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Indian Economy 2013-14
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Transcript of Indian Economy 2013-14
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CONFIDENTIAL1
Indian Economic Outlook: 2013-14
Indian Economic Outlook: 2013-14
2 April 2013
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CONFIDENTIAL2
High fiscal deficit Due to rise in unproductive spending, Indias fiscal deficit is among the highest in emerging markets
Record high current account deficit (CAD)
Indias CAD widened to US$32.6bn (6.7% of GDP) in 3QFY13 the highest in a single quarter
Falling domestic savings
Indias gross domestic savings have declined to 30.8% of GDP in FY12, from a peak of 36.8% inFY08
High inflation and interest rates
Despite some softening in WPI inflation recently, food and CPI inflation remain in double digits
Lack of political will for economic reforms
Key reforms such as implementation of GST, DTC, land acquisition bill have been pending for a longtime
Growth slowdown
Indias GDP growth slowed to around 5% during FY13 the lowest in a decade
Gloomyandpessimisticsentimentallaround
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CONFIDENTIAL3
Eurozone: Enters into second year of recession The big four Germany, France, Italy and Spain economies of the Eurozone contracted in 4Q
2012
A record high unemployment rate
Crisis in Cyprus resulted in new uncertainties on the future of the Eurozone
US: Economy moving, not accelerating
GDP growth slowed down to 0.4% in 4Q 2012 vs. 3.1% in 3Q 2012
Despite improvement in the labour market, the unemployment rate at 7.7% is still very high
China: Weak start to 2013
Manufacturing sector exhibits sluggishness
Inflation rate has started moving up, reducing scope for aggressive easing of the monetary policy
Majorconcernsintheglobaleconomy
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Indiascycle:SeenthroughtheEconomist
India'sriseoffersadollopofreassurancetoanyonewho
believesinthecombination
ofdemocracyand
capitalism.
Itisasuperpowerinwaiting
whosepeoplevote,whose
societyis
raucous,
and
whosefirmsareredblooded
andstridingontotheworld
stage. Someseeanecho
ofAmerica'sfreewheeling
approach,withspicierfood
andworseroads. 22Oct11
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23May09 Goodnews:don'twasteit
Indiaisalandofbright
promise.It
is
also
extremely
poor. Congress nowhas
aclearmandatetoprovide
thecountrywitheducated
minds,well
fedbellies,
irrigatedfieldsand
uninterruptedelectricity,
withoutbusting
the
budget.
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23Jul11 Pushforeconomicreforms
GivenIndia'ssheerscale,its
economicriseisbiggerthan
anythat
came
before,
bar
China's. Butsuccessive
governmentshavefailedto
repairthemarketsforinputs
likelabour,landandpower.TwentyyearsafterIndias
historiceconomicreforms,
itstime
for
another
big
effort.
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24Mar12 Politickingkillingtheeconomy
PoliticsispreventingIndia
from
fulfilling
its
vast
economicpotential. lately,
likeaBollywoodvillainwho
justrefusestodie,theold
Indiahas
made
aterrifying
reappearance.Themain
reasonisthecountry's
desperatepolitics.
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9
27Mar13 IndispensableIndia
whereasChinas
rise
is
agiven,Indiaisstillwidely
seenasanearlypowerthat
cannot
quite
get
its
act
together.
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11
UnderstandingmacrofundamentalsthroughtheGita
Growth,Inflation,Enforcement,SpendingBody Fragile
Democracy,Institution,Entrepreneurship,ReformSoul Eternal
Economy
The atman is neither born nor does it die. Cominginto being and ceasing to be do not take place in It.Unborn eternal constant and ancient It is notkilled when the body is slain.
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CONFIDENTIAL13
WhatfactorstobringbackIndiasglory?
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CONFIDENTIAL14
GoodsandServicestaxtoimprovegovernmentfinance
Tax collection to go up
Tax-rate under the GST would come down by broadening the tax base and minimizingexemptions
Number of assesses would increase
Tax collection would go up due to broadening the tax base
It would foster a common market across the country and reduce compliance costs
Investment decisions would be independent of tax considerations and would be based on
purely economic concerns
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CONFIDENTIAL15
DirectTaxCode:Toboostdirecttaxrevenue
Shareof
direct
tax
in
total
tax
roseduringFY98FY10
DirectTaxCodetoboostdirect
taxrevenue
Tomakethetaxprocesssimpler
Tobroadenthetaxbaseby
eliminatingtax
exemptions
0
10
20
30
40
50
60
70
80
90
100
FY95
FY96
FY97
FY98
FY99
FY00
FY01
FY02
FY03
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
(S
hare,
%)
Direct tax to total tax Indirect tax to total tax
Note:Directtaxincludesonlytwomajortaxes
DeclineinshareofdirecttaxintotaltaxafterFY10
Di B fi T f T k h b f h id
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CONFIDENTIAL16
DirectBenefitTransfer:Toworkatthebottomofthepyramid
Tomake
welfare
schemes
effective
DBTwouldsave$6bnworthof
governmentspendingperyear
Itwould
lead
to
activation
of
80m
dormantbankaccounts
Majorconsumptionboostforthe
poor
Regulartransfer
of
money
to
poor
householdaccountstomakethem
bankable
Bettertargetingtoboostdemandfor
basicconsumption
goods
from
the
bottomofthepyramid
WelfareschemesworthUS$56bncanbeconvertedintoDBT
13.7
11.6
10.5
7.1
5.65.1
2.4
0
2
4
6
8
10
12
14
16
FoodSubsidy
FertilizerSubsidy
StateGo
vt.
MGNREG
A
LPGSubsidy
PDSKerose
ne
Pension,e
tc.
(US$,
bn)
Government expenditure on welfare schemes
Total amount
US$56.1bn
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I f t t t l d t
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CONFIDENTIAL18
Infrastructuretoleadnextcapexrecovery
Totalinvestment
in
infrastructure
is
projectedatUS$1trnin12thPlanvs.
US$539bnduring11thPlan
CabinetCommitteeonInvestments
toexpedite
decisions
on
clearances
forimplementationofprojects
Metrorailprojectsinmajorcities
(Mumbai,Hyderabad,Chennai,
Bangalore)
8,800kilometersunderNationalHighway
DevelopmentProjectinFY13
88000MW
capacity
to
be
added
during
12th Plan(201217)
100,000villagestobeelectrifiedunder
theBharat Nirman project
DelhiMumbaiIndustrialCorridor
Shale gas leading to lower oil prices can reduce the twin deficits
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CONFIDENTIAL19
Shalegasleadingtoloweroilpricescanreducethetwindeficits
Oilimports
account
for
around
one
third
of
Indiastotalimports
TheEIA,USA, hasreportedthatIndiahasshale
gasreservesof293trillioncubicfeet(TCF)with69
TCF
as
recoverable
in
four
Indian
basins AccordingtoPetroleumMinistryestimates,thisis
goodenoughtomeetIndia'snaturalgasdemand
forthenext33years
India
might
offer
shale
blocks
for
exploration
in
Sep13
UShasbecome80%selfsufficientinitsenergy
consumptionfrom69%7yearsago.Experts
projectUStobe100%selfsufficientinadecade
IncreaseinshalegasproductionintheUSmay
reduceoildemand
Thus,itwouldreducethetwindeficits inIndia
ShalereservesinIndia
Source:DirectorGeneralofHydrocarbons
Note:1Cambay
Basin,
2Gondwana
Basin,
3Assam
Arakan Basin,
4KG
Basin,
5Cauvery
Basin,
6Indo
Gangetic
Basin
EIA:EnergyInformationAdministration
Why Indias long term prospects remain unimpaired
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WhyIndiaslongtermprospectsremainunimpaired
India back on the path of fiscal prudence: Sharp cuts in spending and strict measures to avoid tax
evasion to control India's fiscal deficit in next three years
Current account deficit to improve: In FY13, excluding gold, Indias current account deficit was just
1.2% of GDP vs. 4.2% CAD including gold; Measures to control gold imports would bring down Indias CAD
to 2-3% of GDP range in next three yeas. Reduction in oil prices may help further
Domestic savings to improve: Governments commitment to bring down fiscal deficit and an increase in
corporate profits would lead to increase in Indias gross domestic savings in coming years
Inflation and interest rate to soften: Excess capacity and better rabi output to bring down inflation in
FY14, leading to easy monetary policy by the RBI
Perception of policy paralysis fading: Since Sep12, government has taken some reform measures
such as partial decontrol of diesel prices, limited use of subsidized LPG-cylinder, FDI in multi-brand retail.
Elections may compel the government to act fast on pending reforms
Gradual economic recovery ahead: Growth, softening of inflation, declining cost of borrowing, and
policy activism to pave the path of India's next boom cycle
History shows that the best of time starts when sentiment turns most pessimistic