton
2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
Qty. in 000'
M.tons
2000
1800
1600
1400
1200
1000
Total Production
MT
25000
20000
15000
Total Raw Silk Produce
2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
The Woollen Industry in India Broadly Falls Under Two Sectors:
Organised Sector Decentralized Sector
Composite Mills Hosiery and Knitting
Combing units Powerlooms
Worsted and non worsted spinning units Hand Knotted Carpets, Druggets and Namdahs
Knitwear and Woven Garments Units Independent dyeing process houses
Machine made carpets manufacturing units
22ECONOMY MATTERS
thTotal Production declined marginally at the end of 11
Five Year Plan (2011-12) to 44.7 million kg from 45.1 thmillion kg in the 10 Five Year Plan (2006-07). At present,
the main problems plaguing the woolen sector are the
high import duty structure, presence of long chain of
intermediaries and availability of wool in desired quality
and quantity, which have all prevented the industry from
improving its cost-competitiveness.
23
Trends in Exports
In the global exports of Textiles, India has been ranked
as the third largest exporter, trailing EU-27 and China
while in the global exports of Clothing, India is ranked as
the fifth largest exporter as per latest WTO data (2011).
T&C exports have come a long way with their total value
rising from US$17.52 billion in 2004-05 to US$31.7 billion
in 2012-13, thus recording a massive growth of more
than 80 per cent. However, as per the provisional data,
textile exports in 2012-13 came lower than the target of
US$40.5 billion for the year and registered a decline of
4.8 per cent over the previous year.
Government has been continually supporting the
textiles exports through various policy initiatives to
enable the sector to increase market share in the global
textiles markets. Some of the measures have been
introduced in the Union Budget 2013-14 and in the
annual supplement to the Foreign Trade Policy 2009-14.
These measures include schemes such as incentives
under Focus Market Scheme and Focus Product
Scheme; enhancing the coverage of Market Linked
Focus Product Scheme for textile products and
extension of Market Linked Focus Product Scheme etc.
to increase India's share in various countries amongst
other measures.
The USA and the EU account for about two-thirds of
India's textiles & clothing exports. Exports to the US
have further increased since 2005, post the
termination of the MFA. The other major export
destinations include China, U.A.E., Sri Lanka, Saudi
Arabia, Republic of Korea, Bangladesh, Turkey,
Pakistan, Brazil, Hong-Kong, Canada and Egypt etc.
Handloom
The handloom sector is the second highest employer in
the country after agriculture. The sector accounts for 13
per cent of the total cloth produced in the country,
excluding wool, silk and handspun yarn. The richness
and diversity in this sector has been kept alive by skilled
weavers engaged in the age old tradition of weaving.
The sector is weighed down by several problems such as
obsolete technology and unorganised production
system. The economic downturn in 2008 had left all the
sectors badly hit and the handloom sector was no
exception. However, with revised policies and increased
allocation of funds, the production increased to 6.9
million sq. meters in 2012-13, up from 6.6 billion sq.
meters in 2008-09.
Fabric & Yarn
India is among the top producers of yarns & fabrics in the
world and accounts for 12 per cent of the world's
production of textile fibres & yarn. Man-made yarn has
driven much of this, showing a robust growth of 4.3 per
cent in the last five years. Spun yarn production has also
shown a steady growth, increasing by over 17 per cent
between 2007-08 and 2011-12. In 2012-13, the production
of spun yarn stood at 4850 mn kgs. During this period,
fabric production increased by over 4 per cent, driven
primarily by small scale, decentralized power loom
sector.
Financial Performance
Overall financial performance of the Indian T&C industry
was robust in the last fiscal year. Net sales saw an
upsurge from Rs 640.8 billion in 2008-09 to Rs 1211.4
billion in 2012-13, thus growing by an astronomical 89
per cent during the four year period. Analysis reveals
that during 2009-10 and 2012-13, net sales recorded a
high growth primarily due to growth in the domestic
market, along with overall rise in exports. Profit after
Tax (PAT), in general, exhibited a robust performance
after 2010, growing by over a 1000 per cent in 2012-13
over the previous year. The rise in PAT could be credited
to the fall in the growth of raw materials costs,
accompanied by a fall in growth of interest costs.
JULY 2013
Production of Indigenous Wool
Source: Dept. of Animal Husbandry, Ministry of Agriculture
Million Kg
45
44
43
42
Production Quantity
2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
Production of Yarn
Source: Office of the Textile Commissioner Note: P- Provisional
Million Kgs
5000
4000
3000
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13(P)
Total Spun Yarn Production
Production of Fabrics
Million Sq. Mtrs.
64000
62000
60000
58000
56000
54000
52000
50000
Total Fabric Production
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13(P)
Source: Ministry of Textiles, GoI Note: The years are calendar years
Top 10 Exports Destinations for India's T&C
(US$ million) 2011 2012 % Change
US 5779 5994 3.7
China 2928 3907 33.5
UAE 2162 2172 0.5
UK 2087 2080 -0.4
Germany 1959 1567 -20.0
Bangladesh 1101 1659 50.7
Italy 1030 774 -24.8
France 1017 823 -19.1
Spain 814 732 -10.0
Turkey 731 659 -9.9
Netherlands 728 626 -14.0
22ECONOMY MATTERS
thTotal Production declined marginally at the end of 11
Five Year Plan (2011-12) to 44.7 million kg from 45.1 thmillion kg in the 10 Five Year Plan (2006-07). At present,
the main problems plaguing the woolen sector are the
high import duty structure, presence of long chain of
intermediaries and availability of wool in desired quality
and quantity, which have all prevented the industry from
improving its cost-competitiveness.
23
Trends in Exports
In the global exports of Textiles, India has been ranked
as the third largest exporter, trailing EU-27 and China
while in the global exports of Clothing, India is ranked as
the fifth largest exporter as per latest WTO data (2011).
T&C exports have come a long way with their total value
rising from US$17.52 billion in 2004-05 to US$31.7 billion
in 2012-13, thus recording a massive growth of more
than 80 per cent. However, as per the provisional data,
textile exports in 2012-13 came lower than the target of
US$40.5 billion for the year and registered a decline of
4.8 per cent over the previous year.
Government has been continually supporting the
textiles exports through various policy initiatives to
enable the sector to increase market share in the global
textiles markets. Some of the measures have been
introduced in the Union Budget 2013-14 and in the
annual supplement to the Foreign Trade Policy 2009-14.
These measures include schemes such as incentives
under Focus Market Scheme and Focus Product
Scheme; enhancing the coverage of Market Linked
Focus Product Scheme for textile products and
extension of Market Linked Focus Product Scheme etc.
to increase India's share in various countries amongst
other measures.
The USA and the EU account for about two-thirds of
India's textiles & clothing exports. Exports to the US
have further increased since 2005, post the
termination of the MFA. The other major export
destinations include China, U.A.E., Sri Lanka, Saudi
Arabia, Republic of Korea, Bangladesh, Turkey,
Pakistan, Brazil, Hong-Kong, Canada and Egypt etc.
Handloom
The handloom sector is the second highest employer in
the country after agriculture. The sector accounts for 13
per cent of the total cloth produced in the country,
excluding wool, silk and handspun yarn. The richness
and diversity in this sector has been kept alive by skilled
weavers engaged in the age old tradition of weaving.
The sector is weighed down by several problems such as
obsolete technology and unorganised production
system. The economic downturn in 2008 had left all the
sectors badly hit and the handloom sector was no
exception. However, with revised policies and increased
allocation of funds, the production increased to 6.9
million sq. meters in 2012-13, up from 6.6 billion sq.
meters in 2008-09.
Fabric & Yarn
India is among the top producers of yarns & fabrics in the
world and accounts for 12 per cent of the world's
production of textile fibres & yarn. Man-made yarn has
driven much of this, showing a robust growth of 4.3 per
cent in the last five years. Spun yarn production has also
shown a steady growth, increasing by over 17 per cent
between 2007-08 and 2011-12. In 2012-13, the production
of spun yarn stood at 4850 mn kgs. During this period,
fabric production increased by over 4 per cent, driven
primarily by small scale, decentralized power loom
sector.
Financial Performance
Overall financial performance of the Indian T&C industry
was robust in the last fiscal year. Net sales saw an
upsurge from Rs 640.8 billion in 2008-09 to Rs 1211.4
billion in 2012-13, thus growing by an astronomical 89
per cent during the four year period. Analysis reveals
that during 2009-10 and 2012-13, net sales recorded a
high growth primarily due to growth in the domestic
market, along with overall rise in exports. Profit after
Tax (PAT), in general, exhibited a robust performance
after 2010, growing by over a 1000 per cent in 2012-13
over the previous year. The rise in PAT could be credited
to the fall in the growth of raw materials costs,
accompanied by a fall in growth of interest costs.
JULY 2013
Production of Indigenous Wool
Source: Dept. of Animal Husbandry, Ministry of Agriculture
Million Kg
45
44
43
42
Production Quantity
2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
Production of Yarn
Source: Office of the Textile Commissioner Note: P- Provisional
Million Kgs
5000
4000
3000
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13(P)
Total Spun Yarn Production
Production of Fabrics
Million Sq. Mtrs.
64000
62000
60000
58000
56000
54000
52000
50000
Total Fabric Production
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13(P)
Source: Ministry of Textiles, GoI Note: The years are calendar years
Top 10 Exports Destinations for India's T&C
(US$ million) 2011 2012 % Change
US 5779 5994 3.7
China 2928 3907 33.5
UAE 2162 2172 0.5
UK 2087 2080 -0.4
Germany 1959 1567 -20.0
Bangladesh 1101 1659 50.7
Italy 1030 774 -24.8
France 1017 823 -19.1
Spain 814 732 -10.0
Turkey 731 659 -9.9
Netherlands 728 626 -14.0
25 JULY2013
The National Food Security Ordinance (NFSO) provides a legal entitlement to persons belonging to specified
households to receive specific quantities of foodgrain at subsidised prices from the state. The specifics of the
entitlement are given below:
Entitlement: 5 kg per person per month
Price: Rs 3 per kg for rice, Rs 2 per kg for wheat and Rs 1 per kg for coarse grains
Coverage: 75 per cent of the rural population and 50 per cent of the urban population, amounting to about two-
third of a population of 1.2 billion people (or 800 million people)
The poorest of poor households (who are currently covered under the Antyodaya Anna Yajna) would continue to
receive 35 kg food grains per household per month at the subsidized prices of Rs 3, Rs 2 and Rs 1.
24ECONOMY MATTERS
Parliament had begun debating the Bill in the last few
days of the Budget session, it could not be passed. While
the government has passed an ordinance, the law will be
debated in the monsoon session of Parliament which thbegan on August 5 . This note will highlight the key
features of the law and its expected welfare benefits as
well as concerns expressed by different stakeholders.
In keeping with the UPA's entitlement based approach,
the government recently promulgated an ordinance on
National Food Security. The ordinance route has been
chosen by the government even though the monsoon thsession of Parliament began on August 5 , 2013. The Bill
was originally introduced in Parliament in December
2011 and the standing committee has submitted its
recommendations. However, although members of
The National Food Security Ordinance – Benefits and Concerns
SPECIAL ARTICLE
NFSO, 67 per cent of the population will be entitled
to support without any categorisation.
Second, the AAY and BPL households are allocated
35 kg foodgrains per month while allocation to APL
households is subject to availability of food grains.
Under the NFSO, only AAY households will continue
n
Three critical differences with the existing targeted
public distribution system (TPDS) may be pointed out.
One, in the existing TPDS, there are two categories
of beneficiaries: below poverty line (BPL) including
the poorest beneficiaries under Antyodaya Anna
Yojana (AAY) and above poverty line (APL). Under
n
Source: Ace equity database & CII calculations
Financial Performance of the Textiles Industry
Net Sales (Rs billion) 640.8 750.7 963.9 1070.5 1211.4
Net sales growth (%) 8.5 17.2 28.4 11.1 13.2
Operating profit growth (%) -8.8 57.2 37.4 -13.6 30.3
PAT growth (%) -184.5 -253.6 102.5 -95.8 1088.5
Cost of raw materials and services 5.6 16.9 35.0 16.1 6.9growth (%)
Cost of interest growth (%) 45.7 9.6 15.7 41.3 13.6
2008-09 2009-10 2010-11 2011-12 2012-13
stakeholders in the entire textile value chain with
varied expectations and work to reduce the
fragmentation that has impacted the sector.
A reduced duty structure is a common suggestion.
Also, there is a need to reduce excise duty on man-
made fibres.
Create new textiles cities in the proposed Mumbai -
Delhi Industrial corridor and the new Mumbai -
Bangalore Industrial corridor.
As the garment industry will drive growth in the
textile sector, it has to play the lead role ahead. The
industry needs to move into rural areas and work
closely with State Governments for this.
Policy measures should encourage the development
of the synthetic industry. We need to look at multi-
fibre and work on a fibre neutral policy. Therefore,
there is an urgent need to announce the National
Fibre Policy to address all the areas relating to raw
material.
There is an urgent need to create a "Made in India"
Brand in Textiles to dictate the Indian story
worldwide. There is large potential in the
international market. Further disruption of textiles
production in Bangladesh and the subsequent fall in
the foreign demand of its products has given India a
comparative advantage.
In the end, industry has to come up with a code of
conduct as industry is fragmented. There is a need
for the creation of one national level apex body that
can be the nodal organization to work towards a
larger cause / common goals. This body can help in
the revamping of various sectoral and regional
textile promotion councils.
n
n
n
n
n
n
The government announced several measures to
support the textiles sector in the Union Budget 2013-14,
like extending the term of the Technology Up gradation thFund Scheme (TUFS) to the 12 Plan period with an
investment target of Rs. 1,51,000 crore, allocation of Rs.
50 crore to the Ministry of Textile to incentivize setting
up of Apparel Parks within the SITPs, a new scheme with
an outlay of Rs. 500 crore called the Integrated
Processing Development Scheme proposed to be t himplemented in the 12 Plan to address the
environmental concerns of the textile industry and
extending concessional loans to the distressed
handloom sector, amongst other measures. Further, in
the Foreign Trade Policy for 2013-14, some more
welcome steps were announced by the sector like
extension of the 2 per cent Interest Subvention Scheme
applicable to specific textile sectors such as handlooms,
readymade garments, carpets etc by one more year, i.e., stup to 31 March, 2014. However, it is important that
these measures are supplemented by some 'out of the
box' steps too. Some of the measures which CII
recommends in this regard are enumerated below:
ILO allows 50 hours overtime per month while Indian
law allows 50 hours overtime per quarter. The
Ministry of Textiles needs to work with the Labour
ministry to resolve this issue. The issue of time
flexibility also needs to be addressed.
Textile industry has been power intensive and since,
power cost constitutes a significant part of the total
conversion cost in textile industry, we need to work
on a Government - industry sharing model on power
generation.
The existing textile policy was announced in the year
2000 needs a major revamp. The comprehensive
policy should recognize the multitude of
n
n
n
Key Features of the Ordinance
25 JULY2013
The National Food Security Ordinance (NFSO) provides a legal entitlement to persons belonging to specified
households to receive specific quantities of foodgrain at subsidised prices from the state. The specifics of the
entitlement are given below:
Entitlement: 5 kg per person per month
Price: Rs 3 per kg for rice, Rs 2 per kg for wheat and Rs 1 per kg for coarse grains
Coverage: 75 per cent of the rural population and 50 per cent of the urban population, amounting to about two-
third of a population of 1.2 billion people (or 800 million people)
The poorest of poor households (who are currently covered under the Antyodaya Anna Yajna) would continue to
receive 35 kg food grains per household per month at the subsidized prices of Rs 3, Rs 2 and Rs 1.
24ECONOMY MATTERS
Parliament had begun debating the Bill in the last few
days of the Budget session, it could not be passed. While
the government has passed an ordinance, the law will be
debated in the monsoon session of Parliament which thbegan on August 5 . This note will highlight the key
features of the law and its expected welfare benefits as
well as concerns expressed by different stakeholders.
In keeping with the UPA's entitlement based approach,
the government recently promulgated an ordinance on
National Food Security. The ordinance route has been
chosen by the government even though the monsoon thsession of Parliament began on August 5 , 2013. The Bill
was originally introduced in Parliament in December
2011 and the standing committee has submitted its
recommendations. However, although members of
The National Food Security Ordinance – Benefits and Concerns
SPECIAL ARTICLE
NFSO, 67 per cent of the population will be entitled
to support without any categorisation.
Second, the AAY and BPL households are allocated
35 kg foodgrains per month while allocation to APL
households is subject to availability of food grains.
Under the NFSO, only AAY households will continue
n
Three critical differences with the existing targeted
public distribution system (TPDS) may be pointed out.
One, in the existing TPDS, there are two categories
of beneficiaries: below poverty line (BPL) including
the poorest beneficiaries under Antyodaya Anna
Yojana (AAY) and above poverty line (APL). Under
n
Source: Ace equity database & CII calculations
Financial Performance of the Textiles Industry
Net Sales (Rs billion) 640.8 750.7 963.9 1070.5 1211.4
Net sales growth (%) 8.5 17.2 28.4 11.1 13.2
Operating profit growth (%) -8.8 57.2 37.4 -13.6 30.3
PAT growth (%) -184.5 -253.6 102.5 -95.8 1088.5
Cost of raw materials and services 5.6 16.9 35.0 16.1 6.9growth (%)
Cost of interest growth (%) 45.7 9.6 15.7 41.3 13.6
2008-09 2009-10 2010-11 2011-12 2012-13
stakeholders in the entire textile value chain with
varied expectations and work to reduce the
fragmentation that has impacted the sector.
A reduced duty structure is a common suggestion.
Also, there is a need to reduce excise duty on man-
made fibres.
Create new textiles cities in the proposed Mumbai -
Delhi Industrial corridor and the new Mumbai -
Bangalore Industrial corridor.
As the garment industry will drive growth in the
textile sector, it has to play the lead role ahead. The
industry needs to move into rural areas and work
closely with State Governments for this.
Policy measures should encourage the development
of the synthetic industry. We need to look at multi-
fibre and work on a fibre neutral policy. Therefore,
there is an urgent need to announce the National
Fibre Policy to address all the areas relating to raw
material.
There is an urgent need to create a "Made in India"
Brand in Textiles to dictate the Indian story
worldwide. There is large potential in the
international market. Further disruption of textiles
production in Bangladesh and the subsequent fall in
the foreign demand of its products has given India a
comparative advantage.
In the end, industry has to come up with a code of
conduct as industry is fragmented. There is a need
for the creation of one national level apex body that
can be the nodal organization to work towards a
larger cause / common goals. This body can help in
the revamping of various sectoral and regional
textile promotion councils.
n
n
n
n
n
n
The government announced several measures to
support the textiles sector in the Union Budget 2013-14,
like extending the term of the Technology Up gradation thFund Scheme (TUFS) to the 12 Plan period with an
investment target of Rs. 1,51,000 crore, allocation of Rs.
50 crore to the Ministry of Textile to incentivize setting
up of Apparel Parks within the SITPs, a new scheme with
an outlay of Rs. 500 crore called the Integrated
Processing Development Scheme proposed to be t himplemented in the 12 Plan to address the
environmental concerns of the textile industry and
extending concessional loans to the distressed
handloom sector, amongst other measures. Further, in
the Foreign Trade Policy for 2013-14, some more
welcome steps were announced by the sector like
extension of the 2 per cent Interest Subvention Scheme
applicable to specific textile sectors such as handlooms,
readymade garments, carpets etc by one more year, i.e., stup to 31 March, 2014. However, it is important that
these measures are supplemented by some 'out of the
box' steps too. Some of the measures which CII
recommends in this regard are enumerated below:
ILO allows 50 hours overtime per month while Indian
law allows 50 hours overtime per quarter. The
Ministry of Textiles needs to work with the Labour
ministry to resolve this issue. The issue of time
flexibility also needs to be addressed.
Textile industry has been power intensive and since,
power cost constitutes a significant part of the total
conversion cost in textile industry, we need to work
on a Government - industry sharing model on power
generation.
The existing textile policy was announced in the year
2000 needs a major revamp. The comprehensive
policy should recognize the multitude of
n
n
n
Key Features of the Ordinance
27 JULY 2013
While committing such a large amount of resources
(likely to be about 1 per cent of GDP) to food security, the
government would need to ensure an efficient delivery
mechanism. While some states have done well in
targeting beneficiaries, current data suggests that there
are substantial leakages from the PDS. For example,
while the off-take of rice and wheat under PDS was 42.4
million tons in 2009-10, NSS data shows that only 25.3
million tons of PDS grains were actually consumed. This
suggests a leakage of 40.3 per cent. Although the
Ordinance contains provisions for application of ICT and
use of Aadhar, implementation on the ground remains a
challenge.
26ECONOMY MATTERS
MSP of Paddy and Wheat (Rs per quintal)
2000-01 510 540 550
2001-02 530 560 580
2002-03 550 580 610
2003-04 550 580 620 (+Rs.10 as drought relief)
2004-05 560 590 630
2005-06 570 600 640
2006-07 580 (+Rs. 40 bonus) 610 (+Rs. 40 bonus) 650 (+ Rs.50 as bonus)
2007-08 645 (+Rs. 100 bonus) 675 (+Rs. 100 bonus) Rs.750 (+Rs.100 as bonus)
2008-09 850 (+Rs. 50 bonus) 880 (+Rs. 50 bonus) 1000
2009-10 950 (+Rs. 50 bonus) 980 (+Rs. 50 bonus) 1080
2010-11 1000 1030 1100
2011-12 1080 1110 Rs.1120 (+Rs.50 as bonus)
2012-13 1250 1280 1285
2013-14 1350
Paddy - common Paddy - Grade A Wheat
to get 35 kg while all others will have a 5 kg per
person entitlement.
Third, different prices are charged to different
categories of households. Currently, the per kg
Central Issue Prices of wheat / rice are Rs 2/3 for
AAY, Rs.4.15/ 5.65 for BPL households and Rs.6.10/
8.30 for APL households respectively. Under the
new scheme, all categories will be charged a
uniform price.
One of the expected benefits from the new legislation is
that it moves the PDS away from the APL-BPL system,
which was fraught with problems of identification. It has
been noticed in recent surveys that states which gave up
the targeting principle and made the PDS as universal as
possible have been able to reduce leakages more
successfully. Currently, although all BPL households are
entitled to subsidised food grain from the PDS, much
more than half do not access the system due to lack of
proper identification. The new system will be based on
excluding the top 33 per cent of the population rather
than identifying the poor. It will, therefore, also include a
large number of people who may be above the poverty
line but still need adequate nutrition.
Further, the prices proposed under the new legislation
are highly subsidised so that it is expected to leave
additional income in the hands of beneficiaries. The price
that was earlier applicable only to AAY households will
now be applicable to all beneficiaries. CRISIL Research
has estimated that the NFSO could generate additional
annual savings of about Rs 4,400 for every BPL
household that purchases subsidised food grain,
enabling them to allocate more to other areas such as
health, education and nutritious food.
The Ordinance has a special focus on nutritional support
to women and children, which is not limited to food
rations. Pregnant women and lactating mothers will be
entitled to nutritious meals as per the prescribed
nutritional norms and also receive maternity benefit of
at least of Rs 6,000. Children in the age group of 6
months to 14 years will be entitled to take home ration or
hot cooked food as per prescribed nutritional norms.
n
Expected Benefits
2. Lack of Crop Diversification
A related concern is that food security defined purely in
terms of cereal availability will require the government
to provide incentives to farmers to keep producing
adequate quantities of grain to the detriment of other
crops. Already, this has been the trend, with the
government increasing minimum support prices (MSP)
of wheat and rice year after year (see below table). Even
so, there has not been any spectacular increase in the
production of food grain (see graph on the next page).
Children suffering from malnutrition will be entitled to
meals through the local anganwadi.
If implemented properly, there is no doubt that the
NFSO will address the concerns on hunger and
malnutrition. However, there are some serious
challenges to its implementation. The main issue is that
food distribution continues to be dependent on the
existing PDS, which is known for its inefficiency and
leakages. The NFSO will require a significant increase in
the scale of procurement and distribution of grains,
creating huge pressure on the existing infrastructure
which is already considered inadequate. Several
unintended macroeconomic consequences such as
rising food subsidy, lack of crop diversification and
increasing food inflation may also follow. We examine
these in the following section.
The food subsidy bill under NFSO is expected to increase
substantially on account of the increase in the number of
beneficiaries, lower price to beneficiaries envisaged
under the new scheme together with the need to
increase MSP to farmers to incentivise them to increase
production. The government has estimated the annual
food grain requirement under NFSO at 612.3 lakh tons
and the corresponding food subsidy at Rs 124,724 crore
for 2013-14 costs. This is higher than the estimated food
subsidy of Rs 90,000 crore in the Budget for 2013-14 and
is clearly an indication that subsidies can be expected to
rise in the coming years.
The graph below shows that food subsidy has already
been on a rising trend, having more than doubled in the
last five years and increased five times in the last ten.
Record procurements in recent years, increasing cost of
handling grains and widening difference between the
procurement cost of grains and the central issue price
have been the major factors leading to the ballooning
food subsidy. The food security legislation will
substantially increase this burden, contrary to the
Finance Ministry's intention of getting subsidies under
control.
Causes for Concern
1. Rising Food Subsidy
Rising Food Subsidy Under NFSO
1,40,000
1,20,000
1,00,000
80,000
60,000
40,000
20,000
0
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
2007
-08
2008
-09
2009
-10
2010
-11
2012
-13 R
E
2013
-14 B
E
2013
-14 N
FSO
2011
-12
Rs crores
Source: Ministry of Finance, Ministry of Consumer Affairs, Food and Public DistributionNote: BE- Budget Estimates, RE- Revised Estimates
Source: Food Cooperation of India (FCI)
27 JULY 2013
While committing such a large amount of resources
(likely to be about 1 per cent of GDP) to food security, the
government would need to ensure an efficient delivery
mechanism. While some states have done well in
targeting beneficiaries, current data suggests that there
are substantial leakages from the PDS. For example,
while the off-take of rice and wheat under PDS was 42.4
million tons in 2009-10, NSS data shows that only 25.3
million tons of PDS grains were actually consumed. This
suggests a leakage of 40.3 per cent. Although the
Ordinance contains provisions for application of ICT and
use of Aadhar, implementation on the ground remains a
challenge.
26ECONOMY MATTERS
MSP of Paddy and Wheat (Rs per quintal)
2000-01 510 540 550
2001-02 530 560 580
2002-03 550 580 610
2003-04 550 580 620 (+Rs.10 as drought relief)
2004-05 560 590 630
2005-06 570 600 640
2006-07 580 (+Rs. 40 bonus) 610 (+Rs. 40 bonus) 650 (+ Rs.50 as bonus)
2007-08 645 (+Rs. 100 bonus) 675 (+Rs. 100 bonus) Rs.750 (+Rs.100 as bonus)
2008-09 850 (+Rs. 50 bonus) 880 (+Rs. 50 bonus) 1000
2009-10 950 (+Rs. 50 bonus) 980 (+Rs. 50 bonus) 1080
2010-11 1000 1030 1100
2011-12 1080 1110 Rs.1120 (+Rs.50 as bonus)
2012-13 1250 1280 1285
2013-14 1350
Paddy - common Paddy - Grade A Wheat
to get 35 kg while all others will have a 5 kg per
person entitlement.
Third, different prices are charged to different
categories of households. Currently, the per kg
Central Issue Prices of wheat / rice are Rs 2/3 for
AAY, Rs.4.15/ 5.65 for BPL households and Rs.6.10/
8.30 for APL households respectively. Under the
new scheme, all categories will be charged a
uniform price.
One of the expected benefits from the new legislation is
that it moves the PDS away from the APL-BPL system,
which was fraught with problems of identification. It has
been noticed in recent surveys that states which gave up
the targeting principle and made the PDS as universal as
possible have been able to reduce leakages more
successfully. Currently, although all BPL households are
entitled to subsidised food grain from the PDS, much
more than half do not access the system due to lack of
proper identification. The new system will be based on
excluding the top 33 per cent of the population rather
than identifying the poor. It will, therefore, also include a
large number of people who may be above the poverty
line but still need adequate nutrition.
Further, the prices proposed under the new legislation
are highly subsidised so that it is expected to leave
additional income in the hands of beneficiaries. The price
that was earlier applicable only to AAY households will
now be applicable to all beneficiaries. CRISIL Research
has estimated that the NFSO could generate additional
annual savings of about Rs 4,400 for every BPL
household that purchases subsidised food grain,
enabling them to allocate more to other areas such as
health, education and nutritious food.
The Ordinance has a special focus on nutritional support
to women and children, which is not limited to food
rations. Pregnant women and lactating mothers will be
entitled to nutritious meals as per the prescribed
nutritional norms and also receive maternity benefit of
at least of Rs 6,000. Children in the age group of 6
months to 14 years will be entitled to take home ration or
hot cooked food as per prescribed nutritional norms.
n
Expected Benefits
2. Lack of Crop Diversification
A related concern is that food security defined purely in
terms of cereal availability will require the government
to provide incentives to farmers to keep producing
adequate quantities of grain to the detriment of other
crops. Already, this has been the trend, with the
government increasing minimum support prices (MSP)
of wheat and rice year after year (see below table). Even
so, there has not been any spectacular increase in the
production of food grain (see graph on the next page).
Children suffering from malnutrition will be entitled to
meals through the local anganwadi.
If implemented properly, there is no doubt that the
NFSO will address the concerns on hunger and
malnutrition. However, there are some serious
challenges to its implementation. The main issue is that
food distribution continues to be dependent on the
existing PDS, which is known for its inefficiency and
leakages. The NFSO will require a significant increase in
the scale of procurement and distribution of grains,
creating huge pressure on the existing infrastructure
which is already considered inadequate. Several
unintended macroeconomic consequences such as
rising food subsidy, lack of crop diversification and
increasing food inflation may also follow. We examine
these in the following section.
The food subsidy bill under NFSO is expected to increase
substantially on account of the increase in the number of
beneficiaries, lower price to beneficiaries envisaged
under the new scheme together with the need to
increase MSP to farmers to incentivise them to increase
production. The government has estimated the annual
food grain requirement under NFSO at 612.3 lakh tons
and the corresponding food subsidy at Rs 124,724 crore
for 2013-14 costs. This is higher than the estimated food
subsidy of Rs 90,000 crore in the Budget for 2013-14 and
is clearly an indication that subsidies can be expected to
rise in the coming years.
The graph below shows that food subsidy has already
been on a rising trend, having more than doubled in the
last five years and increased five times in the last ten.
Record procurements in recent years, increasing cost of
handling grains and widening difference between the
procurement cost of grains and the central issue price
have been the major factors leading to the ballooning
food subsidy. The food security legislation will
substantially increase this burden, contrary to the
Finance Ministry's intention of getting subsidies under
control.
Causes for Concern
1. Rising Food Subsidy
Rising Food Subsidy Under NFSO
1,40,000
1,20,000
1,00,000
80,000
60,000
40,000
20,000
0
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
2007
-08
2008
-09
2009
-10
2010
-11
2012
-13 R
E
2013
-14 B
E
2013
-14 N
FSO
2011
-12
Rs crores
Source: Ministry of Finance, Ministry of Consumer Affairs, Food and Public DistributionNote: BE- Budget Estimates, RE- Revised Estimates
Source: Food Cooperation of India (FCI)
29 JULY 2013
4. Possibility of Triggering
Imports
Conclusion
Since there will now be a legal entitlement to food, the
government will be forced to import grains if there is a
shortfall in domestic production. Of course, this is not an
immediate concern since food grain stocks are now
more than adequate to meet the requirement. The
Ministry has estimated an annual requirement of 61.2
million tons for food security while the FCI is currently
carrying a stock of over 70 million tons. The government
is currently procuring almost one-third of total
production, amounting to about 65 million tons every
year. However, given the high level of dependence of
Indian agriculture on the monsoon, the possibility of a
decline in production in a drought year is quite high. As
we have experienced earlier, when India enters the
global market for either rice or wheat, it has an adverse
impact on the price.
Implementation of the NFSO will be a real challenge in
terms of distribution and logistics. Currently, the
government is not able to distribute all the grain that it
procures, resulting in a large pile up of stocks with the
Food Corporation of India (FCI). As against a buffer stock
norm of 31.9 million tons of grain (rice & wheat) on 31
July of each year, total stock with the FCI was 73.9 million
tons as on 31 July 2013. This excess stock of over 40
million tons has resulted in higher carrying cost for the
FCI and a higher outgo on food subsidy. The FCI is also
facing an acute shortage of storage space, resulting in
high level of wastage. Investment in storage and
warehousing facilities has not kept up with the
requirement.
Given the difficulties in efficiently moving large
quantities of grain, this would have been a good time to
move away from physical distribution of food to income
transfers in the form of either conditional cash transfers
or food coupons. With the rollout of the Unique Identity/
Aadhar Numbers, the government could have
introduced direct transfer of income to beneficiaries
rather than move ahead with an enlargement of the
current procurement and distribution of grain. Such
experiments have proved to be successful in other parts
of the world, such as Latin America and East Asia, while
pilot projects in India have shown a reduction in
leakages.
The management of the food economy over the last few
years has had its consequences for the entire economy.
With food inflation remaining high, the central bank has
refused to ease monetary policy and industry has had to
pay a price. The process of growth has slowed down,
taking a toll on job creation and income generation. Even
as GDP growth slowed down to a decadal low of 5.0 per
cent in 2012-13 with industrial growth at 2.0 per cent,
inflation remained high due to the existence of supply-
side bottlenecks in the agricultural sector.
The failure to reform agriculture is now having an impact
on the entire economy. It is likely that the poor have
been hit the hardest by the rise in prices of essential
commodities together with a failure to create adequate
work opportunities.
28ECONOMY MATTERS JUNE 2013
Production of Food grains
Million Tones
270
250
230
210
190
170
150
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
2007
-08
2008
-09
2009
-10
2010
-11
2011
-12
2012
-13
2000
-01
Creals Foodgrain
Source: Ministry of Agriculture
While current production of cereals is just adequate to
meet the demands of the NFSO, future production will
have to keep increasing to meet the increasing
entitlements under the law. With the government
providing incentives by increasing the MSP of wheat and
rice, production of non-cereal crops as well as
diversification into farm-related activities such as dairy,
horticulture and poultry may suffer.
What is required is a strategy to encourage crop
diversification that would match the increasing demand
for non-cereal food items such as fruits and vegetables,
pulses, edible oils and protein-based foods. NSS data
shows that while per capita consumption of cereals is
falling, the reverse is true for non-cereal food items. This
change in dietary pattern is in line with the overall rise in
per capita incomes and is expected to continue. Without
adequate diversification into non-cereals, we may not
be able to meet the nutritional needs of our growing
population.
For the last few years, the country has been plagued by
the problem of food inflation, which has hurt the poor.
Inflation has been particularly acute in non-cereal items
where demand has exceeded supply. The WPI data
shows a high level of volatility in food categories such as
fruits, vegetables, eggs, meat and fish. The graph shows
that any permanent reduction in food inflation has not
been achieved, despite some moderation from time to
time. The NFSO could potentially aggravate this
problem by further moving resources away from non-
cereals. Thus while the poor would get access to
cheaper food grain, they would have to pay more for
non-grain items.
3. Rise in Food Inflation
Food Inflation – WPI & CPI
Source: Ministry of Commerce and Ministry of Statistics
y-o-y%
0
-5
5
10
15
20
25
Jan-
10
Mar
-10
May
-10
Jul-1
0
Sep
-10
Nov
-10
Jan-
11
Mar
-11
May
-11
Jul-1
1
Sep
-11
Nov
-11
Jan-
12
Mar
-12
May
-12
Jul-1
2
Sep
-12
Nov
-12
Jan-
13
Mar
-13
May
-13
WPI - Primary Food articles CPI - Food, Beverages and Tobacco
29 JULY 2013
4. Possibility of Triggering
Imports
Conclusion
Since there will now be a legal entitlement to food, the
government will be forced to import grains if there is a
shortfall in domestic production. Of course, this is not an
immediate concern since food grain stocks are now
more than adequate to meet the requirement. The
Ministry has estimated an annual requirement of 61.2
million tons for food security while the FCI is currently
carrying a stock of over 70 million tons. The government
is currently procuring almost one-third of total
production, amounting to about 65 million tons every
year. However, given the high level of dependence of
Indian agriculture on the monsoon, the possibility of a
decline in production in a drought year is quite high. As
we have experienced earlier, when India enters the
global market for either rice or wheat, it has an adverse
impact on the price.
Implementation of the NFSO will be a real challenge in
terms of distribution and logistics. Currently, the
government is not able to distribute all the grain that it
procures, resulting in a large pile up of stocks with the
Food Corporation of India (FCI). As against a buffer stock
norm of 31.9 million tons of grain (rice & wheat) on 31
July of each year, total stock with the FCI was 73.9 million
tons as on 31 July 2013. This excess stock of over 40
million tons has resulted in higher carrying cost for the
FCI and a higher outgo on food subsidy. The FCI is also
facing an acute shortage of storage space, resulting in
high level of wastage. Investment in storage and
warehousing facilities has not kept up with the
requirement.
Given the difficulties in efficiently moving large
quantities of grain, this would have been a good time to
move away from physical distribution of food to income
transfers in the form of either conditional cash transfers
or food coupons. With the rollout of the Unique Identity/
Aadhar Numbers, the government could have
introduced direct transfer of income to beneficiaries
rather than move ahead with an enlargement of the
current procurement and distribution of grain. Such
experiments have proved to be successful in other parts
of the world, such as Latin America and East Asia, while
pilot projects in India have shown a reduction in
leakages.
The management of the food economy over the last few
years has had its consequences for the entire economy.
With food inflation remaining high, the central bank has
refused to ease monetary policy and industry has had to
pay a price. The process of growth has slowed down,
taking a toll on job creation and income generation. Even
as GDP growth slowed down to a decadal low of 5.0 per
cent in 2012-13 with industrial growth at 2.0 per cent,
inflation remained high due to the existence of supply-
side bottlenecks in the agricultural sector.
The failure to reform agriculture is now having an impact
on the entire economy. It is likely that the poor have
been hit the hardest by the rise in prices of essential
commodities together with a failure to create adequate
work opportunities.
28ECONOMY MATTERS JUNE 2013
Production of Food grains
Million Tones
270
250
230
210
190
170
150
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
2007
-08
2008
-09
2009
-10
2010
-11
2011
-12
2012
-13
2000
-01
Creals Foodgrain
Source: Ministry of Agriculture
While current production of cereals is just adequate to
meet the demands of the NFSO, future production will
have to keep increasing to meet the increasing
entitlements under the law. With the government
providing incentives by increasing the MSP of wheat and
rice, production of non-cereal crops as well as
diversification into farm-related activities such as dairy,
horticulture and poultry may suffer.
What is required is a strategy to encourage crop
diversification that would match the increasing demand
for non-cereal food items such as fruits and vegetables,
pulses, edible oils and protein-based foods. NSS data
shows that while per capita consumption of cereals is
falling, the reverse is true for non-cereal food items. This
change in dietary pattern is in line with the overall rise in
per capita incomes and is expected to continue. Without
adequate diversification into non-cereals, we may not
be able to meet the nutritional needs of our growing
population.
For the last few years, the country has been plagued by
the problem of food inflation, which has hurt the poor.
Inflation has been particularly acute in non-cereal items
where demand has exceeded supply. The WPI data
shows a high level of volatility in food categories such as
fruits, vegetables, eggs, meat and fish. The graph shows
that any permanent reduction in food inflation has not
been achieved, despite some moderation from time to
time. The NFSO could potentially aggravate this
problem by further moving resources away from non-
cereals. Thus while the poor would get access to
cheaper food grain, they would have to pay more for
non-grain items.
3. Rise in Food Inflation
Food Inflation – WPI & CPI
Source: Ministry of Commerce and Ministry of Statistics
y-o-y%
0
-5
5
10
15
20
25
Jan-
10
Mar
-10
May
-10
Jul-1
0
Sep
-10
Nov
-10
Jan-
11
Mar
-11
May
-11
Jul-1
1
Sep
-11
Nov
-11
Jan-
12
Mar
-12
May
-12
Jul-1
2
Sep
-12
Nov
-12
Jan-
13
Mar
-13
May
-13
WPI - Primary Food articles CPI - Food, Beverages and Tobacco
30ECONOMY MATTERS
ECONOMY MONITORGLOBAL GDP (y-o-y%)
DOMESTIC GDP GROWTH (y-o-y%)
WPI INFLATION (y-o-y%)
INDEX OF INDUSTRIAL PRODUCTION (IIP) (y-o-y%)
US GDP Growth Japan GDP Growth
IndustryOverall GDP
Overall
-0.1-0.5 -0.7 -0.9 -1.1
1Q12 2Q12 3Q12 4Q12 1Q13
Euro Area GDP Growth
3.23.9
0.2 0.4 0.4
1Q12 2Q12 3Q12 4Q12 1Q13
China GDP Growth
5.1
5.45.2
4.7 4.8
4QFY12 1QFY13 2QFY13 3QFY13 4QFY13
2.0
2.9
1.7 1.81.4
4QFY12 1QFY13 2QFY13 3QFY13 4QFY13
Agriculture
2.1
1.8
1.3
2.52.7
4QFY12 1QFY13 2QFY13 3QFY13 4QFY13
7.3
7.7 7.6
6.7 6.6
4QFY12 1QFY13 2QFY13 3QFY13 4QFY13
Services
Primary Fuel Manufacturing
General Manufacturing Electricity Mining
-2.2
3.4
1.9
Feb-13 Mar-13 Apr-13 Jun-13May-13 Feb-13 Mar-13 Apr-13 Jun-13May-13 Feb-13 Mar-13 Apr-13 Jun-13May-13 Feb-13 Mar-13 Apr-13 Jun-13May-13
2.1
4.3
2.3
-3.6
-3.2
3.5 4.2
6.2
-7.7
-2.1
-3.3
-4.1
-5.9
2.8 3.12.0
1.3 1.4
2Q12 3Q12 4Q12 1Q13 2Q13
7.6 7.4 7.9 7.7 7.5
2Q12 3Q12 4Q12 1Q13 2Q13
7.3
5.74.8 4.7 4.9
Feb-13 Mar-13 Apr-13 May-13 Jun-13
10.5
7.4
5.1
6.7
8.1
Feb-13 Mar-13 Apr-13 May-13 Jun-13Feb-13 Mar-13 Apr-13 May-13 Jun-13
10.6
7.88.3
7.3 7.14.8
4.33.7
3.12.8
Feb-13 Mar-13 Apr-13 May-13 Jun-13
31 JULY 2013
10.3
17.820.1
12.312.2
Exports (%) Imports (%) Trade Deficit (US$ Bn)
21.7
17.121.1
31.8
18.2
4QFY12 1QFY13 2QFY13 3QFY13 4QFY13
Current Account Deficit (US$ Bn) Avg Exchange Rate (Rs/US$)
EXTERNAL ACCOUNT
Source: RBI, CSO, SEBI, Office of Economic Advisor, Bureau of Economic Analysis, Euro Stat, Bank of Japan, National Bureau of Statistics
MONETARY VARIABLES
CAPITAL FLOWS (US$ billion)
OTHER IMPORTANT INDICATORS (y-o-y%)
Feb-13 Mar-13 Apr-13 Jun-13May-13
Non-Food Credit Growth (y-o-y%) M3 Growth (y-o-y%) Repo Rate (%) Cash Reserve Ratio (%)
4.00 4.00 4.00 4.00
Net FII Flows Net FDI Flows Forex Reserves ECB flows
2.3
0.5
1.0
2.8
4QFY12 2QFY13 3QFY13
4.00
4.2
4QFY131QFY13
Core Sector Growth Cement Production Growth Steel Production GrowthCommercial VehiclesProduction Growth
-2.4
6.9
1.7
-1.1-2.9
11.0
6.9
Mar-13 Apr-13 May-13 Jul-13Jun-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13
16.114.0 14.7 15.5 14.6
Apr-13 Jun-13May-13Feb-13 Mar-13
12.4 12.512.1
12.812.5
Apr-13 Jul-13Jun-13May-13Mar-13
7.50 7.25 7.25 7.25 7.25
Mar-13 Apr-13 May-13 Jun-13 Jul-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13
2.7 2.05.2
-7.5
-3.0
Mar-13 Apr-13 May-13 Jun-13 Jul-13
2.6
1.3
2.82.12.0
292.6296.4
287.9284.6
277.2
Mar-13 Apr-13 May-13 Jun-13 Jul-13
3.22.3 2.3
0.1
Feb-13 Mar-13 Apr-13 May-13 Jun-13
3.1
8.3
5.2
2.4 2.3
Feb-13 Mar-13 Apr-13 May-13 Jun-13
0.5
6.6
1.9
4.03.4
Feb-13 Mar-13 Apr-13 May-13 Jun-13
-23.6
-7.8
11.5
2.5
-15.4
Feb-13 Mar-13 Apr-13 May-13 Jun-13
54.4 54.455.0
58.4
59.8
0.6
-1.6-2.2
0.0
-4.6
-0.4
11.6
-6.2
30ECONOMY MATTERS
ECONOMY MONITORGLOBAL GDP (y-o-y%)
DOMESTIC GDP GROWTH (y-o-y%)
WPI INFLATION (y-o-y%)
INDEX OF INDUSTRIAL PRODUCTION (IIP) (y-o-y%)
US GDP Growth Japan GDP Growth
IndustryOverall GDP
Overall
-0.1-0.5 -0.7 -0.9 -1.1
1Q12 2Q12 3Q12 4Q12 1Q13
Euro Area GDP Growth
3.23.9
0.2 0.4 0.4
1Q12 2Q12 3Q12 4Q12 1Q13
China GDP Growth
5.1
5.45.2
4.7 4.8
4QFY12 1QFY13 2QFY13 3QFY13 4QFY13
2.0
2.9
1.7 1.81.4
4QFY12 1QFY13 2QFY13 3QFY13 4QFY13
Agriculture
2.1
1.8
1.3
2.52.7
4QFY12 1QFY13 2QFY13 3QFY13 4QFY13
7.3
7.7 7.6
6.7 6.6
4QFY12 1QFY13 2QFY13 3QFY13 4QFY13
Services
Primary Fuel Manufacturing
General Manufacturing Electricity Mining
-2.2
3.4
1.9
Feb-13 Mar-13 Apr-13 Jun-13May-13 Feb-13 Mar-13 Apr-13 Jun-13May-13 Feb-13 Mar-13 Apr-13 Jun-13May-13 Feb-13 Mar-13 Apr-13 Jun-13May-13
2.1
4.3
2.3
-3.6
-3.2
3.5 4.2
6.2
-7.7
-2.1
-3.3
-4.1
-5.9
2.8 3.12.0
1.3 1.4
2Q12 3Q12 4Q12 1Q13 2Q13
7.6 7.4 7.9 7.7 7.5
2Q12 3Q12 4Q12 1Q13 2Q13
7.3
5.74.8 4.7 4.9
Feb-13 Mar-13 Apr-13 May-13 Jun-13
10.5
7.4
5.1
6.7
8.1
Feb-13 Mar-13 Apr-13 May-13 Jun-13Feb-13 Mar-13 Apr-13 May-13 Jun-13
10.6
7.88.3
7.3 7.14.8
4.33.7
3.12.8
Feb-13 Mar-13 Apr-13 May-13 Jun-13
31 JULY 2013
10.3
17.820.1
12.312.2
Exports (%) Imports (%) Trade Deficit (US$ Bn)
21.7
17.121.1
31.8
18.2
4QFY12 1QFY13 2QFY13 3QFY13 4QFY13
Current Account Deficit (US$ Bn) Avg Exchange Rate (Rs/US$)
EXTERNAL ACCOUNT
Source: RBI, CSO, SEBI, Office of Economic Advisor, Bureau of Economic Analysis, Euro Stat, Bank of Japan, National Bureau of Statistics
MONETARY VARIABLES
CAPITAL FLOWS (US$ billion)
OTHER IMPORTANT INDICATORS (y-o-y%)
Feb-13 Mar-13 Apr-13 Jun-13May-13
Non-Food Credit Growth (y-o-y%) M3 Growth (y-o-y%) Repo Rate (%) Cash Reserve Ratio (%)
4.00 4.00 4.00 4.00
Net FII Flows Net FDI Flows Forex Reserves ECB flows
2.3
0.5
1.0
2.8
4QFY12 2QFY13 3QFY13
4.00
4.2
4QFY131QFY13
Core Sector Growth Cement Production Growth Steel Production GrowthCommercial VehiclesProduction Growth
-2.4
6.9
1.7
-1.1-2.9
11.0
6.9
Mar-13 Apr-13 May-13 Jul-13Jun-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13
16.114.0 14.7 15.5 14.6
Apr-13 Jun-13May-13Feb-13 Mar-13
12.4 12.512.1
12.812.5
Apr-13 Jul-13Jun-13May-13Mar-13
7.50 7.25 7.25 7.25 7.25
Mar-13 Apr-13 May-13 Jun-13 Jul-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13
2.7 2.05.2
-7.5
-3.0
Mar-13 Apr-13 May-13 Jun-13 Jul-13
2.6
1.3
2.82.12.0
292.6296.4
287.9284.6
277.2
Mar-13 Apr-13 May-13 Jun-13 Jul-13
3.22.3 2.3
0.1
Feb-13 Mar-13 Apr-13 May-13 Jun-13
3.1
8.3
5.2
2.4 2.3
Feb-13 Mar-13 Apr-13 May-13 Jun-13
0.5
6.6
1.9
4.03.4
Feb-13 Mar-13 Apr-13 May-13 Jun-13
-23.6
-7.8
11.5
2.5
-15.4
Feb-13 Mar-13 Apr-13 May-13 Jun-13
54.4 54.455.0
58.4
59.8
0.6
-1.6-2.2
0.0
-4.6
-0.4
11.6
-6.2
DISCLAIMER
Copyright © 2013 by Confederation of Indian Industry (CII), All rights reserved.
No part of this publication may be reproduced, stored in, or introduced into a retrieval system, or transmitted in any form or by
any means (electronic, mechanical, photocopying, recording or otherwise), without the prior written permission of the
copyright owner. CII has made every effort to ensure the accuracy of information presented in this document. However,
neither CII nor any of its office bearers or analysts or employees can be held responsible for any financial consequences arising
out of the use of information provided herein. However, in case of any discrepancy, error, etc., same may please be brought to
the notice of CII for appropriate corrections.
Published by Confederation of Indian Industry (CII), The Mantosh Sondhi Centre; 23, Institutional Area, Lodi Road, New Delhi-
110003 (INDIA),
Tel: +91-11-24629994-7, Fax: +91-11-24626149; Email: [email protected]; Web: www.cii.in
Notes
DISCLAIMER
Copyright © 2013 by Confederation of Indian Industry (CII), All rights reserved.
No part of this publication may be reproduced, stored in, or introduced into a retrieval system, or transmitted in any form or by
any means (electronic, mechanical, photocopying, recording or otherwise), without the prior written permission of the
copyright owner. CII has made every effort to ensure the accuracy of information presented in this document. However,
neither CII nor any of its office bearers or analysts or employees can be held responsible for any financial consequences arising
out of the use of information provided herein. However, in case of any discrepancy, error, etc., same may please be brought to
the notice of CII for appropriate corrections.
Published by Confederation of Indian Industry (CII), The Mantosh Sondhi Centre; 23, Institutional Area, Lodi Road, New Delhi-
110003 (INDIA),
Tel: +91-11-24629994-7, Fax: +91-11-24626149; Email: [email protected]; Web: www.cii.in
Notes
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The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the
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over 90,000 enterprises from around 257 national and regional sectoral industry bodies.
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issues.
Extending its agenda beyond business, CII assists industry to identify and execute corporate citizenship
programmes. Partnerships with civil society organizations carry forward corporate initiatives for integrated and
inclusive development across diverse domains including affirmative action, healthcare, education, livelihood,
diversity management, skill development, empowerment of women, and water, to name a few.
The CII Theme for 2013-14 is Accelerating Economic Growth through Innovation, Transformation, Inclusion and
Governance. Towards this, CII advocacy will accord top priority to stepping up the growth trajectory of the nation,
while retaining a strong focus on accountability, transparency and measurement in the corporate and social eco-
system, building a knowledge economy, and broad-basing development to help deliver the fruits of progress to
all.
With 63 offices, including 10 Centres of Excellence, in India, and 7 overseas offices in Australia, China, Egypt,
France, Singapore, UK, and USA, as well as institutional partnerships with 224 counterpart organizations in 90
countries, CII serves as a reference point for Indian industry and the international business community.
ABOUT CII Research
The CII Research team regularly tracks economic, political and business developments within India and abroad to
comment on the emerging economic scenario for the Indian corporate sector. It tracks policy developments,
offers comprehensive analysis of industries and comments on and analyzes the economic climate through its
regular publications– Economy Matters, Business Outlook Survey and, Fortnightly Economic Updates.
We have in-house expertise in providing the most comprehensive, in-depth, unbiased and incisive analysis and
forecasts on the Indian economy and various sectors. CII Research is also well versed and well equipped to offer
customized research based consultancy services on any theme. It has been catering to the needs of various
stakeholders including industries, business houses and government providing meaningful insights about the
prevailing trends, outlook on likely future trends, factors behind these trends, existing government policies and
policy recommendations with an objective to help stakeholders in better understanding of the issues at hand. The
objective of CII Research is to assist stakeholders in taking more informed and strategic decisions with due focus
on the attainment of short term as well as long term goals. For more details and to advertise in our products, write
to us at [email protected]