ECONOMY MATTERSVolume 01 No. 11November-December 2013
Rejuvenating ExportsCover Story
- Euro Area's Economic Recovery
Falters in the Third Quarter
Inside This Issue - Asian Economies: A 'Mixed Bag' as
far as Growth is Concerned
- Cautious Optimism on Growth and
Current Account
- GST is Inevitable; - But Only After
Next General Elections!
- Sector in Focus: Electricity
Euro Area is recovering slowly, with its major member countries registering slower-
than-expected growth rates in the third quarter. Real GDP grew by 0.1 per cent in Q3
2013, moderation from the 0.3 per cent growth seen in the previous quarter. With this, in
the three quarter of this fiscal so far, Euro Area's GDP has contracted by 0.7 per cent as
against decline of 0.5 per cent in the corresponding period last year. As per the new set
of data on the PMI indices, some rebound in growth is perceptible; however, weak retail
sales data is keeping the currency bloc's growth outlook under pressure. Moving over
to the Asian continent, the major economies are growing at varied pace, with Indonesia
and Malaysia notching up impressive set of GDP numbers in the third quarter. Singapore
economy also did well in the July-September quarter, while Thailand, Hong Kong and
Japan remained the laggards. The growth outlook in these Asian economies remains
contingent on the strength of the recovery in US, Euro Area and China going forward.
Domestically, growth seems to have bottomed out. Two crucial macroeconomic
parameters were released in November 2013, which have infused some enthusiasm
amongst the economy watchers. GDP growth increased to 4.8 per cent in the second
quarter of the fiscal from 4.4 per cent in the previous quarter and current account deficit
(CAD) fell sharply to 1.2 per cent of GDP from a high of 5.0 per cent in the quarter before.
However, these set of feel-good data prints should be taken with a pinch of salt as the
GDP growth still remains below 5 per cent and more importantly, the drivers needed to
push it beyond that threshold are not visible. CAD compression also is largely due to the
artificial controls on curtailing gold imports. To make the recovery more resilient,
concerted action on the front of the policy makers is the need of the hour in terms of
speedy implementation of projects, removing of structural bottle-necks etc.
The improving global macroeconomic environment and a weaker rupee have given a
fillip to India's exports, which rose by 12.2 per cent during the second quarter of the
current fiscal. This strong growth in exports coupled with muted imports has had a
favorable impact on the CAD. In the next 12-18-months, export performance will not
only influence the CAD but will also be one of the factors supporting GDP growth
because the domestic economy and investment cycle will improve only gradually. The
services sector has been a key driver of India's improved trade performance and there is
a potential for increasing its exports further given the fact that India is a leading player in
the services trade in the world.
Chandrajit Banerjee
Director-General, CII
1
FOREWORD
NOVEMBER - DECEMBER 2013
Euro Area is recovering slowly, with its major member countries registering slower-
than-expected growth rates in the third quarter. Real GDP grew by 0.1 per cent in Q3
2013, moderation from the 0.3 per cent growth seen in the previous quarter. With this, in
the three quarter of this fiscal so far, Euro Area's GDP has contracted by 0.7 per cent as
against decline of 0.5 per cent in the corresponding period last year. As per the new set
of data on the PMI indices, some rebound in growth is perceptible; however, weak retail
sales data is keeping the currency bloc's growth outlook under pressure. Moving over
to the Asian continent, the major economies are growing at varied pace, with Indonesia
and Malaysia notching up impressive set of GDP numbers in the third quarter. Singapore
economy also did well in the July-September quarter, while Thailand, Hong Kong and
Japan remained the laggards. The growth outlook in these Asian economies remains
contingent on the strength of the recovery in US, Euro Area and China going forward.
Domestically, growth seems to have bottomed out. Two crucial macroeconomic
parameters were released in November 2013, which have infused some enthusiasm
amongst the economy watchers. GDP growth increased to 4.8 per cent in the second
quarter of the fiscal from 4.4 per cent in the previous quarter and current account deficit
(CAD) fell sharply to 1.2 per cent of GDP from a high of 5.0 per cent in the quarter before.
However, these set of feel-good data prints should be taken with a pinch of salt as the
GDP growth still remains below 5 per cent and more importantly, the drivers needed to
push it beyond that threshold are not visible. CAD compression also is largely due to the
artificial controls on curtailing gold imports. To make the recovery more resilient,
concerted action on the front of the policy makers is the need of the hour in terms of
speedy implementation of projects, removing of structural bottle-necks etc.
The improving global macroeconomic environment and a weaker rupee have given a
fillip to India's exports, which rose by 12.2 per cent during the second quarter of the
current fiscal. This strong growth in exports coupled with muted imports has had a
favorable impact on the CAD. In the next 12-18-months, export performance will not
only influence the CAD but will also be one of the factors supporting GDP growth
because the domestic economy and investment cycle will improve only gradually. The
services sector has been a key driver of India's improved trade performance and there is
a potential for increasing its exports further given the fact that India is a leading player in
the services trade in the world.
Chandrajit Banerjee
Director-General, CII
1
FOREWORD
NOVEMBER - DECEMBER 2013
Global Trends
Domestic Trends
The 17-nation Euro Area (EA) eked out marginal
economic growth in the third quarter of the current
year (Q3 2013), indicating that while the single currency
bloc is sustaining a very modest recovery, it's
struggling to gain momentum. Although the PMI
indices for October and November have been better
than in Q3 2013, unexpected fall in retail sales in
October continues to keep EA GDP under pressure.
Coming to the Asian continent, countries across Asia
have been hit by falling exports, dragging on growth
and pushing current account balances into the red. At
the same time, capital has flowed out of the region
amid rising U.S. interest rates as investors anticipated
an end to the U.S. Federal Reserve's massive bond-
buying program. That has compounded pressures on
Asian currencies, making it harder for the region's
central banks to loosen monetary policy to support
growth.
The data on India's current account deficit (CAD) and
GDP released over the last one month has injected a
dose of mild optimism among policymakers and
market analysts. GDP growth marginally lifted to 4.8
per cent in the April-September quarter from 4.4 per
cent in the preceding quarter and CAD fell to 1.2 per
cent of GDP from 5.0 per cent in the previous quarter.
However, industrial production number of October
2013 once again disappointed, as the headline number
slipped into the negative territory. The decline in IIP
during the month was underpinned by contraction in
many of its sub-sectors such as manufacturing, mining,
basic and consumer goods. In contrast, WPI inflation
accelerated to more than one year high of 7.5 per cent
in November 2013 as compared to 7.0 per cent in the
previous month on the back of increase in food and
fuel inflation. To be sure, consumer prices based
inflation (CPI) too quickened to 11.2 per cent in October
2013 from 10.1 per cent in the previous month.
However, citing the transitory nature of food prices
and high probability of them receding in the
subsequent months, RBI kept the policy rates
unchanged in its mid-December policy review.
Sector in Focus: Electricity
Special Article
Electricity sector is an important contributor to the
economic growth of the country. However, in the last
year, the sector's growth halved to 4.0 per cent as
compared to 8.2 in 2011-12. In order to make the sector
more efficient, promote its development and
consolidate laws relating to generation, transmission,
distribution, trading and use of electricity, government th had brought into effect the Electricity Act on 10 June
2003. With the Act now 10 years old, the sector has
come full circle - from emerging as one of the most
attractive investment destinations in the late 2000s,
private investment has since receded. An assessment
of the last 10 years of the Act reveals that while the
sector has not delivered on its objectives, this is less
because of flaws in the Act, and more due to poor
execution, unprecedented fuel price increases and
project execution bottlenecks. In fact, the Act provides
a strong platform for development if certain critical
learnings are incorporated as the sector moves
forward.
India's export performance over the last two years has
been affected by continued sluggishness in global
trade and an overvalued exchange rate for a prolonged
period. Exports began on a weak footing in the start of
this fiscal, contracting by 3.1 per cent in the first quarter;
however, its growth picked up to 12.2 per cent in the
second quarter, moderating to 9.7 per cent in October-
November 2013. Export recoveries were evident in
sectors, such as petroleum products, rice, readymade
garments, marine products and other chemicals. The
depreciation in the exchange rate, both in nominal and
real terms, appears to have helped improve India's
export competitiveness in the recent quarters.
Improvement in exports is critical for lifting the
economic growth and containing the current account
deficit. In order to take our exports performance to the
next level, further expansion of Focus Market Scheme
(FMS) and inclusion of new product in Focus Product
Scheme (FPS) is very much needed.
EXECUTIVE SUMMARY
3 NOVEMBER - DECEMBER 20132ECONOMY MATTERS
CO
NT
EN
T
Cover Story
The improving global macro-
economic environment and a
weaker rupee have given a fillip to
India's exports, which rose by 12.2
per cent during the second
quarter of the current fiscal. This
strong growth in exports coupled
with muted imports has had a
favorable impact on the Current
Account Deficit. In the Special
Article, we provide a snapshot of
India’s exports sector along with
analyzing the important sectors in
exports such as services and
tourism.
Inside This Issue
Executive Summary .................................................................03
.....................................................04Growth Outlook: 2013-14
Global Trends
05Euro Area's Economic Recovery Falters in the Third Quarter
Domestic TrendsCautious Optimism on Growth and Current Account, IIP, Inflation11
TaxationGST is Inevitable; - But Only After Next General Elections!18
Sector in FocusElectricity
20
Special ArticleRejuvenating Exports
27
Economy Monitor ................................................................... 42
Rejuvenating Exports
Global Trends
Domestic Trends
The 17-nation Euro Area (EA) eked out marginal
economic growth in the third quarter of the current
year (Q3 2013), indicating that while the single currency
bloc is sustaining a very modest recovery, it's
struggling to gain momentum. Although the PMI
indices for October and November have been better
than in Q3 2013, unexpected fall in retail sales in
October continues to keep EA GDP under pressure.
Coming to the Asian continent, countries across Asia
have been hit by falling exports, dragging on growth
and pushing current account balances into the red. At
the same time, capital has flowed out of the region
amid rising U.S. interest rates as investors anticipated
an end to the U.S. Federal Reserve's massive bond-
buying program. That has compounded pressures on
Asian currencies, making it harder for the region's
central banks to loosen monetary policy to support
growth.
The data on India's current account deficit (CAD) and
GDP released over the last one month has injected a
dose of mild optimism among policymakers and
market analysts. GDP growth marginally lifted to 4.8
per cent in the April-September quarter from 4.4 per
cent in the preceding quarter and CAD fell to 1.2 per
cent of GDP from 5.0 per cent in the previous quarter.
However, industrial production number of October
2013 once again disappointed, as the headline number
slipped into the negative territory. The decline in IIP
during the month was underpinned by contraction in
many of its sub-sectors such as manufacturing, mining,
basic and consumer goods. In contrast, WPI inflation
accelerated to more than one year high of 7.5 per cent
in November 2013 as compared to 7.0 per cent in the
previous month on the back of increase in food and
fuel inflation. To be sure, consumer prices based
inflation (CPI) too quickened to 11.2 per cent in October
2013 from 10.1 per cent in the previous month.
However, citing the transitory nature of food prices
and high probability of them receding in the
subsequent months, RBI kept the policy rates
unchanged in its mid-December policy review.
Sector in Focus: Electricity
Special Article
Electricity sector is an important contributor to the
economic growth of the country. However, in the last
year, the sector's growth halved to 4.0 per cent as
compared to 8.2 in 2011-12. In order to make the sector
more efficient, promote its development and
consolidate laws relating to generation, transmission,
distribution, trading and use of electricity, government th had brought into effect the Electricity Act on 10 June
2003. With the Act now 10 years old, the sector has
come full circle - from emerging as one of the most
attractive investment destinations in the late 2000s,
private investment has since receded. An assessment
of the last 10 years of the Act reveals that while the
sector has not delivered on its objectives, this is less
because of flaws in the Act, and more due to poor
execution, unprecedented fuel price increases and
project execution bottlenecks. In fact, the Act provides
a strong platform for development if certain critical
learnings are incorporated as the sector moves
forward.
India's export performance over the last two years has
been affected by continued sluggishness in global
trade and an overvalued exchange rate for a prolonged
period. Exports began on a weak footing in the start of
this fiscal, contracting by 3.1 per cent in the first quarter;
however, its growth picked up to 12.2 per cent in the
second quarter, moderating to 9.7 per cent in October-
November 2013. Export recoveries were evident in
sectors, such as petroleum products, rice, readymade
garments, marine products and other chemicals. The
depreciation in the exchange rate, both in nominal and
real terms, appears to have helped improve India's
export competitiveness in the recent quarters.
Improvement in exports is critical for lifting the
economic growth and containing the current account
deficit. In order to take our exports performance to the
next level, further expansion of Focus Market Scheme
(FMS) and inclusion of new product in Focus Product
Scheme (FPS) is very much needed.
EXECUTIVE SUMMARY
3 NOVEMBER - DECEMBER 20132ECONOMY MATTERS
CO
NT
EN
T
Cover Story
The improving global macro-
economic environment and a
weaker rupee have given a fillip to
India's exports, which rose by 12.2
per cent during the second
quarter of the current fiscal. This
strong growth in exports coupled
with muted imports has had a
favorable impact on the Current
Account Deficit. In the Special
Article, we provide a snapshot of
India’s exports sector along with
analyzing the important sectors in
exports such as services and
tourism.
Inside This Issue
Executive Summary .................................................................03
.....................................................04Growth Outlook: 2013-14
Global Trends
05Euro Area's Economic Recovery Falters in the Third Quarter
Domestic TrendsCautious Optimism on Growth and Current Account, IIP, Inflation11
TaxationGST is Inevitable; - But Only After Next General Elections!18
Sector in FocusElectricity
20
Special ArticleRejuvenating Exports
27
Economy Monitor ................................................................... 42
Rejuvenating Exports
GROWTH OUTLOOK FOR 2013-14 REVISED FURTHER DOWN
Euro Area's Economic Recovery Falters in the Third Quarter
growth seen in the second quarter that ended the
region's record-long recession was a one-time spurt,
boosted by a significant bounce in construction activity
in some countries (most notably Germany) after it had
been held back in the first quarter by particularly poor
weather. In year-on-year terms, real GDP declined by 0.4
per cent in Q3 2013 thus marking its seventh consecutive
decline. In the first week of November, European
Central Bank (ECB) had cut the headline interest rate by
25 bps to 0.25 per cent, citing underlying weak growth
momentum. The weak set of numbers for 3Q 2013 in way
vindicates ECB's decision to cut interest rates to re-
stimulate growth across the single currency area.
The 17-nation Euro Area (EA) eked out marginal
economic growth in the third quarter of the current
year (Q3 2013), indicating that while the single currency
bloc is sustaining a very modest recovery, it's struggling
to gain momentum. EA-17 real GDP grew 0.1 per cent in
Q3 2013, unchanged from the first estimates released
last month, as per the second estimates of GDP released
by Eurostat. This clearly shows that the 0.3 per cent
GLOBAL TRENDS
4ECONOMY MATTERS 5 NOVEMBER - DECEMBER 2013
GDP Growth 5.0% 4.8-5.3% We have scaled down our growth forecast to a range of
4.8-5.3 per cent for the current fiscal as compared to 5.3-
5.8 per cent forecasted earlier on the back of higher-than-
expected demand compression in the wake of global
uncertainities coupled with fragile domestic situation.
Agriculture remains the sole saviour for overall GDP this
year. Rising inflation has dimmed the possibility of
lowering of interest rates by RBI, which is not going to help
growth. Concerted policy actions by policy makers in the
form of addressing the structural bottlenecks are need of
the hour in order to lift growth out of its current abyss.
Agriculture 1.9% 4.3-4.8% Aided by a low base and normal monsoons, agriculture is
expected to grow at an above-trend rate of around 4.5 per
cent in the current fiscal. Consequently, we have scaled up
the growth forecast of agriculture GDP to a range of 4.3-
4.8 per cent from 3.0-3.5 per cent forecasted earlier.
Industry 2.1% 1.6-2.1% Industry GDP growth has been scaled down to a range of
1.6-2.1 per cent as compared to an earlier estimate of 3.5-
4.0 per cent for the current fiscal. The main reasons for this
growth downgrade is the continued poor performance of
the sector in the wake of depressed global demand,
reduced chances of RBI cutting interest rates, 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% 6.3-6.8% Services sector GDP growth too has been revised
downwards to a range of 6.3-6.8 per cent as compared to
an earlier estimate of 6.5-7.0 per cent for the year. The
spillovers from lower industrial growth are expected to
adversely impact services sector growth. 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 7.4% 6.0-6.5% We have revised our WPI inflation forecast upwards for
the current year in view of rising inflationary expectations
aggravated by rising food prices. The new forecast now
stands at 6.0-6.5 per cent, revised upwards from 5.5-6.0
per cent. However, the downside risks to headline
inflation arises from slower GDP growth, which will help in
cooling down of demand-side pressures on inflation going
forward coupled with the lagged impact of monetary
tightening purused by RBI since September 2013.
2012-13 2013-14 Rationale
Note: F- CII Forecast
-1.0
-1.2
-0.6
-0.4
-0.5
-0.2
0.3
0.1
4Q12 1Q13 2Q13 3Q13
y-o-y%
q-o-q%
Euro Area's GDP (on seasonally-adjusted basis)
Source: Eurostat
GROWTH OUTLOOK FOR 2013-14 REVISED FURTHER DOWN
Euro Area's Economic Recovery Falters in the Third Quarter
growth seen in the second quarter that ended the
region's record-long recession was a one-time spurt,
boosted by a significant bounce in construction activity
in some countries (most notably Germany) after it had
been held back in the first quarter by particularly poor
weather. In year-on-year terms, real GDP declined by 0.4
per cent in Q3 2013 thus marking its seventh consecutive
decline. In the first week of November, European
Central Bank (ECB) had cut the headline interest rate by
25 bps to 0.25 per cent, citing underlying weak growth
momentum. The weak set of numbers for 3Q 2013 in way
vindicates ECB's decision to cut interest rates to re-
stimulate growth across the single currency area.
The 17-nation Euro Area (EA) eked out marginal
economic growth in the third quarter of the current
year (Q3 2013), indicating that while the single currency
bloc is sustaining a very modest recovery, it's struggling
to gain momentum. EA-17 real GDP grew 0.1 per cent in
Q3 2013, unchanged from the first estimates released
last month, as per the second estimates of GDP released
by Eurostat. This clearly shows that the 0.3 per cent
GLOBAL TRENDS
4ECONOMY MATTERS 5 NOVEMBER - DECEMBER 2013
GDP Growth 5.0% 4.8-5.3% We have scaled down our growth forecast to a range of
4.8-5.3 per cent for the current fiscal as compared to 5.3-
5.8 per cent forecasted earlier on the back of higher-than-
expected demand compression in the wake of global
uncertainities coupled with fragile domestic situation.
Agriculture remains the sole saviour for overall GDP this
year. Rising inflation has dimmed the possibility of
lowering of interest rates by RBI, which is not going to help
growth. Concerted policy actions by policy makers in the
form of addressing the structural bottlenecks are need of
the hour in order to lift growth out of its current abyss.
Agriculture 1.9% 4.3-4.8% Aided by a low base and normal monsoons, agriculture is
expected to grow at an above-trend rate of around 4.5 per
cent in the current fiscal. Consequently, we have scaled up
the growth forecast of agriculture GDP to a range of 4.3-
4.8 per cent from 3.0-3.5 per cent forecasted earlier.
Industry 2.1% 1.6-2.1% Industry GDP growth has been scaled down to a range of
1.6-2.1 per cent as compared to an earlier estimate of 3.5-
4.0 per cent for the current fiscal. The main reasons for this
growth downgrade is the continued poor performance of
the sector in the wake of depressed global demand,
reduced chances of RBI cutting interest rates, 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% 6.3-6.8% Services sector GDP growth too has been revised
downwards to a range of 6.3-6.8 per cent as compared to
an earlier estimate of 6.5-7.0 per cent for the year. The
spillovers from lower industrial growth are expected to
adversely impact services sector growth. 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 7.4% 6.0-6.5% We have revised our WPI inflation forecast upwards for
the current year in view of rising inflationary expectations
aggravated by rising food prices. The new forecast now
stands at 6.0-6.5 per cent, revised upwards from 5.5-6.0
per cent. However, the downside risks to headline
inflation arises from slower GDP growth, which will help in
cooling down of demand-side pressures on inflation going
forward coupled with the lagged impact of monetary
tightening purused by RBI since September 2013.
2012-13 2013-14 Rationale
Note: F- CII Forecast
-1.0
-1.2
-0.6
-0.4
-0.5
-0.2
0.3
0.1
4Q12 1Q13 2Q13 3Q13
y-o-y%
q-o-q%
Euro Area's GDP (on seasonally-adjusted basis)
Source: Eurostat
deduction of 14 bps in the previous quarter. Thus,
excluding inventories, Euro Area's real GDP contracted
0.2 per cent on q-o-q basis in Q3 2013, as against a
growth of 0.4 per cent in the previous quarter. Besides
investments, private consumption expenditure (PCE)
grew 0.1 per cent on q-o-q basis in Q3 2013, slower than
0.2 per cent in the previous quarter. Consequently, PCE
had a neutral contribution to GDP growth, contributing
only 4 bps to GDP growth, less than half the contribution
of 9 bps in Q2 2013.
Amongst the broad GDP categories in Euro Area, total
investments (or Gross Capital Formation) grew 2.0 per
cent on q-o-q basis in Q3 2013, marking its first growth in
the past nine quarters. However, it is important to note
that majority of that growth came through inventories,
as fixed investments (or Gross Fixed Capital Formation,
GFCF) growth was only slightly higher at 0.4 per cent on
q-o-q basis in Q3 2013, as against 0.2 per cent in the
previous quarter. This clearly shows that inventories
added 27 bps to GDP growth in Q3 2013, as against a
unexpected fall in retail sales in October continues to
keep EA GDP under pressure. However, it would be safe
to say that while the region's recovery remains on track
in the fourth quarter, the upturn continues to look both
fragile and weak.
To sum up, in the first three quarters of 2013, Euro Area
real GDP contracted by 0.7 per cent on y-o-y basis, as
against decline of 0.5 per cent in the corresponding
period last year. Although the PMI indices for October
and November have been better than in Q3 2013,
have stymied economic growth in the crucial fourth
quarter. In 2014, however, the Thai economy is expected
to grow in the range of 4.0-5.0 per cent on the back of a
global economic recovery and massive state spending
on infrastructure. The economy grew by 6.5 per cent in
2012.
Indonesia expanded less than 6 per cent in the third
quarter as high interest rates weighed on consumption
and exports fell. Gross domestic product increased 5.6
per cent on a y-o-y basis in the July-September quarter as
compared to 5.8 per cent in the previous quarter. The
third quarter data print was the weakest quarterly
growth figure since 2009 when the global financial crisis
impacted the economy and clearly highlights the
vulnerability of Southeast Asia's largest economy as it
weathers a depreciated exchange rate, faster inflation
and diminished foreign capital inflows ahead of
elections in 2014. Bank Indonesia has raised its
benchmark rate by 1.5 percentage points since early
June 2013 to shore up the Rupiah and stem price gains,
while the government has acknowledged growth next
year will be slower as it reins in spending to narrow a
record current-account gap.
Malaysian economy grew 5 per cent year-on-year in the
third quarter of 2013, rising strongly from 4.4 per cent in
the previous quarter. The country registered a better
Countries across Asia have been hit by falling exports,
dragging on growth and pushing current account
balances into the red. At the same time, capital has
flowed out of the region amid rising U.S. interest rates as
investors anticipated an end to the U.S. Federal
Reserve's massive bond-buying program. That has
compounded pressures on Asian currencies, making it
harder for the region's central banks to loosen monetary
policy to support growth. In this piece, we will analyse
briefly the growth performance of the key Asian
economies in the last few quarters.
Amongst the ASEAN economies, Thailand's economy
grew at a lower-than-expected pace of 2.7 per cent on y-
o-y basis in July-September quarter, weaker than the
adjusted 2.9 per cent in April-June. It was the third
straight quarter of slowing growth in the kingdom, and
came on the back of a drop-off in consumer spending,
although the economy did benefit from a surge in tourist
arrivals and increased state spending. In view of the
lower GDP growth in the first three quarters of the year
so far due to strengthening Thai Baht, slower than
expected recovery in key export markets and reduced
private consumption spending, government recently
slashed its full year growth estimates. On a year-on-year
basis, Thailand's 2013 GDP or gross domestic product is
now officially forecast to come in at less than three per
cent in view of the ongoing anti-government rallies that
6 7 NOVEMBER - DECEMBER 2013
Austria, which accounts for 3.2 per cent of total Euro
Zone GDP, grew by 0.2 per cent, the Czech Republic
contracted by 0.5 per cent but Hungary beat
expectations with growth of 0.8 per cent from the
second quarter. GDP in Netherlands, accounting for 6.3
per cent, rose by 0.1 per cent from the second quarter.
Italy, which has faced prolonged period of political
instability, was also mired in economic gloom after a 0.1
per cent decline in GDP in the third quarter extending
the country's recession from the summer of 2011 to nine
quarters.
Among member states for which data are available for
the third quarter of 2013, economic activity in Germany
grew by 0.3 per cent in Q3 2013, a slowdown from the
prior quarter, and in France it fell by 0.1 per cent,
indicating that the Euro Zone's (used interchangeably
with Euro Area) nascent recovery faltered in the
summer. Between them, they account for almost half of
total Euro Zone output. In France, a slump in exports
and business investment failed to offset strong
consumer spending, thus pulling down the GDP.
2.0
1.0
0.0
-1.0
-2.0
-3.0
1Q13
2Q13
3Q13
1Q13
2Q13
3Q13
1Q13
2Q13
3Q13
1Q13
2Q13
3Q13
1Q13
2Q13
3Q13
Germany France Italy Netherlands Hungary
y-o-y%
q-o-q%
Real GDP Growth in Selected Euro Area Countries
Source: Eurostat
GDP Components (q-o-q%) 1Q13 2Q13 3Q13
Household and Final Consumption Expenditure -0.1 0.2 0.1
Government Final Consumption Expenditure 0.3 0.0 0.2
Gross Fixed Capital Formation -1.9 0.2 0.4
Exports -1.0 2.1 0.2
Imports -1.2 1.6 1.0
Source: Eurostat
GDP by Components (from Demand-Side)
Asian Economies: A 'Mix-Bag' as far as Growth is Concerned
ECONOMY MATTERS
deduction of 14 bps in the previous quarter. Thus,
excluding inventories, Euro Area's real GDP contracted
0.2 per cent on q-o-q basis in Q3 2013, as against a
growth of 0.4 per cent in the previous quarter. Besides
investments, private consumption expenditure (PCE)
grew 0.1 per cent on q-o-q basis in Q3 2013, slower than
0.2 per cent in the previous quarter. Consequently, PCE
had a neutral contribution to GDP growth, contributing
only 4 bps to GDP growth, less than half the contribution
of 9 bps in Q2 2013.
Amongst the broad GDP categories in Euro Area, total
investments (or Gross Capital Formation) grew 2.0 per
cent on q-o-q basis in Q3 2013, marking its first growth in
the past nine quarters. However, it is important to note
that majority of that growth came through inventories,
as fixed investments (or Gross Fixed Capital Formation,
GFCF) growth was only slightly higher at 0.4 per cent on
q-o-q basis in Q3 2013, as against 0.2 per cent in the
previous quarter. This clearly shows that inventories
added 27 bps to GDP growth in Q3 2013, as against a
unexpected fall in retail sales in October continues to
keep EA GDP under pressure. However, it would be safe
to say that while the region's recovery remains on track
in the fourth quarter, the upturn continues to look both
fragile and weak.
To sum up, in the first three quarters of 2013, Euro Area
real GDP contracted by 0.7 per cent on y-o-y basis, as
against decline of 0.5 per cent in the corresponding
period last year. Although the PMI indices for October
and November have been better than in Q3 2013,
have stymied economic growth in the crucial fourth
quarter. In 2014, however, the Thai economy is expected
to grow in the range of 4.0-5.0 per cent on the back of a
global economic recovery and massive state spending
on infrastructure. The economy grew by 6.5 per cent in
2012.
Indonesia expanded less than 6 per cent in the third
quarter as high interest rates weighed on consumption
and exports fell. Gross domestic product increased 5.6
per cent on a y-o-y basis in the July-September quarter as
compared to 5.8 per cent in the previous quarter. The
third quarter data print was the weakest quarterly
growth figure since 2009 when the global financial crisis
impacted the economy and clearly highlights the
vulnerability of Southeast Asia's largest economy as it
weathers a depreciated exchange rate, faster inflation
and diminished foreign capital inflows ahead of
elections in 2014. Bank Indonesia has raised its
benchmark rate by 1.5 percentage points since early
June 2013 to shore up the Rupiah and stem price gains,
while the government has acknowledged growth next
year will be slower as it reins in spending to narrow a
record current-account gap.
Malaysian economy grew 5 per cent year-on-year in the
third quarter of 2013, rising strongly from 4.4 per cent in
the previous quarter. The country registered a better
Countries across Asia have been hit by falling exports,
dragging on growth and pushing current account
balances into the red. At the same time, capital has
flowed out of the region amid rising U.S. interest rates as
investors anticipated an end to the U.S. Federal
Reserve's massive bond-buying program. That has
compounded pressures on Asian currencies, making it
harder for the region's central banks to loosen monetary
policy to support growth. In this piece, we will analyse
briefly the growth performance of the key Asian
economies in the last few quarters.
Amongst the ASEAN economies, Thailand's economy
grew at a lower-than-expected pace of 2.7 per cent on y-
o-y basis in July-September quarter, weaker than the
adjusted 2.9 per cent in April-June. It was the third
straight quarter of slowing growth in the kingdom, and
came on the back of a drop-off in consumer spending,
although the economy did benefit from a surge in tourist
arrivals and increased state spending. In view of the
lower GDP growth in the first three quarters of the year
so far due to strengthening Thai Baht, slower than
expected recovery in key export markets and reduced
private consumption spending, government recently
slashed its full year growth estimates. On a year-on-year
basis, Thailand's 2013 GDP or gross domestic product is
now officially forecast to come in at less than three per
cent in view of the ongoing anti-government rallies that
6 7 NOVEMBER - DECEMBER 2013
Austria, which accounts for 3.2 per cent of total Euro
Zone GDP, grew by 0.2 per cent, the Czech Republic
contracted by 0.5 per cent but Hungary beat
expectations with growth of 0.8 per cent from the
second quarter. GDP in Netherlands, accounting for 6.3
per cent, rose by 0.1 per cent from the second quarter.
Italy, which has faced prolonged period of political
instability, was also mired in economic gloom after a 0.1
per cent decline in GDP in the third quarter extending
the country's recession from the summer of 2011 to nine
quarters.
Among member states for which data are available for
the third quarter of 2013, economic activity in Germany
grew by 0.3 per cent in Q3 2013, a slowdown from the
prior quarter, and in France it fell by 0.1 per cent,
indicating that the Euro Zone's (used interchangeably
with Euro Area) nascent recovery faltered in the
summer. Between them, they account for almost half of
total Euro Zone output. In France, a slump in exports
and business investment failed to offset strong
consumer spending, thus pulling down the GDP.
2.0
1.0
0.0
-1.0
-2.0
-3.0
1Q13
2Q13
3Q13
1Q13
2Q13
3Q13
1Q13
2Q13
3Q13
1Q13
2Q13
3Q13
1Q13
2Q13
3Q13
Germany France Italy Netherlands Hungary
y-o-y%
q-o-q%
Real GDP Growth in Selected Euro Area Countries
Source: Eurostat
GDP Components (q-o-q%) 1Q13 2Q13 3Q13
Household and Final Consumption Expenditure -0.1 0.2 0.1
Government Final Consumption Expenditure 0.3 0.0 0.2
Gross Fixed Capital Formation -1.9 0.2 0.4
Exports -1.0 2.1 0.2
Imports -1.2 1.6 1.0
Source: Eurostat
GDP by Components (from Demand-Side)
Asian Economies: A 'Mix-Bag' as far as Growth is Concerned
ECONOMY MATTERS
rebounded by 1.7 per cent. Malaysia's economic growth
has panned out on expected lines in the first three
quarters of the year so far (average growth of 4.5 per
cent) and has prompted the Malaysian Central bank to
maintain its outlook for the current year GDP growth at
between 4.5 to 5.0 per cent.
economic performance during the third quarter due to
improved external demand and continued strength in
domestic demand that supported the overall growth.
Private consumption expanded by 8.2 per cent in 3Q
2013, supported by a higher wage growth in both export
and domestic-oriented industries, while exports
8ECONOMY MATTERS 9 NOVEMBER - DECEMBER 2013
5.46.0
4.1
2.9
5.8
4.4
2.7
5.65.0
Thailand Indonesia Malaysia
ASEAN-3 Real GDP Growth (y-o-y%)
1Q13 2Q13 3Q13
Source: Trading Economics
healthy 5.8 per cent in the third quarter of 2013 as
compared to 4.4 per cent in the previous quarter. This
higher-than-expected growth in the 3Q 2013 prompted
the government to raise its growth forecast to 3.5 per
cent to 4.0 per cent in 2013 from earlier forecast of 2.5 to
3.5 per cent and project as much as 4 per cent growth
next year. Sectors that have been performing well
include manufacturing, wholesale and retail trade, as
well as transportation and storage, and they will
continue to perform well towards the year-end in line
with the slight pick-up in the global economy.
Singapore's neighbouring economy, Hong Kong, on the
other hand, registered a deceleration in growth at 2.9
per cent in 3Q 2013 as compared to 3.2 per cent growth
in the previous month. Domestic demand, a key factor in
Hong Kong's economy, expanded for the period, helped
by rising incomes and a low unemployment rate of 3.3
per cent. The government has predicted three per cent
growth for the year, saying that moderate growth is
"likely attainable" for the fourth quarter.
Among the Newly Industrialised Economies (NIEs),
South Korea's economy maintained a robust pace of
growth in the third quarter as private consumption and
investment picked up the slack from a fall in exports.
Gross domestic product expanded by 3.3 per cent in the
third quarter, accelerating from the second quarter's
2.3 per cent gain. The slightly stronger-than-expected
rate of expansion has bolstered hopes that Asia's
fourth-largest economy will remain on a recovery track
and will be able to reach Bank of Korea's growth
forecast of 2.8 per cent for the year, despite slowing
global demand. South Korea's export-reliant economy
has been hit by shrinking global demand. Exports fell 1.3
per cent last year, the first decline in three years, as
growth weakened in China, the country's largest export
destination. In order to counter this, early this year, the
government put forth a 17.3 trillion won ($15.5 billion)
extra budget, its first fiscal stimulus in four years, to
boost the economy.
The Southeast Asian city-state of Singapore grew at a
1.5
0.3
2.9
2.3
4.4
3.23.3
5.8
2.9
South Korea Singapore Hong Kong
1Q13 2Q13 3Q13
NIE's Real GDP Growth (y-o-y%)
Source: Trading Economics
working to jolt the world's third largest economy out of
stagnation. His ambitious turnaround plan, known as
Abenomics, aims to end years of deflation, leading to
more robust growth. Going forward, the weakness in
Yen coupled with the announcement of a government
stimulus (in order to negate the impact of rise in sales
tax to be announced in April next year) is expected to
support growth.
Gross domestic product in Japan expanded by only 1.1
per cent (on an annualised basis) in the third quarter of
the current year, a slower rate than 3.8 per cent in the
previous quarter. The sharp deceleration raises
questions about the strength of recovery in Japan,
which enjoyed rapid growth of almost 4 per cent in the
first quarter. Prime Minister Shinzo Abe has been
4.3
3.8
1.1
1Q13 2Q13 3Q13
Japan's Real GDP Growth (Annualised basis, %)
Source: Trading Economics
quantitative program by the US Federal Reserve. The
Euro Zone remains susceptible to a flare-up of the
sovereign debt crisis. These are the crucial triggers for
the Asian economies as they step into 2014.
In sum, the global economic outlook is expected to
continue to improve modestly in 2014, supported by a
slow recovery in the U.S. and Euro Zone. Uncertainties
remain over how markets will react to the tapering of
rebounded by 1.7 per cent. Malaysia's economic growth
has panned out on expected lines in the first three
quarters of the year so far (average growth of 4.5 per
cent) and has prompted the Malaysian Central bank to
maintain its outlook for the current year GDP growth at
between 4.5 to 5.0 per cent.
economic performance during the third quarter due to
improved external demand and continued strength in
domestic demand that supported the overall growth.
Private consumption expanded by 8.2 per cent in 3Q
2013, supported by a higher wage growth in both export
and domestic-oriented industries, while exports
8ECONOMY MATTERS 9 NOVEMBER - DECEMBER 2013
5.46.0
4.1
2.9
5.8
4.4
2.7
5.65.0
Thailand Indonesia Malaysia
ASEAN-3 Real GDP Growth (y-o-y%)
1Q13 2Q13 3Q13
Source: Trading Economics
healthy 5.8 per cent in the third quarter of 2013 as
compared to 4.4 per cent in the previous quarter. This
higher-than-expected growth in the 3Q 2013 prompted
the government to raise its growth forecast to 3.5 per
cent to 4.0 per cent in 2013 from earlier forecast of 2.5 to
3.5 per cent and project as much as 4 per cent growth
next year. Sectors that have been performing well
include manufacturing, wholesale and retail trade, as
well as transportation and storage, and they will
continue to perform well towards the year-end in line
with the slight pick-up in the global economy.
Singapore's neighbouring economy, Hong Kong, on the
other hand, registered a deceleration in growth at 2.9
per cent in 3Q 2013 as compared to 3.2 per cent growth
in the previous month. Domestic demand, a key factor in
Hong Kong's economy, expanded for the period, helped
by rising incomes and a low unemployment rate of 3.3
per cent. The government has predicted three per cent
growth for the year, saying that moderate growth is
"likely attainable" for the fourth quarter.
Among the Newly Industrialised Economies (NIEs),
South Korea's economy maintained a robust pace of
growth in the third quarter as private consumption and
investment picked up the slack from a fall in exports.
Gross domestic product expanded by 3.3 per cent in the
third quarter, accelerating from the second quarter's
2.3 per cent gain. The slightly stronger-than-expected
rate of expansion has bolstered hopes that Asia's
fourth-largest economy will remain on a recovery track
and will be able to reach Bank of Korea's growth
forecast of 2.8 per cent for the year, despite slowing
global demand. South Korea's export-reliant economy
has been hit by shrinking global demand. Exports fell 1.3
per cent last year, the first decline in three years, as
growth weakened in China, the country's largest export
destination. In order to counter this, early this year, the
government put forth a 17.3 trillion won ($15.5 billion)
extra budget, its first fiscal stimulus in four years, to
boost the economy.
The Southeast Asian city-state of Singapore grew at a
1.5
0.3
2.9
2.3
4.4
3.23.3
5.8
2.9
South Korea Singapore Hong Kong
1Q13 2Q13 3Q13
NIE's Real GDP Growth (y-o-y%)
Source: Trading Economics
working to jolt the world's third largest economy out of
stagnation. His ambitious turnaround plan, known as
Abenomics, aims to end years of deflation, leading to
more robust growth. Going forward, the weakness in
Yen coupled with the announcement of a government
stimulus (in order to negate the impact of rise in sales
tax to be announced in April next year) is expected to
support growth.
Gross domestic product in Japan expanded by only 1.1
per cent (on an annualised basis) in the third quarter of
the current year, a slower rate than 3.8 per cent in the
previous quarter. The sharp deceleration raises
questions about the strength of recovery in Japan,
which enjoyed rapid growth of almost 4 per cent in the
first quarter. Prime Minister Shinzo Abe has been
4.3
3.8
1.1
1Q13 2Q13 3Q13
Japan's Real GDP Growth (Annualised basis, %)
Source: Trading Economics
quantitative program by the US Federal Reserve. The
Euro Zone remains susceptible to a flare-up of the
sovereign debt crisis. These are the crucial triggers for
the Asian economies as they step into 2014.
In sum, the global economic outlook is expected to
continue to improve modestly in 2014, supported by a
slow recovery in the U.S. and Euro Zone. Uncertainties
remain over how markets will react to the tapering of
Cautious Optimism on Growth and Current Account
analysts. GDP growth marginally lifted to 4.8 per cent in
the April-September quarter from 4.4 per cent in the
preceding quarter and CAD fell to 1.2 per cent of GDP
from 5.0 per cent in the previous quarter. The good news
is that the economy seems to be bottoming out and
current account concerns too have retreated. The not-
so-good news is that GDP will only see a mild bounce
from the trough as drivers to crank up GDP growth
beyond 5 per cent in this fiscal year are absent. And, even
the reduction in CAD is largely due to artificial controls
on gold imports and the slowing economy. Let me
elaborate.The data on India's current account deficit (CAD) and
GDP released over the last one month has injected a
dose of mild optimism among policymakers and market
10ECONOMY MATTERS
Other Global Developments During the Month
v
v
v
v
The Fed surprised the market, announcing that it would reduce its bond buying program from US$ 85
billion/month to US$75billion/month. As per the announcement, Fed would trim its purchases of long-term
Treasury bonds to US$40 billion/month (from US$45 billion previously), and cut its purchases of mortgage-
backed securities (MBS) to US$35 billion/month (from US$40 billion previously).
Non-farm payrolls (NFP) in US increased by 203K in November 2013, much higher than market expectations of
an increase of 185K. Total job additions for September and October were revised to 163K and 200K respectively,
taking the 2013 monthly average to 187K as compared to 182K in 2012.
The unemployment rate in the UK fell to 7.4 per cent in the three months ending October 2013, as against 7.6 per
cent in the previous rolling quarter (ending September 2013). Notably, the number of unemployed people
declined 78,000 m-o-m (99,000 q-o-q) in October 2013, marking the highest monthly decline in more than the
past four decades, beating its previous highest fall of 71,000 in the quarter ending September 1997.
UK inflation fell to its 4-year lowest level in November 2013. The Consumer price Index (CPI) grew 2.1 per cent on
y-o-y basis last month, as against 2.2 per cent in October and 2.6 per cent a year ago. The largest negative
contributions came from 'food', wherein inflation eased from 4.3 per cent in October to 3.0 per cent in
November.
DOMESTIC TRENDS
11 NOVEMBER - DECEMBER 2013
Mr Dharmakirti JoshiMember, CII Economic Policy Council and
Chief Economist, CRISIL
Current Account Deficit SnapshotReal GDP Growth (y-o-y%)
6.56.0
5.3 5.55.3
4.7 4.84.4
4.8
2QFY
12
3QFY
12
4QFY
12
1QFY
13
2QFY
13
3QFY
13
4QFY
13
1QFY
14
2QFY
14
Source: CSO & RBI
22.6
32.6
18.121.8
5.2
5.4
6.7
3.6
4.9
1.2
8
6
4
2
0
35
30
25
20
15
10
5
0
2QFY13 3QFY13 4QFY13 1QFY14 2QFY14
CAD (US$ billion) CAD (as a % of GDP) RHS
Cautious Optimism on Growth and Current Account
analysts. GDP growth marginally lifted to 4.8 per cent in
the April-September quarter from 4.4 per cent in the
preceding quarter and CAD fell to 1.2 per cent of GDP
from 5.0 per cent in the previous quarter. The good news
is that the economy seems to be bottoming out and
current account concerns too have retreated. The not-
so-good news is that GDP will only see a mild bounce
from the trough as drivers to crank up GDP growth
beyond 5 per cent in this fiscal year are absent. And, even
the reduction in CAD is largely due to artificial controls
on gold imports and the slowing economy. Let me
elaborate.The data on India's current account deficit (CAD) and
GDP released over the last one month has injected a
dose of mild optimism among policymakers and market
10ECONOMY MATTERS
Other Global Developments During the Month
v
v
v
v
The Fed surprised the market, announcing that it would reduce its bond buying program from US$ 85
billion/month to US$75billion/month. As per the announcement, Fed would trim its purchases of long-term
Treasury bonds to US$40 billion/month (from US$45 billion previously), and cut its purchases of mortgage-
backed securities (MBS) to US$35 billion/month (from US$40 billion previously).
Non-farm payrolls (NFP) in US increased by 203K in November 2013, much higher than market expectations of
an increase of 185K. Total job additions for September and October were revised to 163K and 200K respectively,
taking the 2013 monthly average to 187K as compared to 182K in 2012.
The unemployment rate in the UK fell to 7.4 per cent in the three months ending October 2013, as against 7.6 per
cent in the previous rolling quarter (ending September 2013). Notably, the number of unemployed people
declined 78,000 m-o-m (99,000 q-o-q) in October 2013, marking the highest monthly decline in more than the
past four decades, beating its previous highest fall of 71,000 in the quarter ending September 1997.
UK inflation fell to its 4-year lowest level in November 2013. The Consumer price Index (CPI) grew 2.1 per cent on
y-o-y basis last month, as against 2.2 per cent in October and 2.6 per cent a year ago. The largest negative
contributions came from 'food', wherein inflation eased from 4.3 per cent in October to 3.0 per cent in
November.
DOMESTIC TRENDS
11 NOVEMBER - DECEMBER 2013
Mr Dharmakirti JoshiMember, CII Economic Policy Council and
Chief Economist, CRISIL
Current Account Deficit SnapshotReal GDP Growth (y-o-y%)
6.56.0
5.3 5.55.3
4.7 4.84.4
4.8
2QFY
12
3QFY
12
4QFY
12
1QFY
13
2QFY
13
3QFY
13
4QFY
13
1QFY
14
2QFY
14
Source: CSO & RBI
22.6
32.6
18.121.8
5.2
5.4
6.7
3.6
4.9
1.2
8
6
4
2
0
35
30
25
20
15
10
5
0
2QFY13 3QFY13 4QFY13 1QFY14 2QFY14
CAD (US$ billion) CAD (as a % of GDP) RHS
have been the culprit. The contraction in industrial
output however did not come as a surprise as it was
preceded by a decline in the core sector output (which
constitutes close to 38 per cent of the total index) by 0.6
per cent during the reporting month and a high base of
last year. The decline in output of eight core sector
industries - coal, crude oil, natural gas, refinery
products, fertilisers, steel, cement, electricity -- follows
Industrial output declined by 1.8 per cent in October
2013 as compared to 2.0 per cent growth in the previous
month and 8.4 per cent growth in the same period last
year. The decline in IIP during the month was
underpinned by contraction in many of its sub-sectors
such as manufacturing, mining, basic and consumer
goods. While high interest rates continue to impinge on
these sectoral growth rates, policy bottlenecks too
growth. Industrial growth picked up to 2.4 per cent in
Q2FY14 from a mere 0.2 per cent in the previous quarter.
But a large part of the industry, particularly linked to
investment and discretionary consumer spending
(automobiles, white goods etc) remains weak and will
grow at a slower pace than last year. Services growth,
too, remained weak at 5.9 per cent in the second
quarter.
The 4.8 per cent growth in GDP in Q2FY14 was propelled
by a mild upturn in industry and a sharp pick-up in
agriculture. Agriculture benefitted from a normal, well-
distributed monsoon (rains have been 6 per cent above
normal this year) and some sectors with rural exposure
such as tractors and two-wheelers gained from this. The
pick-up in exports in a few sectors such as textiles and
pharmaceuticals is providing a cushion to industrial
Supply-Side Components of GDP
Source : CSO
(y-o-y%) 1QFY13 2QFY13 Q1FY14 Q2FY14
GDP at factor cost 5.4 5.2 4.4 4.8
Agriculture 5.4 5.2 2.7 4.6
Industry 1.8 1.3 0.2 2.4
Services 7.7 7.6 6.6 5.9
Mining & quarrying 0.4 1.7 -2.8 -0.4
Manufacturing -1.0 0.1 -1.2 1.0
Construction 7.0 3.1 2.8 4.3
Electricity, gas & water supply 6.2 3.2 3.7 7.7
Trade, hotels, transport & communication 6.1 6.8 3.9 4.0
Financing, insurance, real estate & 9.3 8.3 8.9 10.0business services
Community, social & personal services 8.9 8.4 9.4 4.2
private corporate investment and manufacturing sector
are both revived, a material and sustainable lift in India's
GDP growth is unlikely.
The sharp drop in CAD was due to a variety of factors,
but not all of them can be treated as positive. The
improvement in CAD was due to: (i) curbs on gold
imports, ii) sharp slowdown in domestic demand, which
pulled down imports of consumption and investment
goods, and (iii) a weak rupee, which benefitted exports.
The steep fall in gold imports, due to duty hikes and
restrictions on imports, has been the dominant factor
behind the drop in CAD. This may not be sustainable and
curbs on gold imports will have to be eventually
withdrawn. As and when that happens, gold import
demand will once again escalate. It is, therefore, critical
to come out with attractive investment options that
provide a hedge against inflation. Successfully
launching an inflation indexed bond is one such option.
One positive spillover of slowing demand has been
reduced imports of both consumption and investment
Despite the recent pick-up, overall GDP growth will
remain sub-par at 4.8 per cent in 2013-14; GDP growth
will be marginally better in the second half (5.0 per cent)
compared with the first half (4.6 per cent).
In the short run, policymakers do not have instruments
to fire up growth; high deficits do not permit increase in
government spending to create demand and high
inflation precludes interest-rate cuts. The Reserve Bank
of India (RBI) recently raised interest rates to tame
inflation, which continues to stay above its tolerance
level. In addition, the private investment climate
continues to be weak due to tardy project clearances,
high interest rates and the added uncertainty of
impending general election results.
Not only has short-term growth come down, India's
medium-term potential too has been dented. With the
growth in the first two years of the 12th five year plan
(2012-2017) at 5 per cent per year, the growth for the
entire plan period is likely to be around 6 per cent per
year compared to 8 per cent in the previous plan. Unless
source their inputs domestically such as IT-ITES and
pharmaceuticals also benefited from a weak currency.
Consequently, exports grew by 11.9 per cent whereas
imports fell by 4.8 per cent in the second quarter of 2013-
14. The net result was a sharp contraction in India's trade
deficit. This together with a pick-up in remittances
narrowed the CAD to 1.2 per cent of GDP.
goods. This together with the sharp depreciation of the
rupee against the US dollar not only boosted exports but
also made imports less attractive. Textile exports got a
short in the arm from the weak rupee. The appreciation
of the Bangladesh Taka against the US dollar also
improved the relative competitiveness of India's textile
exports. Similarly, other export-oriented sectors that
12ECONOMY MATTERS 13 NOVEMBER - DECEMBER 2013
-4.6
-8.8
4.05.7
-1.5
11.9
-3.9-3.0
10.4
-1.0
4.7
-4.8
1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14
Exports Imports
Growth in Merchandise Exports & Imports (y-o-y%)
Source: RBI
by entering into currency swap agreements (notable
being the US$50 billion agreement with Japan). These
developments have helped stabilise the rupee, which
has been extremely volatile in recent months and
touched a low of over 68/US$ in August.
This is, however, a short term fix. India should use this
opportunity to fix its innards in the external sector -
make exports competitive and come out with viable
alternatives to gold investments. Unless that happens,
CAD worries could come to haunt us again when the
curbs on gold imports are lifted and the domestic
economy begins to look up.
A low CAD implies reduced dependence on foreign
inflows, which vary with global risk appetite and
liquidity. The global environment still remains fragile
with US Fed tapering a key risk to both global risk
appetite as well as liquidity. The postponement of the
taper provided India a window of opportunity to trim its
CAD and also improve its financing.
From a short-term crisis management perspective, we
have done well on both counts. We reduced our external
vulnerability by cutting CAD while improving capital
inflows through innovative schemes for attracting NRI
deposits and building a cushion against external shocks
Industrial Growth Disappoints in October 2013
have been the culprit. The contraction in industrial
output however did not come as a surprise as it was
preceded by a decline in the core sector output (which
constitutes close to 38 per cent of the total index) by 0.6
per cent during the reporting month and a high base of
last year. The decline in output of eight core sector
industries - coal, crude oil, natural gas, refinery
products, fertilisers, steel, cement, electricity -- follows
Industrial output declined by 1.8 per cent in October
2013 as compared to 2.0 per cent growth in the previous
month and 8.4 per cent growth in the same period last
year. The decline in IIP during the month was
underpinned by contraction in many of its sub-sectors
such as manufacturing, mining, basic and consumer
goods. While high interest rates continue to impinge on
these sectoral growth rates, policy bottlenecks too
growth. Industrial growth picked up to 2.4 per cent in
Q2FY14 from a mere 0.2 per cent in the previous quarter.
But a large part of the industry, particularly linked to
investment and discretionary consumer spending
(automobiles, white goods etc) remains weak and will
grow at a slower pace than last year. Services growth,
too, remained weak at 5.9 per cent in the second
quarter.
The 4.8 per cent growth in GDP in Q2FY14 was propelled
by a mild upturn in industry and a sharp pick-up in
agriculture. Agriculture benefitted from a normal, well-
distributed monsoon (rains have been 6 per cent above
normal this year) and some sectors with rural exposure
such as tractors and two-wheelers gained from this. The
pick-up in exports in a few sectors such as textiles and
pharmaceuticals is providing a cushion to industrial
Supply-Side Components of GDP
Source : CSO
(y-o-y%) 1QFY13 2QFY13 Q1FY14 Q2FY14
GDP at factor cost 5.4 5.2 4.4 4.8
Agriculture 5.4 5.2 2.7 4.6
Industry 1.8 1.3 0.2 2.4
Services 7.7 7.6 6.6 5.9
Mining & quarrying 0.4 1.7 -2.8 -0.4
Manufacturing -1.0 0.1 -1.2 1.0
Construction 7.0 3.1 2.8 4.3
Electricity, gas & water supply 6.2 3.2 3.7 7.7
Trade, hotels, transport & communication 6.1 6.8 3.9 4.0
Financing, insurance, real estate & 9.3 8.3 8.9 10.0business services
Community, social & personal services 8.9 8.4 9.4 4.2
private corporate investment and manufacturing sector
are both revived, a material and sustainable lift in India's
GDP growth is unlikely.
The sharp drop in CAD was due to a variety of factors,
but not all of them can be treated as positive. The
improvement in CAD was due to: (i) curbs on gold
imports, ii) sharp slowdown in domestic demand, which
pulled down imports of consumption and investment
goods, and (iii) a weak rupee, which benefitted exports.
The steep fall in gold imports, due to duty hikes and
restrictions on imports, has been the dominant factor
behind the drop in CAD. This may not be sustainable and
curbs on gold imports will have to be eventually
withdrawn. As and when that happens, gold import
demand will once again escalate. It is, therefore, critical
to come out with attractive investment options that
provide a hedge against inflation. Successfully
launching an inflation indexed bond is one such option.
One positive spillover of slowing demand has been
reduced imports of both consumption and investment
Despite the recent pick-up, overall GDP growth will
remain sub-par at 4.8 per cent in 2013-14; GDP growth
will be marginally better in the second half (5.0 per cent)
compared with the first half (4.6 per cent).
In the short run, policymakers do not have instruments
to fire up growth; high deficits do not permit increase in
government spending to create demand and high
inflation precludes interest-rate cuts. The Reserve Bank
of India (RBI) recently raised interest rates to tame
inflation, which continues to stay above its tolerance
level. In addition, the private investment climate
continues to be weak due to tardy project clearances,
high interest rates and the added uncertainty of
impending general election results.
Not only has short-term growth come down, India's
medium-term potential too has been dented. With the
growth in the first two years of the 12th five year plan
(2012-2017) at 5 per cent per year, the growth for the
entire plan period is likely to be around 6 per cent per
year compared to 8 per cent in the previous plan. Unless
source their inputs domestically such as IT-ITES and
pharmaceuticals also benefited from a weak currency.
Consequently, exports grew by 11.9 per cent whereas
imports fell by 4.8 per cent in the second quarter of 2013-
14. The net result was a sharp contraction in India's trade
deficit. This together with a pick-up in remittances
narrowed the CAD to 1.2 per cent of GDP.
goods. This together with the sharp depreciation of the
rupee against the US dollar not only boosted exports but
also made imports less attractive. Textile exports got a
short in the arm from the weak rupee. The appreciation
of the Bangladesh Taka against the US dollar also
improved the relative competitiveness of India's textile
exports. Similarly, other export-oriented sectors that
12ECONOMY MATTERS 13 NOVEMBER - DECEMBER 2013
-4.6
-8.8
4.05.7
-1.5
11.9
-3.9-3.0
10.4
-1.0
4.7
-4.8
1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14
Exports Imports
Growth in Merchandise Exports & Imports (y-o-y%)
Source: RBI
by entering into currency swap agreements (notable
being the US$50 billion agreement with Japan). These
developments have helped stabilise the rupee, which
has been extremely volatile in recent months and
touched a low of over 68/US$ in August.
This is, however, a short term fix. India should use this
opportunity to fix its innards in the external sector -
make exports competitive and come out with viable
alternatives to gold investments. Unless that happens,
CAD worries could come to haunt us again when the
curbs on gold imports are lifted and the domestic
economy begins to look up.
A low CAD implies reduced dependence on foreign
inflows, which vary with global risk appetite and
liquidity. The global environment still remains fragile
with US Fed tapering a key risk to both global risk
appetite as well as liquidity. The postponement of the
taper provided India a window of opportunity to trim its
CAD and also improve its financing.
From a short-term crisis management perspective, we
have done well on both counts. We reduced our external
vulnerability by cutting CAD while improving capital
inflows through innovative schemes for attracting NRI
deposits and building a cushion against external shocks
Industrial Growth Disappoints in October 2013
OutlookThe negative growth in industrial performance evidenced at the threshold of the third quarter is disappointing. No
doubt, the high base effect of last year could have been partly responsible for the slowdown in growth. But this
does not dispel the impression that the growth impulses continue to remain weak. CII fully appreciates RBI's
compulsions to keep inflation under check, however, it is also important that the RBI takes cognizance of the steep
slide of industrial production and revert to the accommodative monetary policy to revive demand. However,
easing monetary policy alone is not sufficient. Efforts should be made to ensure that the structural bottlenecks and
other hurdles which constrain investment even after the project has been approved by CCI is checked so that the
actual impact of project clearance is seen on the ground.
territory in October 2013. On a cumulative basis, for the
first seven months of the fiscal, IIP growth remained flat.
a robust 8 per cent growth in September 2013. The
sequential momentum declined too as the seasonally-
adjusted month-on-month series slid into the negative
compared to decline of 6.7 per cent in the previous
month, despite an adverse base effect. This actually
helped to prop up the headline number to some extent
as IIP excluding capital goods would have contracted by
2.4 per cent. Consumer goods remains a drag primarily
led by the continuing weakness in the durables sector,
which was on expected lines as lead indicators such as
passenger car sales had shown a contraction in October
2013 despite festive season demand. During the month,
consumer goods sector showed de-growth to the tune
of 5.1 per cent in October 2013 as compared to positive
growth of 0.7 per cent in the previous month. The
continued poor performance by consumer durables
since last the last three quarters, wherein it remained in
the negative territory, is a matter of concern as it is
widely regarded as a proxy for consumption growth.
Non-durables, on the other hand, remained in the
positive territory, albeit showing a sharp moderation in
output in October 2013 as compared to the previous
month. Going ahead, we expect recovery in this
component as high growth in agricultural GDP this year
will support rural demand, which will prop up non-
durables even if urban demand remains weak.
On the sectoral front, manufacturing sector production
declined by 2.0 per cent in October 2013 as compared to
0.6 per cent growth in the previous month. This is the
fourth negative data print so far in this fiscal and has
elevated the upside risks to growth. In terms of
industries, ten (10) out of the twenty two (22) industry
groups (as per 2-digit NIC-2004) in the manufacturing
sector have shown negative growth during the month of
October 2013. It's pivotal for the policy makers to
announce measures to revive this ailing sector as its
rebound is critical for aiding the pickup in overall
industrial growth. Meanwhile, regulatory and
environmental issues continued to plague the mining
sector, as it contracted by 3.5 per cent in October 2013
and proved that the lone positive growth data print in
September 2013 was a mere aberration. Electricity
sector growth, which has remained on a strong footing
since last couple of months, witnessed a downward
momentum in October 2013 as its growth decelerated to
1.3 per cent as compared to a healthy 8.4 per cent
average growth from July-September 2013.
On the use-based front, the consistently volatile capital
goods segment surprised by coming in at 2.3 per cent as
-2.0 -1.8
10
5
0
-5
Jun/
12
Aug
/12
Oct
/12
Dec
/12
Feb
/13
Apr
/13
Jun/
13
Aug
/13
Oct
/13
y-o-y% SA m-o-m%
IIP Contracts in October 2013
Source: CSO & CII calculations
Sectoral Growth (y-o-y, %)
Source : CSO
General 1000.0 8.4 0.4 2.0 -1.8 1.2 0.0
Manufacturing 755.3 9.9 -0.2 0.6 -2.0 1.1 -0.3
Mining 141.6 -0.2 -1.0 3.3 -3.5 -1.0 -2.7
Electricity 103.2 5.5 7.2 12.9 1.3 4.7 5.3
Use-Based
Basic 456.8 4.3 1.1 5.3 -1.6 2.9 0.7
Capital 88.3 7.0 -2.0 -6.7 2.3 -11.6 -0.2
Intermediates 156.9 9.6 3.7 4.2 1.8 2.3 2.5
Consumer Goods 298.1 13.8 -0.9 0.7 -5.1 4.2 -1.8
-Durables 84.6 16.7 -7.7 -10.8 -12.0 5.7 -11.2
-Non durables 213.5 11.2 4.8 11.6 1.8 2.8 6.7
Apr-Oct
Weight Oct-12 Aug-13 Sept-13 Oct-13 FY13 FY14
14 15 NOVEMBER - DECEMBER 2013
worrying development, the September inflation
reading was revised up to 7.1 per cent versus provisional
print of 6.5 per cent. To be sure, consumer prices based
inflation (CPI) too quickened to 11.2 per cent in October
2013 from 10.1 per cent in the previous month. Rising
food prices have continued to remain the key driver
behind the jump in both WPI and CPI inflation in the last
few months. Additionally, the continued pass-through
from the weakening of the exchange rate has also
contributed towards pushing the headline inflation
number higher.
WPI inflation accelerated to more than one year high of
7.5 per cent in November 2013 as compared to 7.0 per
cent in the previous month on the back of increase in
food and fuel inflation. Amongst the food prices,
vegetable prices were the main driver which rose to a
record high of 95.3 per cent during the month. This is the
sixth straight month that wholesale inflation has
remained above the Reserve Bank of India's comfort
zone of 5 per cent and in the last four months has even
inched to 7 per cent. Indicating the upward sequential
momentum, the seasonally-adjusted month-on-month
series climbed to 1.0 per cent during the month. In a
Inflation Rises to 14-month High in October 2013
ECONOMY MATTERS
OutlookThe negative growth in industrial performance evidenced at the threshold of the third quarter is disappointing. No
doubt, the high base effect of last year could have been partly responsible for the slowdown in growth. But this
does not dispel the impression that the growth impulses continue to remain weak. CII fully appreciates RBI's
compulsions to keep inflation under check, however, it is also important that the RBI takes cognizance of the steep
slide of industrial production and revert to the accommodative monetary policy to revive demand. However,
easing monetary policy alone is not sufficient. Efforts should be made to ensure that the structural bottlenecks and
other hurdles which constrain investment even after the project has been approved by CCI is checked so that the
actual impact of project clearance is seen on the ground.
territory in October 2013. On a cumulative basis, for the
first seven months of the fiscal, IIP growth remained flat.
a robust 8 per cent growth in September 2013. The
sequential momentum declined too as the seasonally-
adjusted month-on-month series slid into the negative
compared to decline of 6.7 per cent in the previous
month, despite an adverse base effect. This actually
helped to prop up the headline number to some extent
as IIP excluding capital goods would have contracted by
2.4 per cent. Consumer goods remains a drag primarily
led by the continuing weakness in the durables sector,
which was on expected lines as lead indicators such as
passenger car sales had shown a contraction in October
2013 despite festive season demand. During the month,
consumer goods sector showed de-growth to the tune
of 5.1 per cent in October 2013 as compared to positive
growth of 0.7 per cent in the previous month. The
continued poor performance by consumer durables
since last the last three quarters, wherein it remained in
the negative territory, is a matter of concern as it is
widely regarded as a proxy for consumption growth.
Non-durables, on the other hand, remained in the
positive territory, albeit showing a sharp moderation in
output in October 2013 as compared to the previous
month. Going ahead, we expect recovery in this
component as high growth in agricultural GDP this year
will support rural demand, which will prop up non-
durables even if urban demand remains weak.
On the sectoral front, manufacturing sector production
declined by 2.0 per cent in October 2013 as compared to
0.6 per cent growth in the previous month. This is the
fourth negative data print so far in this fiscal and has
elevated the upside risks to growth. In terms of
industries, ten (10) out of the twenty two (22) industry
groups (as per 2-digit NIC-2004) in the manufacturing
sector have shown negative growth during the month of
October 2013. It's pivotal for the policy makers to
announce measures to revive this ailing sector as its
rebound is critical for aiding the pickup in overall
industrial growth. Meanwhile, regulatory and
environmental issues continued to plague the mining
sector, as it contracted by 3.5 per cent in October 2013
and proved that the lone positive growth data print in
September 2013 was a mere aberration. Electricity
sector growth, which has remained on a strong footing
since last couple of months, witnessed a downward
momentum in October 2013 as its growth decelerated to
1.3 per cent as compared to a healthy 8.4 per cent
average growth from July-September 2013.
On the use-based front, the consistently volatile capital
goods segment surprised by coming in at 2.3 per cent as
-2.0 -1.8
10
5
0
-5
Jun/
12
Aug
/12
Oct
/12
Dec
/12
Feb
/13
Apr
/13
Jun/
13
Aug
/13
Oct
/13
y-o-y% SA m-o-m%
IIP Contracts in October 2013
Source: CSO & CII calculations
Sectoral Growth (y-o-y, %)
Source : CSO
General 1000.0 8.4 0.4 2.0 -1.8 1.2 0.0
Manufacturing 755.3 9.9 -0.2 0.6 -2.0 1.1 -0.3
Mining 141.6 -0.2 -1.0 3.3 -3.5 -1.0 -2.7
Electricity 103.2 5.5 7.2 12.9 1.3 4.7 5.3
Use-Based
Basic 456.8 4.3 1.1 5.3 -1.6 2.9 0.7
Capital 88.3 7.0 -2.0 -6.7 2.3 -11.6 -0.2
Intermediates 156.9 9.6 3.7 4.2 1.8 2.3 2.5
Consumer Goods 298.1 13.8 -0.9 0.7 -5.1 4.2 -1.8
-Durables 84.6 16.7 -7.7 -10.8 -12.0 5.7 -11.2
-Non durables 213.5 11.2 4.8 11.6 1.8 2.8 6.7
Apr-Oct
Weight Oct-12 Aug-13 Sept-13 Oct-13 FY13 FY14
14 15 NOVEMBER - DECEMBER 2013
worrying development, the September inflation
reading was revised up to 7.1 per cent versus provisional
print of 6.5 per cent. To be sure, consumer prices based
inflation (CPI) too quickened to 11.2 per cent in October
2013 from 10.1 per cent in the previous month. Rising
food prices have continued to remain the key driver
behind the jump in both WPI and CPI inflation in the last
few months. Additionally, the continued pass-through
from the weakening of the exchange rate has also
contributed towards pushing the headline inflation
number higher.
WPI inflation accelerated to more than one year high of
7.5 per cent in November 2013 as compared to 7.0 per
cent in the previous month on the back of increase in
food and fuel inflation. Amongst the food prices,
vegetable prices were the main driver which rose to a
record high of 95.3 per cent during the month. This is the
sixth straight month that wholesale inflation has
remained above the Reserve Bank of India's comfort
zone of 5 per cent and in the last four months has even
inched to 7 per cent. Indicating the upward sequential
momentum, the seasonally-adjusted month-on-month
series climbed to 1.0 per cent during the month. In a
Inflation Rises to 14-month High in October 2013
ECONOMY MATTERS
7.7
7.5
9.4
11.212
10
8
6
4
2
Mar
-12
May
-12
Jul-1
2
Sep
-12
Nov
-12
Jan-
13
Mar
-13
May
-13
Jul-1
3
Sep
-13
Nov
-13
WPI y-o-y% CPI (Combined) y-o-y%
Both WPI & CPI Inflation Remain High
Source: Office of Economic Advisor
month. High-speed diesel inflation rose to 15.7 per cent
with in October 2013 as compared to 14.7 per cent in the
previous month. Going forward, we expect fuel inflation
to moderate due to stabilisation witnessed in global
crude prices and the recent strengthening of the Rupee.
Manufacturing inflation marginally increased to 2.6 per
cent in October 2013 as compared to 2.5 per cent in the
last month. Non-food manufacturing, which is widely
regarded as the proxy for demand-side pressures in the
economy, too increased marginally to 2.7 per cent
during the reporting month as compared to 2.6 per cent
last month. The persistent rise in primary food inflation
in this fiscal is now leading to a pass-through effect on
manufactured food products where the food prices rose
by 2.5 per cent in October 2013 as compared to 1.9 per
cent in the previous month. Mirroring the increasing
trend in primary and manufacturing food inflation, total
food inflation (primary and manufacturing) too rose to
13.8 per cent from 12.4 per cent in the previous month.
Primary inflation jumped sharply to 15.9 per cent in
November 2013 (highest value since February 2011) as
compared to 14.7 per cent in the previous month. This
was mainly attributable to the spike in food inflation to a
high of 19.9 per cent as against 18.2 per cent in October
2013. The major increase in the food inflation came on
account of a rise in inflation in vegetables, which rose
due to supply-side inefficiencies in the vegetable
market. Going forward, vegetable prices are expected
to come down due to off-load of fresh vegetable supply
in the market in December 2013. Non-food inflation too
increased to 7.6 per cent as against 6.8 per cent in the
previous month. In contrast, inflation in minerals
decelerated to 6.1 per cent as compared to 7.0 per cent
in the previous month.
Fuel inflation increased to 11.1 per cent in October 2013 as
against 10.3 per cent in the previous month, driven by
rise in administered fuel components like diesel prices
and LPG prices. An adverse base effect was also partly
responsible in pushing fuel prices higher during the
Sectoral Components of Inflation
Source: Office of Economic Advisor
OutlookThe continued rise in both WPI and CPI inflation has raised red flags in the economy. Persistence of high food prices
has lent an upward bias to the inflation trajectory. Notwithstanding the expected moderation in food prices going
forward due to the fresh stock of vegetable supply hitting the market, the food shock prevalent since last many
months has started to become increasingly generalised, which in all probability will keep headline number elevated
for the next few months. However, the lagged effects of effective monetary tightening since September 2013,
should also exert an opposite force on inflation.
RBI Keeps Policy Rate Unchanged RBI chose to keep the key interest rates unchanged in its mid-quarter monetary policy review held on December
18th, 2013. The repo rate was maintained at 7.75 per cent, and accordingly reverse repo and marginal standing
facility (MSF) remain unchanged at 6.75 and 8.75 per cent, respectively. Though the market participants were
expecting the RBI to hike the key repo rate by atleast 25 bps, RBI chose to maintain a 'status-quo', citing
expectations of tapering of inflation going forward along with weak state of the economy. CII welcomes this RBI's
move. However, RBI clearly admitted in its policy statement that its decision was a close one as it would prefer
waiting for more data points to reduce uncertainty. In the same vein, it also added that there are obvious risks to
waiting for more data, including the possibility that tapering of quantitative easing by the US Fed may disrupt
external markets and that it may be perceived to be soft on inflation. The Central Bank also made it amply clear that
if the next round of data releases does not go on expected lines and throws up some surprises, it will act including on
off-policy dates if warranted, so that inflation expectations stabilise and an environment conducive to sustainable
growth takes hold.
Know Your Facts: Shadow Banking*Shadow banking refers to a "bank-like" activity outside the banking system. The Financial Stability Board (FSB),
which coordinates among financial authorities at the international level, defines shadow banking as "credit
intermediation involving entities and activities outside the regular banking system". Globally, the size of shadow
baking has grown significantly in the recent years. According to FSB, its global size went up from the level of $26
trillion in 2002 to $62 trillion in 2007. The activity suffered a bit during the financial crisis, but reached a level of $67
trillion in 2011, which is 111 per cent of the global gross domestic products (GDP). The term shadow banking itself is
relatively new and gained currency just before the financial crisis. Institutions outside the banking system in the
developed world, especially in the US, were leveraging themselves to accumulate assets and were, to a large
extent, responsible for the meltdown in 2008. There are different ways and different reasons for the rise of shadow
banking. In an economy where banking system is not adequately spread, something will come in to fill the vacuum.
In India, as per RBI data, the assets of the shadow banking system (in India) accounted for 21 per cent of GDP
compared with bank assets which were 86 per cent of GDP. However, a variety of institutions, such as non-banking
financial institutions, that are part of the shadow banking system is regulated in India.
General 100.0 7.2 7.0 7.0 7.5 7.6 6.1
Primary 20.1 9.6 14.0 14.7 15.9 9.7 11.0
- Food 14.3 8.8 18.7 18.2 19.9 9.4 14.2
- Non-Food 4.3 14.0 4.9 6.8 7.6 10.0 5.8
- Minerals 1.5 6.9 2.3 7.0 6.1 11.3 0.9
Fuel 14.9 10.0 11.7 10.3 11.1 10.8 10.1
- Petrol 1.1 1.5 9.6 5.3 4.4 8.0 1.9
- High Speed Diesel 4.7 14.6 20.2 14.7 15.7 8.0 21.0
Manufacturing 65.0 5.4 2.4 2.5 2.6 5.7 2.8
- Food 10.0 9.2 1.6 1.9 2.5 8.0 4.1
- Non-food 55.0 4.6 2.5 2.6 2.7 5.3 2.5
April-Nov
Weight Nov-12 Sept-13 Oct-13 Nov-13 FY13 Fy14
*Adapted from Mint, dated June 20, 2013
17 NOVEMBER - DECEMBER 201316ECONOMY MATTERS
7.7
7.5
9.4
11.212
10
8
6
4
2
Mar
-12
May
-12
Jul-1
2
Sep
-12
Nov
-12
Jan-
13
Mar
-13
May
-13
Jul-1
3
Sep
-13
Nov
-13
WPI y-o-y% CPI (Combined) y-o-y%
Both WPI & CPI Inflation Remain High
Source: Office of Economic Advisor
month. High-speed diesel inflation rose to 15.7 per cent
with in October 2013 as compared to 14.7 per cent in the
previous month. Going forward, we expect fuel inflation
to moderate due to stabilisation witnessed in global
crude prices and the recent strengthening of the Rupee.
Manufacturing inflation marginally increased to 2.6 per
cent in October 2013 as compared to 2.5 per cent in the
last month. Non-food manufacturing, which is widely
regarded as the proxy for demand-side pressures in the
economy, too increased marginally to 2.7 per cent
during the reporting month as compared to 2.6 per cent
last month. The persistent rise in primary food inflation
in this fiscal is now leading to a pass-through effect on
manufactured food products where the food prices rose
by 2.5 per cent in October 2013 as compared to 1.9 per
cent in the previous month. Mirroring the increasing
trend in primary and manufacturing food inflation, total
food inflation (primary and manufacturing) too rose to
13.8 per cent from 12.4 per cent in the previous month.
Primary inflation jumped sharply to 15.9 per cent in
November 2013 (highest value since February 2011) as
compared to 14.7 per cent in the previous month. This
was mainly attributable to the spike in food inflation to a
high of 19.9 per cent as against 18.2 per cent in October
2013. The major increase in the food inflation came on
account of a rise in inflation in vegetables, which rose
due to supply-side inefficiencies in the vegetable
market. Going forward, vegetable prices are expected
to come down due to off-load of fresh vegetable supply
in the market in December 2013. Non-food inflation too
increased to 7.6 per cent as against 6.8 per cent in the
previous month. In contrast, inflation in minerals
decelerated to 6.1 per cent as compared to 7.0 per cent
in the previous month.
Fuel inflation increased to 11.1 per cent in October 2013 as
against 10.3 per cent in the previous month, driven by
rise in administered fuel components like diesel prices
and LPG prices. An adverse base effect was also partly
responsible in pushing fuel prices higher during the
Sectoral Components of Inflation
Source: Office of Economic Advisor
OutlookThe continued rise in both WPI and CPI inflation has raised red flags in the economy. Persistence of high food prices
has lent an upward bias to the inflation trajectory. Notwithstanding the expected moderation in food prices going
forward due to the fresh stock of vegetable supply hitting the market, the food shock prevalent since last many
months has started to become increasingly generalised, which in all probability will keep headline number elevated
for the next few months. However, the lagged effects of effective monetary tightening since September 2013,
should also exert an opposite force on inflation.
RBI Keeps Policy Rate Unchanged RBI chose to keep the key interest rates unchanged in its mid-quarter monetary policy review held on December
18th, 2013. The repo rate was maintained at 7.75 per cent, and accordingly reverse repo and marginal standing
facility (MSF) remain unchanged at 6.75 and 8.75 per cent, respectively. Though the market participants were
expecting the RBI to hike the key repo rate by atleast 25 bps, RBI chose to maintain a 'status-quo', citing
expectations of tapering of inflation going forward along with weak state of the economy. CII welcomes this RBI's
move. However, RBI clearly admitted in its policy statement that its decision was a close one as it would prefer
waiting for more data points to reduce uncertainty. In the same vein, it also added that there are obvious risks to
waiting for more data, including the possibility that tapering of quantitative easing by the US Fed may disrupt
external markets and that it may be perceived to be soft on inflation. The Central Bank also made it amply clear that
if the next round of data releases does not go on expected lines and throws up some surprises, it will act including on
off-policy dates if warranted, so that inflation expectations stabilise and an environment conducive to sustainable
growth takes hold.
Know Your Facts: Shadow Banking*Shadow banking refers to a "bank-like" activity outside the banking system. The Financial Stability Board (FSB),
which coordinates among financial authorities at the international level, defines shadow banking as "credit
intermediation involving entities and activities outside the regular banking system". Globally, the size of shadow
baking has grown significantly in the recent years. According to FSB, its global size went up from the level of $26
trillion in 2002 to $62 trillion in 2007. The activity suffered a bit during the financial crisis, but reached a level of $67
trillion in 2011, which is 111 per cent of the global gross domestic products (GDP). The term shadow banking itself is
relatively new and gained currency just before the financial crisis. Institutions outside the banking system in the
developed world, especially in the US, were leveraging themselves to accumulate assets and were, to a large
extent, responsible for the meltdown in 2008. There are different ways and different reasons for the rise of shadow
banking. In an economy where banking system is not adequately spread, something will come in to fill the vacuum.
In India, as per RBI data, the assets of the shadow banking system (in India) accounted for 21 per cent of GDP
compared with bank assets which were 86 per cent of GDP. However, a variety of institutions, such as non-banking
financial institutions, that are part of the shadow banking system is regulated in India.
General 100.0 7.2 7.0 7.0 7.5 7.6 6.1
Primary 20.1 9.6 14.0 14.7 15.9 9.7 11.0
- Food 14.3 8.8 18.7 18.2 19.9 9.4 14.2
- Non-Food 4.3 14.0 4.9 6.8 7.6 10.0 5.8
- Minerals 1.5 6.9 2.3 7.0 6.1 11.3 0.9
Fuel 14.9 10.0 11.7 10.3 11.1 10.8 10.1
- Petrol 1.1 1.5 9.6 5.3 4.4 8.0 1.9
- High Speed Diesel 4.7 14.6 20.2 14.7 15.7 8.0 21.0
Manufacturing 65.0 5.4 2.4 2.5 2.6 5.7 2.8
- Food 10.0 9.2 1.6 1.9 2.5 8.0 4.1
- Non-food 55.0 4.6 2.5 2.6 2.7 5.3 2.5
April-Nov
Weight Nov-12 Sept-13 Oct-13 Nov-13 FY13 Fy14
*Adapted from Mint, dated June 20, 2013
17 NOVEMBER - DECEMBER 201316ECONOMY MATTERS
identifying the exemptions and determination of RNR.
An important pending issue is finalisation of the rules
relating to 'Place and Time of Supply of Goods &
Services'. On the issue of Dual GST, the States have
sought to administer and collect on Centre's behalf
CGST as well, for Small Business with a threshold of
annual turn-over of Rs 1.5 crore. While opposing this
move, the Centre pointed out that a slew of measures
including use of robust technology would mitigate the
apprehensions of the Small Business on dual control.
The issue of collection of SGST in inter-state transactions
by Centre was closed in the First Discussion Paper itself
when the Integrated GST (IGST) model was chosen. But
some States have desired to administer SGST on inter-
state transactions as well. Final decision on these
important technical issues are critical for designing the
GST-Net, a special purpose vehicle that would provide
the IT support for GST business processes.
Thus, besides the issue of Constitutional amendment,
lot of grounds will have to be covered on technical
issues as well before a decent dual GST can be
introduced. In the light of the seemingly endless
negotiations on these critical issues, a question
therefore arises whether the Centre should seriously
consider introducing its own Central GST by bringing all
Central indirect taxes within its ambit. This would not
require any Constitutional amendment. In fact, Sijbren
Cnossen, an international VAT expert, has recently
suggested precisely this. He has inter alia suggested that
the Centre should proceed to introduce its own GST on
as broad a base as possible and apply a single, uniform
low rate. It would then be upto the States to introduce a
similar GST. He felt that it would be 'easier with an
overarching modern GST at the Central level'. This is a
pragmatic idea, which deserves careful consideration.
The bottom-line, however, is that any further critical
decision with respect to GST will have to wait until the
next General Elections in 2014.
norms are not violated. The Parliamentary Standing
Committee on Finance chaired by Yashwant Sinha
submitted its report on the Bill in July 2013. It made an
unequivocal endorsement of the Dual GST structure.
While making recommendations on various provisions
of the Bill, the all-party Committee also allayed the fears
of some of the States about loss of fiscal autonomy.
The Centre accepted most of the Committee's
recommendations and sent a revised Bill for
endorsement by the States. Some of the features of the
Revised Bill were as follows. The stipulation regarding
'consensus' before every decision of the GST Council
was replaced by 'voting'. The provision regarding GST
Dispute Settlement Authority was dropped, and instead
GST Council was to deal with the disputes. Certain critical
items like Petroleum and Petroleum products, Alcohol
etc were not to be excluded from the ambit of GST in the
Constitutional provision itself. The 'entry tax' including
'Octroi' was to be subsumed in the GST. In deference to
the Committee's observations, the Centre also suitably
modified the provisions regarding 'Declared Goods' by
bringing the GST Council in the loop.
The States, however, in the November meeting of the EC
opposed most of the views of the Centre. They insisted
on retaining the exclusion clause relating to Petroleum,
Alcohol etc in the Constitution itself. They opposed
subsuming of 'entry tax'. They even opposed the
existing Constitutional authority of the Centre with
regard to 'Declared Goods'. They also reiterated the
demand for a formal Constitutional mechanism for
compensating the States for possible revenue loss after
introduction of GST. Against this backdrop, one will now
have to wait for the new Lok Sabha to deal with a new
Amendment Bill after the general elections.
Among the technical issues, agreement has been
reached on 'threshold' which would be an annual
turnover of Rs. 25 lakhs. Exercise is continuing on
GST is Inevitable; - But Only After Next General Elections!
the Empowered Committee of State Finance Ministers
(EC) was tasked to steer the introduction of GST as well.
In November 2009, the EC came out with the First
Discussion Paper on GST which outlined its broad
structures and flagged the issues to be sorted out
between Centre and the States. Some such issues were
determination of 'Threshold' above which GST would be
applicable, items and taxes that would remain outside
its ambit, identification of exemptions, determination of
Revenue Neutral Rates (RNR) and GST rates, and
designing a mechanism of administering Dual Control by
Centre and the States. On taxation of inter-state
transaction of goods and services, it endorsed the
scheme of Integrated GST (IGST) proposed by the
Centre, in terms of which the IGST on inter-state
transactions would be levied and collected by Centre
and distributed to the destination States.
The other important issue was the need for amendment
of the Constitution. The Centre had placed a
Constitution Amendment Bill (the Bill) before
Parliament in March 2011. Besides empowering both
Centre and the States for collecting GST, the Bill
proposed creation of a 'GST Council' and a Dispute
Settlement Authority (DSA) so as to ensure that the GST
Goods and Service Tax (GST) is designed to facilitate
seamless flow of goods and services throughout
the country. With its introduction, there will be minimal
cascading effect of taxing the taxes because of input tax
credit at each taxation point, and optimum contact
between taxpayers and taxmen since its administering
would be technology driven. There will be two streams
of GST - the Central GST and the States GST. The two tax
administrations will have commonality of law,
procedure and dispute resolution mechanisms. Due to
substantially higher tax base, the GST rate is expected to
be low, and that would bring down the price of the
goods and services.
With the success of Value Added Tax (VAT) in the States,
TAXATIONGuest Article
(Views are personal)
18ECONOMY MATTERS 19 NOVEMBER - DECEMBER 2013
Mr Sumit Dutt Mazumdar
Indirect Tax Ombudsman andFormer Chairman, CBEC
identifying the exemptions and determination of RNR.
An important pending issue is finalisation of the rules
relating to 'Place and Time of Supply of Goods &
Services'. On the issue of Dual GST, the States have
sought to administer and collect on Centre's behalf
CGST as well, for Small Business with a threshold of
annual turn-over of Rs 1.5 crore. While opposing this
move, the Centre pointed out that a slew of measures
including use of robust technology would mitigate the
apprehensions of the Small Business on dual control.
The issue of collection of SGST in inter-state transactions
by Centre was closed in the First Discussion Paper itself
when the Integrated GST (IGST) model was chosen. But
some States have desired to administer SGST on inter-
state transactions as well. Final decision on these
important technical issues are critical for designing the
GST-Net, a special purpose vehicle that would provide
the IT support for GST business processes.
Thus, besides the issue of Constitutional amendment,
lot of grounds will have to be covered on technical
issues as well before a decent dual GST can be
introduced. In the light of the seemingly endless
negotiations on these critical issues, a question
therefore arises whether the Centre should seriously
consider introducing its own Central GST by bringing all
Central indirect taxes within its ambit. This would not
require any Constitutional amendment. In fact, Sijbren
Cnossen, an international VAT expert, has recently
suggested precisely this. He has inter alia suggested that
the Centre should proceed to introduce its own GST on
as broad a base as possible and apply a single, uniform
low rate. It would then be upto the States to introduce a
similar GST. He felt that it would be 'easier with an
overarching modern GST at the Central level'. This is a
pragmatic idea, which deserves careful consideration.
The bottom-line, however, is that any further critical
decision with respect to GST will have to wait until the
next General Elections in 2014.
norms are not violated. The Parliamentary Standing
Committee on Finance chaired by Yashwant Sinha
submitted its report on the Bill in July 2013. It made an
unequivocal endorsement of the Dual GST structure.
While making recommendations on various provisions
of the Bill, the all-party Committee also allayed the fears
of some of the States about loss of fiscal autonomy.
The Centre accepted most of the Committee's
recommendations and sent a revised Bill for
endorsement by the States. Some of the features of the
Revised Bill were as follows. The stipulation regarding
'consensus' before every decision of the GST Council
was replaced by 'voting'. The provision regarding GST
Dispute Settlement Authority was dropped, and instead
GST Council was to deal with the disputes. Certain critical
items like Petroleum and Petroleum products, Alcohol
etc were not to be excluded from the ambit of GST in the
Constitutional provision itself. The 'entry tax' including
'Octroi' was to be subsumed in the GST. In deference to
the Committee's observations, the Centre also suitably
modified the provisions regarding 'Declared Goods' by
bringing the GST Council in the loop.
The States, however, in the November meeting of the EC
opposed most of the views of the Centre. They insisted
on retaining the exclusion clause relating to Petroleum,
Alcohol etc in the Constitution itself. They opposed
subsuming of 'entry tax'. They even opposed the
existing Constitutional authority of the Centre with
regard to 'Declared Goods'. They also reiterated the
demand for a formal Constitutional mechanism for
compensating the States for possible revenue loss after
introduction of GST. Against this backdrop, one will now
have to wait for the new Lok Sabha to deal with a new
Amendment Bill after the general elections.
Among the technical issues, agreement has been
reached on 'threshold' which would be an annual
turnover of Rs. 25 lakhs. Exercise is continuing on
GST is Inevitable; - But Only After Next General Elections!
the Empowered Committee of State Finance Ministers
(EC) was tasked to steer the introduction of GST as well.
In November 2009, the EC came out with the First
Discussion Paper on GST which outlined its broad
structures and flagged the issues to be sorted out
between Centre and the States. Some such issues were
determination of 'Threshold' above which GST would be
applicable, items and taxes that would remain outside
its ambit, identification of exemptions, determination of
Revenue Neutral Rates (RNR) and GST rates, and
designing a mechanism of administering Dual Control by
Centre and the States. On taxation of inter-state
transaction of goods and services, it endorsed the
scheme of Integrated GST (IGST) proposed by the
Centre, in terms of which the IGST on inter-state
transactions would be levied and collected by Centre
and distributed to the destination States.
The other important issue was the need for amendment
of the Constitution. The Centre had placed a
Constitution Amendment Bill (the Bill) before
Parliament in March 2011. Besides empowering both
Centre and the States for collecting GST, the Bill
proposed creation of a 'GST Council' and a Dispute
Settlement Authority (DSA) so as to ensure that the GST
Goods and Service Tax (GST) is designed to facilitate
seamless flow of goods and services throughout
the country. With its introduction, there will be minimal
cascading effect of taxing the taxes because of input tax
credit at each taxation point, and optimum contact
between taxpayers and taxmen since its administering
would be technology driven. There will be two streams
of GST - the Central GST and the States GST. The two tax
administrations will have commonality of law,
procedure and dispute resolution mechanisms. Due to
substantially higher tax base, the GST rate is expected to
be low, and that would bring down the price of the
goods and services.
With the success of Value Added Tax (VAT) in the States,
TAXATIONGuest Article
(Views are personal)
18ECONOMY MATTERS 19 NOVEMBER - DECEMBER 2013
Mr Sumit Dutt Mazumdar
Indirect Tax Ombudsman andFormer Chairman, CBEC
Electricity
cent. In order to make the sector more efficient,
promote its development and consolidate laws relating
to generation, transmission, distribution, trading and
use of electricity, government had brought into effect
the Electricity Act on 10th June 2003. The six key
elements of the reform agenda were:
- Introducing competition
- Enhancing accountability and transparency
- Improving cost recovery and commercial viability
- Increasing access to electricity, particularly in rural
areas
- Improving customer service and affordability
- Enhancing accountability and transparency
Electricity sector is an important contributor to the
economic growth of the country. However, in the
last year, the sector's growth halved to 4.0 per cent as
compared to 8.2 in 2011-12. In the current year, the first-
half growth remained tepid at 5.9 per cent, however, in
September 2013, growth stood at a fiscal year high of
12.9 per cent. In October 2013, the momentum in the
sector slowed down as growth came in at a paltry 1.3 per
Source: CSO
Electricity Sector Growth (as per IIP), y-o-y%
6.5
1.3
16
12
8
4
0
-4
Apr
-10
Jul-1
0
Oct
-10
Jan-
11
Apr
-11
Jul-1
1
Oct
-11
Jan-
12
Apr
-12
Jul-1
2
Oct
-12
Jan-
13
Apr
-13
Jul-1
3
Oct
-13
1. Competition in generation, leading to capacity
addition and better price discovery: The Act
created initial positive momentum and the rate
of capacity addition increased three times from
an average of 3.5 GW per year from 1993-2002
(VIIth and IXth plan periods) to 10.5+ GW per
year during 2003-2013. The progress in
renewables has been equally impressive, with
India adding approximately 26 GW during 2003
to 2013, against an installed base of just 3.5 GW in
2002. However, this momentum was then lost
due to falling returns and increasing risks to
developers and is amply clear from the fact that
India still suffers from a peak deficit of around 10
per cent. Moreover, at a time when capacity
addition should continue to keep pace, the
industry is hit by declining investments, as
evident from BHEL's order inflow. Decreasing
investment, and thus the reduced rate of
capacity addition, does not augur well for the
energy sector. Based on the current trajectory,
India could expect a continued power deficit
situation, and could face a peak deficit of 13 per
cent by 2017.
As the Act completes its 10 years, it will be pertinent to
evaluate the post Act era, especially the key successes
of the Act, the important learnings and enumerate the
next steps for the Indian power sector.
I. Overarching Objectives Not Met
The Electricity Act 2003 was intended to pave the way
for an India that provided "power for all". It aimed to
develop the power markets (competition in generation,
development of merchant markets), improve the
viability of distribution companies (discoms) and make
the sector more consumer oriented (supply in all areas,
choice). This was to be enabled by the establishment of
independent regulators. However, the sector has not
achieved its main objectives. Only 75 per cent of villages
were electrified by 2012, as per the World Energy
Outlook. Progress in creating peaking power capacity is
crucial for India, given that it has over 50 per cent share
of service in GDP and also it continues to urbanise
rapidly.
The Act focused on aforesaid six areas to drive
development. Progress was achieved in two areas,
which subsequently lost momentum, and little to no
progress was made in the rest. Here is an evaluation:
Order Inflow for BHEL (Rs Crores) Power Deficit is Likely to Continue
Source: BHEL Annual Reports, Planning Commission, CEA & McKinsey Analysis
59678 59037 60507
22096 22500
FY09 FY10 FY11 FY12 FY13
135 123
199176
Peakdemand
Peak supply
Peakdemand
Peaksupply
2012 2017 (E)
launched under National Electricity policy to
ensure electrification of all villages by 2010, and
the deadline was later shifted to 2012. However,
the scheme failed to achieve electrification of all
villages. The Ministry of Power's definition of
electrification (a village is considered electrified
if power is available to public places and to 10 per
2. Supply of electricity to all areas, through T&D
network build-up, and introduction of open
access: The Rural Electrification policy was
launched in 2006, in order to comply with the
2003 Act, and aimed to provide electricity to all
households. The Rajiv Gandhi Grammen
Vidhyutikaran Yojana (RGGVY programme) was
20ECONOMY MATTERS 21 NOVEMBER - DECEMBER 2013
SECTOR IN FOCUS
Electricity
cent. In order to make the sector more efficient,
promote its development and consolidate laws relating
to generation, transmission, distribution, trading and
use of electricity, government had brought into effect
the Electricity Act on 10th June 2003. The six key
elements of the reform agenda were:
- Introducing competition
- Enhancing accountability and transparency
- Improving cost recovery and commercial viability
- Increasing access to electricity, particularly in rural
areas
- Improving customer service and affordability
- Enhancing accountability and transparency
Electricity sector is an important contributor to the
economic growth of the country. However, in the
last year, the sector's growth halved to 4.0 per cent as
compared to 8.2 in 2011-12. In the current year, the first-
half growth remained tepid at 5.9 per cent, however, in
September 2013, growth stood at a fiscal year high of
12.9 per cent. In October 2013, the momentum in the
sector slowed down as growth came in at a paltry 1.3 per
Source: CSO
Electricity Sector Growth (as per IIP), y-o-y%
6.5
1.3
16
12
8
4
0
-4
Apr
-10
Jul-1
0
Oct
-10
Jan-
11
Apr
-11
Jul-1
1
Oct
-11
Jan-
12
Apr
-12
Jul-1
2
Oct
-12
Jan-
13
Apr
-13
Jul-1
3
Oct
-13
1. Competition in generation, leading to capacity
addition and better price discovery: The Act
created initial positive momentum and the rate
of capacity addition increased three times from
an average of 3.5 GW per year from 1993-2002
(VIIth and IXth plan periods) to 10.5+ GW per
year during 2003-2013. The progress in
renewables has been equally impressive, with
India adding approximately 26 GW during 2003
to 2013, against an installed base of just 3.5 GW in
2002. However, this momentum was then lost
due to falling returns and increasing risks to
developers and is amply clear from the fact that
India still suffers from a peak deficit of around 10
per cent. Moreover, at a time when capacity
addition should continue to keep pace, the
industry is hit by declining investments, as
evident from BHEL's order inflow. Decreasing
investment, and thus the reduced rate of
capacity addition, does not augur well for the
energy sector. Based on the current trajectory,
India could expect a continued power deficit
situation, and could face a peak deficit of 13 per
cent by 2017.
As the Act completes its 10 years, it will be pertinent to
evaluate the post Act era, especially the key successes
of the Act, the important learnings and enumerate the
next steps for the Indian power sector.
I. Overarching Objectives Not Met
The Electricity Act 2003 was intended to pave the way
for an India that provided "power for all". It aimed to
develop the power markets (competition in generation,
development of merchant markets), improve the
viability of distribution companies (discoms) and make
the sector more consumer oriented (supply in all areas,
choice). This was to be enabled by the establishment of
independent regulators. However, the sector has not
achieved its main objectives. Only 75 per cent of villages
were electrified by 2012, as per the World Energy
Outlook. Progress in creating peaking power capacity is
crucial for India, given that it has over 50 per cent share
of service in GDP and also it continues to urbanise
rapidly.
The Act focused on aforesaid six areas to drive
development. Progress was achieved in two areas,
which subsequently lost momentum, and little to no
progress was made in the rest. Here is an evaluation:
Order Inflow for BHEL (Rs Crores) Power Deficit is Likely to Continue
Source: BHEL Annual Reports, Planning Commission, CEA & McKinsey Analysis
59678 59037 60507
22096 22500
FY09 FY10 FY11 FY12 FY13
135 123
199176
Peakdemand
Peak supply
Peakdemand
Peaksupply
2012 2017 (E)
launched under National Electricity policy to
ensure electrification of all villages by 2010, and
the deadline was later shifted to 2012. However,
the scheme failed to achieve electrification of all
villages. The Ministry of Power's definition of
electrification (a village is considered electrified
if power is available to public places and to 10 per
2. Supply of electricity to all areas, through T&D
network build-up, and introduction of open
access: The Rural Electrification policy was
launched in 2006, in order to comply with the
2003 Act, and aimed to provide electricity to all
households. The Rajiv Gandhi Grammen
Vidhyutikaran Yojana (RGGVY programme) was
20ECONOMY MATTERS 21 NOVEMBER - DECEMBER 2013
SECTOR IN FOCUS
cent of that remained unsold, despite an energy
deficit of 8.5 per cent, and significant amount of
power was being generated from diesel sets at
over Rs 25 per unit. This was largely driven by
discoms resorting to load shedding to prevent
further financial losses, and partly due to
unavailability of evacuation infrastructure.
cent of the village's households), 90 per cent of
electrification has been achieved so far.
However, this is still way off the Act's stated
objective of 100 per cent electrification.
3. Trading and merchant market development:
Power available at the exchange doubled in the
last 3 years to 18 TWh. However, almost 20 per
Demand Supply Position (in TWh) Demand Supply Imbalance in Power Exchange (in TWh)
746.6
788.4
830.6
861.6
2009 2010
18.3
14.9
2009 2010
9.8 9.4
Source: IEX & CEA
most states, and the creation of independent
regulators. Moreover, there has been a steady progress
in capacity addition since the implementation of the Act
in 2003. 117 GW of generation capacity was added in the
last decade, an average of approximately 11 GW per
year. Of the total, 75 GW was added in the last 4 years.
This is a significant improvement compared to the 36
GW added between 1999 and 2002 (3.6 GW per year).
Some of its successes have been enumerated below:
a. Mobilised massive private sector interest and
investment: Past attempts to mobilise private
sector investments in electricity were not
successful. However, the Act prompted massive
private sector and even international interest in
investing in the power sector. Of the 111 GW of
generation capacity installed in the last decade,
the private sector contributed more than 50 per
cent (57 GW). This has increased their overall
contribution in generation capacity from a mere
11 per cent in 2004 to 31 per cent in 2013.
4. Discom viability through improved aggregate
t e c h n i c a l a n d c o m m e r c i a l ( A T & C )
performance, unbundling and cost reflective
tariffs: Though AT&C losses were reduced from
over 35 per cent in 2003 to 25 per cent in 2012 and
discoms were unbundled and recapitalised, the
accumulated losses in 2013 far exceed the pre-
recapitalisation losses.
5. Consumer benefit through choice (open
access), improved service and affordability:
This has remained a non-starter.
II. Good Act, Derailed By Poor Execution
And Externalities
Even though many of the objectives of the Act remained
unmet, it did lay a sound foundation for the electricity
sector in India. The many successes of the Act include:
the creation of generation capacity across conventional
and renewable technologies, operations improvements
across most discoms, unbundling of electricity across
22ECONOMY MATTERS
e. Conducive for the growth of renewables: The
Electricity Act has also been conducive for the
growth of renewables. The installed renewables
capacity has grown from an insignificant 3.5 GW
to more than 29 GW by 2013 - a phenomenal 8x
increase. Wind power has been the main driver
of growth in the last decade. The next decade
has been termed the "decade of solar" with
ambitious targets and incentives for growth
being set.
Importantly, similar Acts have succeeded in other
countries, e.g., United Kingdom. Further, the principles
of these acts are seen as the template of power sector
reforms in countries considering reforms. However,
despite the aforesaid benefits of the Act, poor
execution and externalities have marred its
performance. This is discussed in the next section.
III. Poor Execution and Externalities Have
Marred Performance
Despite the significant AT&C loss reduction reported in
the last few years, discoms continue to bleed financially.
Their accumulated losses have grown six times in the
last 7 years, to a staggering Rs 250,000 crore. This has
severely constrained their ability to secure long-term
and short-term power, and many discoms prefer to
resort to load shedding. This has mainly been driven by
their inability to pass on increases in power sourcing
costs (due to fuel inflation) to consumers. At the same
b. Very competitive tariffs underpinned by
innovation on capex and opex: The early rounds
of competitive bidding in generation led to very
competitive tariffs - among the lowest in the
world. While some of this was driven by
exuberance, there is also ample evidence to
show that the boundaries of efficiency,
technology, capital efficiency and plant
availability have been pushed through
innovative practices.
c. Spectacular operational performance
improvement in a few Discoms: High AT&C
losses have been the bane of the sector for
many decades and many believed it was
impossible to reduce them. However, average
AT&C losses have come down in the last 10 years
f r o m a p p r o x i m a t e l y 3 5 p e r c e n t t o
approximately 25 per cent. What is more
impressive is that a few discoms have reduced
losses from over 40 per cent to less than 20 per
cent in 5 to 6 years, and that 31 out of 35 discoms
have an improving trajectory here.
d. Unbundling and establishment of independent
regulators: There is legitimate frustration on the
difficulty of making any progress in the power
sector due to it being a state subject. However,
the silver lining is that most states aligned with
Electricity Act 2003, undertook the unbundling,
and established independent regulators.
Source: CEA, Planning Commission & Infraline
Increasing Share of Private Sector in Generation (in GW)
12 13 14 15 18 2027 31
88 87 86 85 82 80 73 69
2006 2007 2008 2009 2010 2011 2012 2013
Government Private
23 NOVEMBER - DECEMBER 2013
Supply Demand Supply Demand
cent of that remained unsold, despite an energy
deficit of 8.5 per cent, and significant amount of
power was being generated from diesel sets at
over Rs 25 per unit. This was largely driven by
discoms resorting to load shedding to prevent
further financial losses, and partly due to
unavailability of evacuation infrastructure.
cent of the village's households), 90 per cent of
electrification has been achieved so far.
However, this is still way off the Act's stated
objective of 100 per cent electrification.
3. Trading and merchant market development:
Power available at the exchange doubled in the
last 3 years to 18 TWh. However, almost 20 per
Demand Supply Position (in TWh) Demand Supply Imbalance in Power Exchange (in TWh)
746.6
788.4
830.6
861.6
2009 2010
18.3
14.9
2009 2010
9.8 9.4
Source: IEX & CEA
most states, and the creation of independent
regulators. Moreover, there has been a steady progress
in capacity addition since the implementation of the Act
in 2003. 117 GW of generation capacity was added in the
last decade, an average of approximately 11 GW per
year. Of the total, 75 GW was added in the last 4 years.
This is a significant improvement compared to the 36
GW added between 1999 and 2002 (3.6 GW per year).
Some of its successes have been enumerated below:
a. Mobilised massive private sector interest and
investment: Past attempts to mobilise private
sector investments in electricity were not
successful. However, the Act prompted massive
private sector and even international interest in
investing in the power sector. Of the 111 GW of
generation capacity installed in the last decade,
the private sector contributed more than 50 per
cent (57 GW). This has increased their overall
contribution in generation capacity from a mere
11 per cent in 2004 to 31 per cent in 2013.
4. Discom viability through improved aggregate
t e c h n i c a l a n d c o m m e r c i a l ( A T & C )
performance, unbundling and cost reflective
tariffs: Though AT&C losses were reduced from
over 35 per cent in 2003 to 25 per cent in 2012 and
discoms were unbundled and recapitalised, the
accumulated losses in 2013 far exceed the pre-
recapitalisation losses.
5. Consumer benefit through choice (open
access), improved service and affordability:
This has remained a non-starter.
II. Good Act, Derailed By Poor Execution
And Externalities
Even though many of the objectives of the Act remained
unmet, it did lay a sound foundation for the electricity
sector in India. The many successes of the Act include:
the creation of generation capacity across conventional
and renewable technologies, operations improvements
across most discoms, unbundling of electricity across
22ECONOMY MATTERS
e. Conducive for the growth of renewables: The
Electricity Act has also been conducive for the
growth of renewables. The installed renewables
capacity has grown from an insignificant 3.5 GW
to more than 29 GW by 2013 - a phenomenal 8x
increase. Wind power has been the main driver
of growth in the last decade. The next decade
has been termed the "decade of solar" with
ambitious targets and incentives for growth
being set.
Importantly, similar Acts have succeeded in other
countries, e.g., United Kingdom. Further, the principles
of these acts are seen as the template of power sector
reforms in countries considering reforms. However,
despite the aforesaid benefits of the Act, poor
execution and externalities have marred its
performance. This is discussed in the next section.
III. Poor Execution and Externalities Have
Marred Performance
Despite the significant AT&C loss reduction reported in
the last few years, discoms continue to bleed financially.
Their accumulated losses have grown six times in the
last 7 years, to a staggering Rs 250,000 crore. This has
severely constrained their ability to secure long-term
and short-term power, and many discoms prefer to
resort to load shedding. This has mainly been driven by
their inability to pass on increases in power sourcing
costs (due to fuel inflation) to consumers. At the same
b. Very competitive tariffs underpinned by
innovation on capex and opex: The early rounds
of competitive bidding in generation led to very
competitive tariffs - among the lowest in the
world. While some of this was driven by
exuberance, there is also ample evidence to
show that the boundaries of efficiency,
technology, capital efficiency and plant
availability have been pushed through
innovative practices.
c. Spectacular operational performance
improvement in a few Discoms: High AT&C
losses have been the bane of the sector for
many decades and many believed it was
impossible to reduce them. However, average
AT&C losses have come down in the last 10 years
f r o m a p p r o x i m a t e l y 3 5 p e r c e n t t o
approximately 25 per cent. What is more
impressive is that a few discoms have reduced
losses from over 40 per cent to less than 20 per
cent in 5 to 6 years, and that 31 out of 35 discoms
have an improving trajectory here.
d. Unbundling and establishment of independent
regulators: There is legitimate frustration on the
difficulty of making any progress in the power
sector due to it being a state subject. However,
the silver lining is that most states aligned with
Electricity Act 2003, undertook the unbundling,
and established independent regulators.
Source: CEA, Planning Commission & Infraline
Increasing Share of Private Sector in Generation (in GW)
12 13 14 15 18 2027 31
88 87 86 85 82 80 73 69
2006 2007 2008 2009 2010 2011 2012 2013
Government Private
23 NOVEMBER - DECEMBER 2013
Supply Demand Supply Demand
own. It is no surprise that the sentiment has
turned negative.
3. Gaining privileged access to low cost fuel is
necessary: Fuel prices will continue to escalate.
Recent analysis suggests that the price of
seaborne thermal coal could cross US$130 per
ton by 2015. In such an escalating, volatile
environment, leaving a significant part of India's
generation capacity exposed will make the task
of creating a viable distribution sector even
tougher than it is now. Therefore, it is critical
that India fully monetises its domestic fuel
resources and use its scale to gain privileged
access to international fuel resources.
Needless to say, these learnings are very difficult to
operationalise. Though many solutions have been
discussed by various stakeholders, following are the
few solutions, which have worked in small pockets and
can be scaled up, and new ideas which are becoming
feasible due to recent technologies.
- Ensure cost reflective tariffs. This is the single
biggest lever to ensure the viability of the
distribution sector, though politically this
remains the most difficult. While the usual
options (e.g., linking payment to performance,
open access) should continue to be pursued,
leveraging Aadhaar to pay subsidies directly to
economically weak families is a promising area
to explore.
- Pay subsidy directly to economically weak
households. The biggest obstacle against cost
reflective tariffs is the need to provide
affordable power to users in the agricultural
sector and low income households, which is
provided through low tariffs for these
categories. However, as with other subsidies,
most of these lower tariffs get misdirected.
Aadhaar now allows for subsidies to be directly
paid to the economically weaker segments,
removing the need to keep tariffs artificially low.
The direct payout amount is likely to be a much
lesser, compared to the annual discom losses -
our analysis suggests subsidy for residential
customers would reduce by approximately 40
per cent. More importantly, it will pave the way
for making distribution viable and will help
unlock the development of the sector.
time, consumers use significantly higher cost, diesel
based power, pointing to a massive market failure.
Massive externalities like fuel security and project
execution delays have further hurt the sector.
Challenges at each stage of mining (e.g., exploration,
clearances and development) have severely impacted
domestic coal production. This has led to heavy reliance
on expensive imported coal for power generation,
causing significant value erosion in the sector - with
distribution companies resorting to load shedding and
suffering from unviability; and consumers paying over
Rs 25 per unit; while generating stations lie idle.
IV. Repowering the Indian Electricity Sector
India needs to add 450 to 600 GW of power generation
capacity over the next 20 years to meet the demands of
the economy. This means a staggering 20 to 30 GW per
year that requires US$1 to 1.5 trillion in investments (at
today's real value). Meeting these challenging goals
requires mobilising significant public and private sector
participation across the value chain. Building on the
strong foundation of the Electricity Act 2003 and
incorporating learnings from the last 10 years, it will be
possible to drive the development of the electric power
sector in India and increase its contribution to India's
economic and social progress.
As we look ahead, it is critical that we fully learn from the
experiences of the past decade.
1. The power sector can't develop if distribution is
not fixed: Distribution generates the cash flows
to fund the full power sector value chain, and
unless it becomes viable, sustainable
development in the power sector is not
possible. At the same time, politically, this is the
most difficult to achieve and will require
significant ingenuity.
2. A balanced risk-return profile is critical to
attract investment and drive innovation:
Investment will only flow into the sector if the
opportunities offer balanced risk and returns.
Over the last seven years, the return on invested
capital in the sector (based on an analysis of
listed companies) has fallen from approximately
11 per cent to 5 per cent. At the same time,
developers are bearing risks (e.g., fuel price and
availability, project execution, counter party
risks), many of which they cannot legitimately
24 25 NOVEMBER - DECEMBER 2013
Residential Power Consumption
Domesticelectricityconsumption
Source: Census India; National Sample Survey Data; CEA
1 Lowest income 40% households consume 22.1 Twh of energy(13% of household consumption). At cost to serve of INR 6.5 per unit,it translates to a direct payout of INR 14,000 crore, even at full subsidy
Subsidy/Under - Recovery Burden (Rs Crore)
14.000
25.000
1Direct payout Current residentialunder - recovery
40%
40%
20%
13%
100% = 16.58 cr households 100% = 170 Twh
Electrifiedhouseholds
34%
53%
approximately 12 per cent, are significantly
lower than the average losses of public sector
discoms, which are 27 per cent. Even the top 10
public sector discoms have AT&C losses of 19 per
cent.
- Drive private sector participation in
distribution. There is strong evidence that the
private sector is more effective in driving
operational performance - the average AT&C
losses of the private sector discoms, at
Private Sector has Performed Significantly Better (Per cent, AT&C losses)
Source: Powerline Magazine, CEA & Company Websites
34.8
12.4
19.1
Private sector performance average
Top 10 public DISCOM average
Other public sector average
Note: Simple average of per cent AT&C loss value of DISCOMs has been taken Private DISCOMs include Torrent, Reliance Infra, NDPL, CESC, BYPL
ECONOMY MATTERS
own. It is no surprise that the sentiment has
turned negative.
3. Gaining privileged access to low cost fuel is
necessary: Fuel prices will continue to escalate.
Recent analysis suggests that the price of
seaborne thermal coal could cross US$130 per
ton by 2015. In such an escalating, volatile
environment, leaving a significant part of India's
generation capacity exposed will make the task
of creating a viable distribution sector even
tougher than it is now. Therefore, it is critical
that India fully monetises its domestic fuel
resources and use its scale to gain privileged
access to international fuel resources.
Needless to say, these learnings are very difficult to
operationalise. Though many solutions have been
discussed by various stakeholders, following are the
few solutions, which have worked in small pockets and
can be scaled up, and new ideas which are becoming
feasible due to recent technologies.
- Ensure cost reflective tariffs. This is the single
biggest lever to ensure the viability of the
distribution sector, though politically this
remains the most difficult. While the usual
options (e.g., linking payment to performance,
open access) should continue to be pursued,
leveraging Aadhaar to pay subsidies directly to
economically weak families is a promising area
to explore.
- Pay subsidy directly to economically weak
households. The biggest obstacle against cost
reflective tariffs is the need to provide
affordable power to users in the agricultural
sector and low income households, which is
provided through low tariffs for these
categories. However, as with other subsidies,
most of these lower tariffs get misdirected.
Aadhaar now allows for subsidies to be directly
paid to the economically weaker segments,
removing the need to keep tariffs artificially low.
The direct payout amount is likely to be a much
lesser, compared to the annual discom losses -
our analysis suggests subsidy for residential
customers would reduce by approximately 40
per cent. More importantly, it will pave the way
for making distribution viable and will help
unlock the development of the sector.
time, consumers use significantly higher cost, diesel
based power, pointing to a massive market failure.
Massive externalities like fuel security and project
execution delays have further hurt the sector.
Challenges at each stage of mining (e.g., exploration,
clearances and development) have severely impacted
domestic coal production. This has led to heavy reliance
on expensive imported coal for power generation,
causing significant value erosion in the sector - with
distribution companies resorting to load shedding and
suffering from unviability; and consumers paying over
Rs 25 per unit; while generating stations lie idle.
IV. Repowering the Indian Electricity Sector
India needs to add 450 to 600 GW of power generation
capacity over the next 20 years to meet the demands of
the economy. This means a staggering 20 to 30 GW per
year that requires US$1 to 1.5 trillion in investments (at
today's real value). Meeting these challenging goals
requires mobilising significant public and private sector
participation across the value chain. Building on the
strong foundation of the Electricity Act 2003 and
incorporating learnings from the last 10 years, it will be
possible to drive the development of the electric power
sector in India and increase its contribution to India's
economic and social progress.
As we look ahead, it is critical that we fully learn from the
experiences of the past decade.
1. The power sector can't develop if distribution is
not fixed: Distribution generates the cash flows
to fund the full power sector value chain, and
unless it becomes viable, sustainable
development in the power sector is not
possible. At the same time, politically, this is the
most difficult to achieve and will require
significant ingenuity.
2. A balanced risk-return profile is critical to
attract investment and drive innovation:
Investment will only flow into the sector if the
opportunities offer balanced risk and returns.
Over the last seven years, the return on invested
capital in the sector (based on an analysis of
listed companies) has fallen from approximately
11 per cent to 5 per cent. At the same time,
developers are bearing risks (e.g., fuel price and
availability, project execution, counter party
risks), many of which they cannot legitimately
24 25 NOVEMBER - DECEMBER 2013
Residential Power Consumption
Domesticelectricityconsumption
Source: Census India; National Sample Survey Data; CEA
1 Lowest income 40% households consume 22.1 Twh of energy(13% of household consumption). At cost to serve of INR 6.5 per unit,it translates to a direct payout of INR 14,000 crore, even at full subsidy
Subsidy/Under - Recovery Burden (Rs Crore)
14.000
25.000
1Direct payout Current residentialunder - recovery
40%
40%
20%
13%
100% = 16.58 cr households 100% = 170 Twh
Electrifiedhouseholds
34%
53%
approximately 12 per cent, are significantly
lower than the average losses of public sector
discoms, which are 27 per cent. Even the top 10
public sector discoms have AT&C losses of 19 per
cent.
- Drive private sector participation in
distribution. There is strong evidence that the
private sector is more effective in driving
operational performance - the average AT&C
losses of the private sector discoms, at
Private Sector has Performed Significantly Better (Per cent, AT&C losses)
Source: Powerline Magazine, CEA & Company Websites
34.8
12.4
19.1
Private sector performance average
Top 10 public DISCOM average
Other public sector average
Note: Simple average of per cent AT&C loss value of DISCOMs has been taken Private DISCOMs include Torrent, Reliance Infra, NDPL, CESC, BYPL
ECONOMY MATTERS
Rejuvenating Exports
India's export performance over the last two years has
been affected by continued sluggishness in global
trade and an overvalued exchange rate for a prolonged
period. Exports began on a weak footing in the start of
this fiscal, contracting by 3.1 per cent in the first quarter;
however, its growth picked up to 12.2 per cent in the
second quarter, moderating to 9.7 per cent in October-
November 2013 so far. Export recoveries were evident in
sectors, such as petroleum products, rice, readymade
garments, marine products and other chemicals. The
depreciation in the exchange rate, both in nominal and
real terms, appears to have helped improve India's
export competitiveness in the recent quarters.
Improvement in exports is critical for lifting the
economic growth and containing the current account
deficit.
Judging by the trends so far, global trade volumes in
2013 are expected to expand at roughly the same rate as
last year, which was the slowest pace in the last 12 years,
except for the contraction in 2009 in the wake of the
global Financial crisis. However, the recent optimistic
set of data sets coming out of the major advanced
economies in last few months is expected to continue
cushioning India's exports growth going forward.
In this article, we provide a snapshot of India's exports
sector along with analyzing the upcoming sectors in
exports such as services and tourism, listing out
suggestions in order to accelerate their exports growth.
Based Incentive in Wind). Additionally, a
sovereign fund could be created to bolster R&D
in these areas. Finally, and most importantly,
set-up future project bidding and award
processes that allow for above threshold
returns, and have the potential for upside (e.g.,
ownership of assets). Private capital has many
opportunities for deployment, and will seek out
the best returns over time.
- Accelerate development of CIL reserves
through a process similar to NELP (which, in
effect, reassigned blocks not being developed
by ONGC). Identify reserves where no or little
development has taken place (based on
milestones, e.g., exploration license received)
and auction these reserves to public and private
entities using NELP or a similar model. This
should increase investments in the sector and
introduce competition. It is anticipated that
power tariffs will provide a natural cap to
auction prices for these blocks.
- For new projects, which will need to rely on
imported coal, create a 100 MTPA imported
channel into the country. The Government of
India, through a consortium of companies, could
float an international competitive bidding for
this volume of coal over a 20 year period. While
the exact numbers can be worked out, the
volume and duration of the contract must be
such that it incentivises global producers to
develop new tier 2 coal reserves over the next 10
years and bring them to market. The contracted
coal, if secured at attractive prices, can be
offered to power generation developers in
India, who would bid for projects based on the
lowest development cost, with coal being a free
issue material.
Conclusion
Given the importance of electricity sector to the overall
growth schema of the country, it's pivotal that
government in liaison with relevant stakeholders tries
to remove the existing lacunae from the Electricity Act
2003 through suitable amendments and also
implements all its recommendations in its entirety for
the sector to benefit. CII through its National
Committee on Power has been at the forefront of this
dialogue with the government and will continue to do
so in the future too.
- Scale-up separation of agricultural feeders. This
has proven to be very successful in creating
transparency and driving performance
improvement, and should be scaled-up.
- Link FRP payout to financial and operational
performance, including discoms setting cost
reflective tariffs. Through CERC, set a minimum
floor level for tariffs for all states (across
categories).
- Evaluate separation of content and carriage.
Many countries have implemented this to
provide more choice, and by definition, better
service to customers. It also allows for
competition in electricity retail, which could
drive down power tariffs and allow consumers
to buy expensive peaking power (vs. running
diesel gensets), if power retailers are able to
supply. The opinion of various stakeholders was
split on whether India is ready for the separation
of content and carriage. Regulators, in
collaboration with industry participants, should
evaluate this in detail.
- Allow for automatic index-linked revision of
the fuel component of tariffs. Consider an oil
product style linkage of tariffs to the national
coal basket.
- Accelerate the implementation of multi-year
time-of-day tariffs to give consumers access to
peaking power - either through discoms or using
open access.
- Leverage de-centralised distributed generation
(DDG) to drive rural electrification. With India
significantly behind its rural electrification
targets, the cost of grid extension already very
high (Rs 15 to 20 per unit depending on distance
from existing grid and population density of
villages), and declining solar and bio-mass costs,
the DDG policy could drive significant rural
electrification. India should aim to light-up an
additional 50,000 villages through DDG in the
next 5 to 10 years.
- C r e a t e d i s p r o p o r t i o n a t e r e t u r n s f o r
innovation. Encourage investments in relatively
newer and efficient technologies (e.g., ultra
super critical plants, low speed wind, energy
storage, AT&C loss reduction). One possible
route could be to provide an incentive to bump-
up developer IRRs (e.g., similar to Generation
26
This article is based on the Report Repowering India's Electricity Sector, published by CII in November 2013
27 NOVEMBER - DECEMBER 2013
SPECIAL ARTICLE
ECONOMY MATTERS
Rejuvenating Exports
India's export performance over the last two years has
been affected by continued sluggishness in global
trade and an overvalued exchange rate for a prolonged
period. Exports began on a weak footing in the start of
this fiscal, contracting by 3.1 per cent in the first quarter;
however, its growth picked up to 12.2 per cent in the
second quarter, moderating to 9.7 per cent in October-
November 2013 so far. Export recoveries were evident in
sectors, such as petroleum products, rice, readymade
garments, marine products and other chemicals. The
depreciation in the exchange rate, both in nominal and
real terms, appears to have helped improve India's
export competitiveness in the recent quarters.
Improvement in exports is critical for lifting the
economic growth and containing the current account
deficit.
Judging by the trends so far, global trade volumes in
2013 are expected to expand at roughly the same rate as
last year, which was the slowest pace in the last 12 years,
except for the contraction in 2009 in the wake of the
global Financial crisis. However, the recent optimistic
set of data sets coming out of the major advanced
economies in last few months is expected to continue
cushioning India's exports growth going forward.
In this article, we provide a snapshot of India's exports
sector along with analyzing the upcoming sectors in
exports such as services and tourism, listing out
suggestions in order to accelerate their exports growth.
Based Incentive in Wind). Additionally, a
sovereign fund could be created to bolster R&D
in these areas. Finally, and most importantly,
set-up future project bidding and award
processes that allow for above threshold
returns, and have the potential for upside (e.g.,
ownership of assets). Private capital has many
opportunities for deployment, and will seek out
the best returns over time.
- Accelerate development of CIL reserves
through a process similar to NELP (which, in
effect, reassigned blocks not being developed
by ONGC). Identify reserves where no or little
development has taken place (based on
milestones, e.g., exploration license received)
and auction these reserves to public and private
entities using NELP or a similar model. This
should increase investments in the sector and
introduce competition. It is anticipated that
power tariffs will provide a natural cap to
auction prices for these blocks.
- For new projects, which will need to rely on
imported coal, create a 100 MTPA imported
channel into the country. The Government of
India, through a consortium of companies, could
float an international competitive bidding for
this volume of coal over a 20 year period. While
the exact numbers can be worked out, the
volume and duration of the contract must be
such that it incentivises global producers to
develop new tier 2 coal reserves over the next 10
years and bring them to market. The contracted
coal, if secured at attractive prices, can be
offered to power generation developers in
India, who would bid for projects based on the
lowest development cost, with coal being a free
issue material.
Conclusion
Given the importance of electricity sector to the overall
growth schema of the country, it's pivotal that
government in liaison with relevant stakeholders tries
to remove the existing lacunae from the Electricity Act
2003 through suitable amendments and also
implements all its recommendations in its entirety for
the sector to benefit. CII through its National
Committee on Power has been at the forefront of this
dialogue with the government and will continue to do
so in the future too.
- Scale-up separation of agricultural feeders. This
has proven to be very successful in creating
transparency and driving performance
improvement, and should be scaled-up.
- Link FRP payout to financial and operational
performance, including discoms setting cost
reflective tariffs. Through CERC, set a minimum
floor level for tariffs for all states (across
categories).
- Evaluate separation of content and carriage.
Many countries have implemented this to
provide more choice, and by definition, better
service to customers. It also allows for
competition in electricity retail, which could
drive down power tariffs and allow consumers
to buy expensive peaking power (vs. running
diesel gensets), if power retailers are able to
supply. The opinion of various stakeholders was
split on whether India is ready for the separation
of content and carriage. Regulators, in
collaboration with industry participants, should
evaluate this in detail.
- Allow for automatic index-linked revision of
the fuel component of tariffs. Consider an oil
product style linkage of tariffs to the national
coal basket.
- Accelerate the implementation of multi-year
time-of-day tariffs to give consumers access to
peaking power - either through discoms or using
open access.
- Leverage de-centralised distributed generation
(DDG) to drive rural electrification. With India
significantly behind its rural electrification
targets, the cost of grid extension already very
high (Rs 15 to 20 per unit depending on distance
from existing grid and population density of
villages), and declining solar and bio-mass costs,
the DDG policy could drive significant rural
electrification. India should aim to light-up an
additional 50,000 villages through DDG in the
next 5 to 10 years.
- C r e a t e d i s p r o p o r t i o n a t e r e t u r n s f o r
innovation. Encourage investments in relatively
newer and efficient technologies (e.g., ultra
super critical plants, low speed wind, energy
storage, AT&C loss reduction). One possible
route could be to provide an incentive to bump-
up developer IRRs (e.g., similar to Generation
26
This article is based on the Report Repowering India's Electricity Sector, published by CII in November 2013
27 NOVEMBER - DECEMBER 2013
SPECIAL ARTICLE
ECONOMY MATTERS
28ECONOMY MATTERS
04.Although, the pace of exports growth was
punctuated twice by sharp slowdown in the world
economy during 2008-09 and during the last two fiscal
years, India's trade prospects have continued to grow
over time. India's exports were worth US$64.0 billion in
2003-04, which more than quadrupled to US$300.5
billion in 2012-13.
Background
India saw its foreign trade expand remarkably in the past
decade. India's total trade with the world touched
US$809 billion in 2012-13, growing at a compounded
annual growth rate of 18.7 per cent since 2003-
Mr Sanjay BudhiaChairman, CII Export Committee and
Managing Director, Patton Group
India's Export Scenario
CII VIEW POINT
Source: DGCI&S
The value of manufacturing goods exports has more
than quadrupled to US$186.8 billion over the decade.
Exports of primary products, with their share remaining
fairly constant at little below 15 per cent during 2003-04
to 2012-13, have also scaled over five times in dollar value
In the merchandise trade, manufacturing goods still
constitute the lion share of total merchandise exports.
They constituted over 60 per cent of total exports in
2012-13, a fraction that has remained mostly unchanged
over the decade, although dipped marginally last year.
29 NOVEMBER - DECEMBER 2013
has shrunk from 23 per cent in 2000-01 to 13 per cent in
2012-13. In contrast to this, share of developing markets
of Latin America, Africa, and ASEAN have witnessed a
significant increase. This trend has helped India weather
the global crisis emanating from Europe and America.
India has made major strides in its diversification of
export markets, as its dependence on the EU and the US
has reduced to a large extent (see figure below). Europe
currently occupies 19.5 per cent share in India's exports,
in contrast to 26 per cent in 200-01. Similarly, share of US
Source: DGCI&S
India's Exports, Imports & Trade Deficit
terms, growing at a CAGR of 18.0 per cent over the last
ten years. Importantly, petroleum and its products have
brought in substantial revenues that soared from US$2.6
billion in 2003-04 to US$55.6 billion in 2012-13. Their share
too has increased four times in the decade to a little
below 20 per cent in 2012-13. Jump in export values is also
attributable to soaring agricultural, mineral and metal
commodity prices.
Over a period of time from the year 2000 onwards, there
has been change in composition of India's export basket
as shown in graph below, indicating that India is
gradually moving towards high-value added product
exports especially in engineering goods. Nevertheless, a
lot needs to be done to not only diversify the export
basket but also have a perceptible share in the top items
of world trade.
0
100
200
300
400
500
In $
Bil
lio
n
Exports Imports Trade Deficit
2003-04
2004
-05
2005-06
2006-07
2007-08
2008-09
2009-2010
2010-2011
2011-2012
2012-2013
Change in India's Export Composition
2.64.4
16.8
24.3
10.7
18.920.3
8.8
14.012.9
2.54.3
1.92.8
8.8
13.8
1.6
14.4
0
5
10
15
20
25
30
2000-01
2012-13
Sh
are
in %
Agri & Allie
d Products
Ores & M
inerals
Leather & Products
Gems & Je
wellery
Chemicals
Engineering G
oods
Electronics
Textil
es
Petroleum products
28ECONOMY MATTERS
04.Although, the pace of exports growth was
punctuated twice by sharp slowdown in the world
economy during 2008-09 and during the last two fiscal
years, India's trade prospects have continued to grow
over time. India's exports were worth US$64.0 billion in
2003-04, which more than quadrupled to US$300.5
billion in 2012-13.
Background
India saw its foreign trade expand remarkably in the past
decade. India's total trade with the world touched
US$809 billion in 2012-13, growing at a compounded
annual growth rate of 18.7 per cent since 2003-
Mr Sanjay BudhiaChairman, CII Export Committee and
Managing Director, Patton Group
India's Export Scenario
CII VIEW POINT
Source: DGCI&S
The value of manufacturing goods exports has more
than quadrupled to US$186.8 billion over the decade.
Exports of primary products, with their share remaining
fairly constant at little below 15 per cent during 2003-04
to 2012-13, have also scaled over five times in dollar value
In the merchandise trade, manufacturing goods still
constitute the lion share of total merchandise exports.
They constituted over 60 per cent of total exports in
2012-13, a fraction that has remained mostly unchanged
over the decade, although dipped marginally last year.
29 NOVEMBER - DECEMBER 2013
has shrunk from 23 per cent in 2000-01 to 13 per cent in
2012-13. In contrast to this, share of developing markets
of Latin America, Africa, and ASEAN have witnessed a
significant increase. This trend has helped India weather
the global crisis emanating from Europe and America.
India has made major strides in its diversification of
export markets, as its dependence on the EU and the US
has reduced to a large extent (see figure below). Europe
currently occupies 19.5 per cent share in India's exports,
in contrast to 26 per cent in 200-01. Similarly, share of US
Source: DGCI&S
India's Exports, Imports & Trade Deficit
terms, growing at a CAGR of 18.0 per cent over the last
ten years. Importantly, petroleum and its products have
brought in substantial revenues that soared from US$2.6
billion in 2003-04 to US$55.6 billion in 2012-13. Their share
too has increased four times in the decade to a little
below 20 per cent in 2012-13. Jump in export values is also
attributable to soaring agricultural, mineral and metal
commodity prices.
Over a period of time from the year 2000 onwards, there
has been change in composition of India's export basket
as shown in graph below, indicating that India is
gradually moving towards high-value added product
exports especially in engineering goods. Nevertheless, a
lot needs to be done to not only diversify the export
basket but also have a perceptible share in the top items
of world trade.
0
100
200
300
400
500
In $
Bil
lio
n
Exports Imports Trade Deficit
2003-04
2004
-05
2005-06
2006-07
2007-08
2008-09
2009-2010
2010-2011
2011-2012
2012-2013
Change in India's Export Composition
2.64.4
16.8
24.3
10.7
18.920.3
8.8
14.012.9
2.54.3
1.92.8
8.8
13.8
1.6
14.4
0
5
10
15
20
25
30
2000-01
2012-13
Sh
are
in %
Agri & Allie
d Products
Ores & M
inerals
Leather & Products
Gems & Je
wellery
Chemicals
Engineering G
oods
Electronics
Textil
es
Petroleum products
30ECONOMY MATTERS
Positive Developments in India's
Trade Pattern
Evidence suggests there has been a structural shift in
both commodity composition as well as product and
market diversification in India's merchandise exports.
The revealed comparative advantage for India is higher
in chemicals, agricultural products, mining products,
iron and steel and textiles.
The robust performance of India's international trade
over the two decades reflects India's increasing
integration with the global economy. Marked increase in
adaptability of Indian exporters to meet the changing
patterns of global demand can be testified by the
change in India's export composition over the last two
decades. The dynamics of inter-sectoral composition
within manufactured exports reveal increasing
contribution of technology-intensive goods in India's
exports. For instance, the combined share of
technology-intensive products like engineering goods,
petroleum products, chemicals and related products
The strong growth in India's merchandise exports has
been accompanied by an increase in the share of India in
the global export market reflecting, among others,
emergence of newer markets, increased adaptability of
Indian exporting companies to meet the changing
patterns of global demand, and the availability of
financing structures for such activities. According to the
World Trade Organisation (WTO), India's share in global
exports and imports, which stood at 0.5 percent and 0.7
per cent in 1990, more than trebled to 1.6 per cent and
2.6 per cent, respectively, in 2012, resulting in a
significant improvement of India's standing in the global
trade. By 2012, India became the 10th largest importer in
the world, as against 28th in 1990; and 19th largest
exporter globally as against 33rd in 1990.
At the same time, India's direction of trade increasingly
shifted towards emerging markets. The combined share
of developing Asia, Africa and Latin America and
Caribbean increased from less than one-fourth of India's
total exports in 1992-93 to more than half of India's total
exports in 2012-13.
31 NOVEMBER - DECEMBER 2013
adopted involving measures such as Procedural
rationalization; Enhanced market access; Diversification
of export markets; Improvement in export
infrastructure specially transportation & ports
infrastructure; Provision of refund of all indirect taxes;
and Providing marketing support. Also there is a need to
re-look at the duty drawback rates, further expansion of
Focus Market Scheme (FMS) and inclusion of new
product in Focus Product Scheme (FPS).
Reducing high transaction costs in India is a crucial
aspect of achieving export competitiveness. Currently,
transaction costs add upto 10-12 per cent extra cost, and
taking this into account, Second Task Force on
Transaction Cost in Exports has been constituted by the
Ministry of Commerce & Industry, which is reviewing the
current situation and will come out with a
comprehensive report. This report will suggest
guidelines for removal of procedural complexities
drawing from the global best practices and will also
suggest steps to move towards transparent and
increasingly paperless processing through digital
platform.
Another issue which needs to be addressed is of high
cost of export credit prevailing in India. This is currently
in the range of 11 per cent and 12 per cent, which is much
higher in comparison to competing countries in South
East Asia, where it is in around 5-6 per cent. This needs
to be lowered so that it becomes affordable to
exporters.
If we are able to work on our capability and capacity and
by timely intervention by policy makers, we will be able
to increase our share in the global exports and achieve
our export target of USD 325 billion.
and electronic goods in India's total exports which was
25.5 percent in 1992-93, more than doubled in 2012-13 to
55.8 percent.
India is expected to open up further in the coming years
as indicated in its recent trade policies. Continued
market diversification towards developing countries
based on the changing dynamics of growth in the world
economy is the key to ensure sustained and accelerated
growth of India's exports.
The root cause of vulnerability is an unsustainable
current account deficit emanating from a large trade
deficit backed by inelastic oil imports. Though, there has
been an improvement in India's net barter terms of trade
(export price index as ratio to import price index) due to
diversification of India's exports from low value to high-
value services and manufacturing exports, this has not
improved the trade balance (currently -10 per cent of
GDP) because the volume of imports has been rising
faster than the volume of exports.
Besides, depreciation of the real effective exchange rate
has not helped because of the low elasticity of demand
for exports and even lower elasticity of demand for
imports. A true indicator of export competitiveness in
these commodity groups is, therefore, a high value of
exports combined with a high volume.
Also, solution to trade deficit lies in enhancing
competitiveness in terms of expansion of the country's
goods and non-software services exports on a sustained
basis. Besides, a multi-pronged strategy should be
Enhancing Export
Competitiveness
Region- wise Share of India's Export Destinations(in 2000-01 & 2012-13)
Source: DGCI & S
Others
CIS & Baltics
South Asia
ASEAN
Latin America
Africa
Europe
2012-13
2000-01
U.S
23%
26%
5%
31%37%
19%
1%
11%
13%2%
7%
4%2%
10%
5%4%
Europe Africa U.S Latin America ASEAN
South Asia CIS & Baltics Others
30ECONOMY MATTERS
Positive Developments in India's
Trade Pattern
Evidence suggests there has been a structural shift in
both commodity composition as well as product and
market diversification in India's merchandise exports.
The revealed comparative advantage for India is higher
in chemicals, agricultural products, mining products,
iron and steel and textiles.
The robust performance of India's international trade
over the two decades reflects India's increasing
integration with the global economy. Marked increase in
adaptability of Indian exporters to meet the changing
patterns of global demand can be testified by the
change in India's export composition over the last two
decades. The dynamics of inter-sectoral composition
within manufactured exports reveal increasing
contribution of technology-intensive goods in India's
exports. For instance, the combined share of
technology-intensive products like engineering goods,
petroleum products, chemicals and related products
The strong growth in India's merchandise exports has
been accompanied by an increase in the share of India in
the global export market reflecting, among others,
emergence of newer markets, increased adaptability of
Indian exporting companies to meet the changing
patterns of global demand, and the availability of
financing structures for such activities. According to the
World Trade Organisation (WTO), India's share in global
exports and imports, which stood at 0.5 percent and 0.7
per cent in 1990, more than trebled to 1.6 per cent and
2.6 per cent, respectively, in 2012, resulting in a
significant improvement of India's standing in the global
trade. By 2012, India became the 10th largest importer in
the world, as against 28th in 1990; and 19th largest
exporter globally as against 33rd in 1990.
At the same time, India's direction of trade increasingly
shifted towards emerging markets. The combined share
of developing Asia, Africa and Latin America and
Caribbean increased from less than one-fourth of India's
total exports in 1992-93 to more than half of India's total
exports in 2012-13.
31 NOVEMBER - DECEMBER 2013
adopted involving measures such as Procedural
rationalization; Enhanced market access; Diversification
of export markets; Improvement in export
infrastructure specially transportation & ports
infrastructure; Provision of refund of all indirect taxes;
and Providing marketing support. Also there is a need to
re-look at the duty drawback rates, further expansion of
Focus Market Scheme (FMS) and inclusion of new
product in Focus Product Scheme (FPS).
Reducing high transaction costs in India is a crucial
aspect of achieving export competitiveness. Currently,
transaction costs add upto 10-12 per cent extra cost, and
taking this into account, Second Task Force on
Transaction Cost in Exports has been constituted by the
Ministry of Commerce & Industry, which is reviewing the
current situation and will come out with a
comprehensive report. This report will suggest
guidelines for removal of procedural complexities
drawing from the global best practices and will also
suggest steps to move towards transparent and
increasingly paperless processing through digital
platform.
Another issue which needs to be addressed is of high
cost of export credit prevailing in India. This is currently
in the range of 11 per cent and 12 per cent, which is much
higher in comparison to competing countries in South
East Asia, where it is in around 5-6 per cent. This needs
to be lowered so that it becomes affordable to
exporters.
If we are able to work on our capability and capacity and
by timely intervention by policy makers, we will be able
to increase our share in the global exports and achieve
our export target of USD 325 billion.
and electronic goods in India's total exports which was
25.5 percent in 1992-93, more than doubled in 2012-13 to
55.8 percent.
India is expected to open up further in the coming years
as indicated in its recent trade policies. Continued
market diversification towards developing countries
based on the changing dynamics of growth in the world
economy is the key to ensure sustained and accelerated
growth of India's exports.
The root cause of vulnerability is an unsustainable
current account deficit emanating from a large trade
deficit backed by inelastic oil imports. Though, there has
been an improvement in India's net barter terms of trade
(export price index as ratio to import price index) due to
diversification of India's exports from low value to high-
value services and manufacturing exports, this has not
improved the trade balance (currently -10 per cent of
GDP) because the volume of imports has been rising
faster than the volume of exports.
Besides, depreciation of the real effective exchange rate
has not helped because of the low elasticity of demand
for exports and even lower elasticity of demand for
imports. A true indicator of export competitiveness in
these commodity groups is, therefore, a high value of
exports combined with a high volume.
Also, solution to trade deficit lies in enhancing
competitiveness in terms of expansion of the country's
goods and non-software services exports on a sustained
basis. Besides, a multi-pronged strategy should be
Enhancing Export
Competitiveness
Region- wise Share of India's Export Destinations(in 2000-01 & 2012-13)
Source: DGCI & S
Others
CIS & Baltics
South Asia
ASEAN
Latin America
Africa
Europe
2012-13
2000-01
U.S
23%
26%
5%
31%37%
19%
1%
11%
13%2%
7%
4%2%
10%
5%4%
Europe Africa U.S Latin America ASEAN
South Asia CIS & Baltics Others
33 NOVEMBER - DECEMBER 2013
between 2002-03 and 2007-08 but have slowed down to
a growth rate of 10 per cent in the 5 years since then.
As seen in the graph above, Services exports are about
half the level of merchandise exports in India in 2012-13.
Also Services exports grew at a CAGR of 34 per cent
Service Sector - Exports
Source: RBI
350.0
300.0
250.0
200.0
150.0
100.0
50.0
0.0
2003
-04
2004
-05
2005
-06
2006
-07
2007
-08
2008
-09
2009
-10
2010
-11
2011
-12
2012
-13
US
$ B
illio
n
Service Exports
26.9
43.2
57.7
73.8
90.3
66.3
85.2
105.
2
128.
9
166.
2
106.
018
9.0
96.0
182.
4
124.
625
6.2
142.
330
9.8
145.
730
6.6
Merchandise Exports
Service Sector - Exports by Categories
Source: WTO
45.2
42.4
19.5
19.7
12.4
12.4
4.9
5.8
3.4
3.14.2
1.2
11.910.8
1.6 1.5
Travel
Software Services
Communication Services
Transportation
Business Services
Others
Insurance
Financial Services
32ECONOMY MATTERS
the size of its Services GDP. Its CAGR in Services for the
period 2001-11 was 9.2 per cent, second only to China.
Services growth has consistently outperformed growth
on other sectors of the economy and the economy as a
whole. The fact that emerges is that services are clearly
an important part of the India growth story and will
continue to be so.
Services sector in India contributes close to 65 per cent
of the GDP (including construction) and provides
employment to millions. A comparison of the services
performance of the top 15 countries for the 11 year
period from 2001 to 2011 shows that the increase in share
of services in GDP is the highest for India with 8.1
percentage points. In 2011, India ranked 10th in terms of
Mr Malvinder M SinghChair, CII Services Council and
Executive Chairman, Fortis Healthcare
Services Sector Exports in Indian Economy
Source: World Development Indicators, 2012
Malaysia, Thailand, China and Indonesia in terms of
Service sector contribution to GDP
An interesting fact is that India is unique among
emerging Asian economies in being a service led
economy. Also data for 2010 shows that India is ahead of
79.0% 78.0%71.0% 70.0%
67.0%61.0%
55.0% 54.0%49.0%
43.0% 43.0%38.0%
US
A
UK
Japa
n
Mau
ritiu
s
Bra
zil
Rus
sia
Phi
lippi
nes
Indi
a
Mal
aysi
a
Tha
iland
Chi
na
Indo
nesi
a
Service Sector Share in GDP (2012)
33 NOVEMBER - DECEMBER 2013
between 2002-03 and 2007-08 but have slowed down to
a growth rate of 10 per cent in the 5 years since then.
As seen in the graph above, Services exports are about
half the level of merchandise exports in India in 2012-13.
Also Services exports grew at a CAGR of 34 per cent
Service Sector - Exports
Source: RBI
350.0
300.0
250.0
200.0
150.0
100.0
50.0
0.0
2003
-04
2004
-05
2005
-06
2006
-07
2007
-08
2008
-09
2009
-10
2010
-11
2011
-12
2012
-13
US
$ B
illio
nService Exports
26.9
43.2
57.7
73.8
90.3
66.3
85.2
105.
2
128.
9
166.
2
106.
018
9.0
96.0
182.
4
124.
625
6.2
142.
330
9.8
145.
730
6.6
Merchandise Exports
Service Sector - Exports by Categories
Source: WTO
45.2
42.4
19.5
19.7
12.4
12.4
4.9
5.8
3.4
3.14.2
1.2
11.910.8
1.6 1.5
Travel
Software Services
Communication Services
Transportation
Business Services
Others
Insurance
Financial Services
32ECONOMY MATTERS
the size of its Services GDP. Its CAGR in Services for the
period 2001-11 was 9.2 per cent, second only to China.
Services growth has consistently outperformed growth
on other sectors of the economy and the economy as a
whole. The fact that emerges is that services are clearly
an important part of the India growth story and will
continue to be so.
Services sector in India contributes close to 65 per cent
of the GDP (including construction) and provides
employment to millions. A comparison of the services
performance of the top 15 countries for the 11 year
period from 2001 to 2011 shows that the increase in share
of services in GDP is the highest for India with 8.1
percentage points. In 2011, India ranked 10th in terms of
Mr Malvinder M SinghChair, CII Services Council and
Executive Chairman, Fortis Healthcare
Services Sector Exports in Indian Economy
Source: World Development Indicators, 2012
Malaysia, Thailand, China and Indonesia in terms of
Service sector contribution to GDP
An interesting fact is that India is unique among
emerging Asian economies in being a service led
economy. Also data for 2010 shows that India is ahead of
79.0% 78.0%71.0% 70.0%
67.0%61.0%
55.0% 54.0%49.0%
43.0% 43.0%38.0%
US
A
UK
Japa
n
Mau
ritiu
s
Bra
zil
Rus
sia
Phi
lippi
nes
Indi
a
Mal
aysi
a
Tha
iland
Chi
na
Indo
nesi
a
Service Sector Share in GDP (2012)
Trends in World Exports and Indian Exports of Goods and Services in current USD (Index=100 in 1990)
Source: WTO
There can be four distinct approaches to be adopted
to unleash the export potential of the service sector in
India.
One is scouting for other unorthodox segments that can
be significantly boosted. Medical Tourism accountancy,
legal services, animation, management services, R&D,
architectural services, audio-visual post-production,
creation of content and intellectual property, animation
and gaming fall in this category. The strategy should be
to provide integrated end-to end services and also move
up the value chain with time.
Secondly, developing services sectors in India like
hospitals, hotels etc. so that they get approvals and
certifications from the international standards
organizations in terms of the quality of their services,
infrastructure etc. to attract more high budget visitors
from abroad.
Thirdly, developing a dedicated band of trained
professionals in India in various avocations like doctors,
nurses, paramedics, accountants, animators etc who
can move from the country to other destinations will
also help.
Fourthly, the role of regulators should be redefined to
include periodic consultations with the stakeholders to
address the problems and prospects. Also we need to
give thrust to employment-intensive growth in services.
Between 2005 and 2011, some of these countries have
registered annual average growth of computer services
in the range of 27 to 69 per cent, though the absolute
figures of growth may be far less than that of India.
According to NASSCOM, in the last few years India's
market share in computer services exports has eroded
by 10 per cent on account of the competition from these
countries.
Among the other services that are yet to be given their
due importance but hold enormous potential,
Healthcare and Medical Tourism offer tremendous
promise because of the availability of a skilled talent
pool, competencies at the cutting edge of modern
medicine and proficiency in the conduct of complex
medical procedures. All these are achievable in India at a
huge cost advantage. Studies show that the current cost
advantage may result in savings for the patient as high as
10 times the cost of an identical procedure in the West.
Notwithstanding is the fact that the value of each
procedure can be quite substantial resulting in
significant monetary and goodwill gains. Also, medical
tourism once developed is less prone to react to the
exigencies of economic cycles making it a stable and
sustainable income source for the country. India
currently gets only 2 per cent of the US$79 billion global
medical tourist flow showing the enormous headroom
that is available for growth.
3000
2500
2000
1500
1000
500
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
India (Good Exports) World (Good Exports)
India (Services Exports) World (Services Exports)
35 NOVEMBER - DECEMBER 2013
* Other business services would include business and management consulting, accounting, legal and related services
registering a growth rate of 11 per cent. Over half of
India's net FDI inflows are in services and services also
constitute an increasing part of outward investment by
Indian companies. Also the huge contribution of
remittances to India's Balance of Payments,
underscores the significance of services to India's
macroeconomic and external stability.
Services sector is also a powerful tool for permeating
inclusive growth. According to the National Sample
Survey Organization's (NSSO) Report, for every 1000
persons employed in rural area, 241 are employed in the
services sector. In the urban area, this figure is as high as
683. It is often said that business processes exports have
sprung up on their own because of the inherent natural
advantages that India has, such as proficiency in the
English language, a large pool of skilled manpower etc.
That could be true.
But there are certain weaknesses and issues that need
to be addressed if India is to have a globally competitive
services sector. The future growth of the services
exports needs careful policy tooling on account of the
heightened competition that might be coming from
countries like Philippines, Brazil, Israel, Sri Lanka, China
and on account of protectionist overtones in the policy
framework of some of the developed countries.
Similarly, the services sector has been a key driver of
India's improved trade and FDI performance. There are
also sizeable exports from the services sector, which is
rather lop-sided and driven mostly by business
processes exports, which include computer-related
services and IT-BPO services and to a lesser extent by
other business and professional services like R&D,
accounting services and legal services. Hence India's
competitiveness in world services market is
concentrated in a few areas only. Although the services
trade balance is positive at the sub sectoral level, it is
significantly positive only in the computer and related
services and is in deficit in most other segments. There is
also lack of diversification of markets and at present
there is a narrow mix of markets .The IT-ITeS services
constitute around 50 per cent of the basket, and most of
it is exported to the US and the UK.
The potential for increasing the services exports from
India is immense given the fact that India is a leading
player in the services trade in the world. India's share in
the world in the export of services has risen from a
nominal 0.6 per cent in 1990 to an impressive 3.3 per cent
in 2011. Significantly, it has been increasing faster than
that of merchandize exports from the country. In 2011,
world's services exports reached US$4.17 trillion,
Global exports of commercial services
Source: WTO
25.7 25.6
20.6
7.5
6.0
2.52.4
2.11.3
6.4
Travel
Transportation Services
Financial Services
Royalties and License Fees
Computer and Information Services
Communication Services
Construction
Insurance Services
Personal, Cultural and Recreational Services
Other Business Services*
34ECONOMY MATTERS
Trends in World Exports and Indian Exports of Goods and Services in current USD (Index=100 in 1990)
Source: WTO
There can be four distinct approaches to be adopted
to unleash the export potential of the service sector in
India.
One is scouting for other unorthodox segments that can
be significantly boosted. Medical Tourism accountancy,
legal services, animation, management services, R&D,
architectural services, audio-visual post-production,
creation of content and intellectual property, animation
and gaming fall in this category. The strategy should be
to provide integrated end-to end services and also move
up the value chain with time.
Secondly, developing services sectors in India like
hospitals, hotels etc. so that they get approvals and
certifications from the international standards
organizations in terms of the quality of their services,
infrastructure etc. to attract more high budget visitors
from abroad.
Thirdly, developing a dedicated band of trained
professionals in India in various avocations like doctors,
nurses, paramedics, accountants, animators etc who
can move from the country to other destinations will
also help.
Fourthly, the role of regulators should be redefined to
include periodic consultations with the stakeholders to
address the problems and prospects. Also we need to
give thrust to employment-intensive growth in services.
Between 2005 and 2011, some of these countries have
registered annual average growth of computer services
in the range of 27 to 69 per cent, though the absolute
figures of growth may be far less than that of India.
According to NASSCOM, in the last few years India's
market share in computer services exports has eroded
by 10 per cent on account of the competition from these
countries.
Among the other services that are yet to be given their
due importance but hold enormous potential,
Healthcare and Medical Tourism offer tremendous
promise because of the availability of a skilled talent
pool, competencies at the cutting edge of modern
medicine and proficiency in the conduct of complex
medical procedures. All these are achievable in India at a
huge cost advantage. Studies show that the current cost
advantage may result in savings for the patient as high as
10 times the cost of an identical procedure in the West.
Notwithstanding is the fact that the value of each
procedure can be quite substantial resulting in
significant monetary and goodwill gains. Also, medical
tourism once developed is less prone to react to the
exigencies of economic cycles making it a stable and
sustainable income source for the country. India
currently gets only 2 per cent of the US$79 billion global
medical tourist flow showing the enormous headroom
that is available for growth.
3000
2500
2000
1500
1000
500
0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
India (Good Exports) World (Good Exports)
India (Services Exports) World (Services Exports)
35 NOVEMBER - DECEMBER 2013
* Other business services would include business and management consulting, accounting, legal and related services
registering a growth rate of 11 per cent. Over half of
India's net FDI inflows are in services and services also
constitute an increasing part of outward investment by
Indian companies. Also the huge contribution of
remittances to India's Balance of Payments,
underscores the significance of services to India's
macroeconomic and external stability.
Services sector is also a powerful tool for permeating
inclusive growth. According to the National Sample
Survey Organization's (NSSO) Report, for every 1000
persons employed in rural area, 241 are employed in the
services sector. In the urban area, this figure is as high as
683. It is often said that business processes exports have
sprung up on their own because of the inherent natural
advantages that India has, such as proficiency in the
English language, a large pool of skilled manpower etc.
That could be true.
But there are certain weaknesses and issues that need
to be addressed if India is to have a globally competitive
services sector. The future growth of the services
exports needs careful policy tooling on account of the
heightened competition that might be coming from
countries like Philippines, Brazil, Israel, Sri Lanka, China
and on account of protectionist overtones in the policy
framework of some of the developed countries.
Similarly, the services sector has been a key driver of
India's improved trade and FDI performance. There are
also sizeable exports from the services sector, which is
rather lop-sided and driven mostly by business
processes exports, which include computer-related
services and IT-BPO services and to a lesser extent by
other business and professional services like R&D,
accounting services and legal services. Hence India's
competitiveness in world services market is
concentrated in a few areas only. Although the services
trade balance is positive at the sub sectoral level, it is
significantly positive only in the computer and related
services and is in deficit in most other segments. There is
also lack of diversification of markets and at present
there is a narrow mix of markets .The IT-ITeS services
constitute around 50 per cent of the basket, and most of
it is exported to the US and the UK.
The potential for increasing the services exports from
India is immense given the fact that India is a leading
player in the services trade in the world. India's share in
the world in the export of services has risen from a
nominal 0.6 per cent in 1990 to an impressive 3.3 per cent
in 2011. Significantly, it has been increasing faster than
that of merchandize exports from the country. In 2011,
world's services exports reached US$4.17 trillion,
Global exports of commercial services
Source: WTO
25.7 25.6
20.6
7.5
6.0
2.52.4
2.11.3
6.4
Travel
Transportation Services
Financial Services
Royalties and License Fees
Computer and Information Services
Communication Services
Construction
Insurance Services
Personal, Cultural and Recreational Services
Other Business Services*
34ECONOMY MATTERS
Tourism Inflows—Single Largest Way to Narrow CAD
Mr Arjun Sharma Le-Passage to India
37 NOVEMBER - DECEMBER 2013
6.58 million- an increase of 4.3 per cent over the year
2011. Arrivals to India have steadily grown since 2002
when there were 2.38 million tourists visiting India.
Tourism in India has registered significant growth in the
recent years and India has tremendous potential to
become a major global tourist destination. As shown in
graph below, in 2012, tourist arrivals to India grew to
the USA led with 15.8 per cent share in total FTA arrivals,
followed by UK (11.9 per cent), Bangladesh (7.4 per
cent), Sri Lanka (4.5 per cent), and Canada (4.1 per cent)
thThe 12 Five Year Plan envisages tourist arrivals to reach
11.24 million by the end of 2017. The breakup of source
country for FTA (Foreign Tourist Arrivals) indicate that
Source: Ministry of Tourism, India
Foreign Tourist Arrivals in India 1997-2012
Source: Bureau of Immigration, India
Year
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
7
6
5
4
3
2
1
0
FTA
s (in
mill
ion)
in in
dia
Percentage share of Top 10 Countries for FTAs in India in 2012
USA15.81%
Others39.47%
Malaysia2.98% Australia
3.07%Japan3.34%
France3.66% Germany
3.88%
Canada3.89%
Sri Lanka4.52%
Bangladesh7.40%
UK11.98%
periodically reviewing the curricula of these disciplines
for their relevance among the best in the world.
One pre-requisite for tapping the services sector
exports is skilling the people in the right trades. The
government of India through various agencies has
embarked on a mission to impart the right skills to 500
million people in the foreseeable future so that the
demand from various sectors including the services
sector can be met. These people will be trained in ITI's
and similar organizations. India's track record of
industry training has been inadequate. There are more
than 100 trades that figure in the curricula of ITI's in
India. Of that, only a handful of trades are relevant to
industry. It is time to recast the curricula with the inputs
from the user industry.
There are well conceived industry -government
partnership models developed elsewhere, particularly
in Germany, which India can adapt. These can give a leg
up to the services sector, particularly exports of services
and trained manpower.
Medical tourism, which falls under mode 2 of the WTO
General Agreement on Trade in Services (GATS) is a case
in point. The sector continues to have many bottlenecks.
There are three ministries involved in medical tourism,
these are the ministries of health, tourism and
commerce and industry. Seamless coordination among
these ministries could vastly facilitate the international
arrival of medical tourists and improve the packaging
and delivery of service. The complexity of rules and
delays surrounding the issuance of medical visas and in
getting international accreditation to hospitals are
bottlenecks that can be resolved to accelerate growth.
Similarly, there are improvements needed in the
administrative and legislative framework governing the
professions like chartered accountants, company
secretaries, cost accountants, lawyers etc. It is time to
take a call on whether the age-old restrictions placed on
these professions should be continued, such as
restrictions imposed on foreign affiliate firms to operate
in India, ban on advertisement etc. Equally important is
that the regulators should give more attention to
36ECONOMY MATTERS
Tourism Inflows—Single Largest Way to Narrow CAD
Mr Arjun Sharma Le-Passage to India
37 NOVEMBER - DECEMBER 2013
6.58 million- an increase of 4.3 per cent over the year
2011. Arrivals to India have steadily grown since 2002
when there were 2.38 million tourists visiting India.
Tourism in India has registered significant growth in the
recent years and India has tremendous potential to
become a major global tourist destination. As shown in
graph below, in 2012, tourist arrivals to India grew to
the USA led with 15.8 per cent share in total FTA arrivals,
followed by UK (11.9 per cent), Bangladesh (7.4 per
cent), Sri Lanka (4.5 per cent), and Canada (4.1 per cent)
thThe 12 Five Year Plan envisages tourist arrivals to reach
11.24 million by the end of 2017. The breakup of source
country for FTA (Foreign Tourist Arrivals) indicate that
Source: Ministry of Tourism, India
Foreign Tourist Arrivals in India 1997-2012
Source: Bureau of Immigration, India
Year
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
7
6
5
4
3
2
1
0
FTA
s (in
mill
ion)
in in
dia
Percentage share of Top 10 Countries for FTAs in India in 2012
USA15.81%
Others39.47%
Malaysia2.98% Australia
3.07%Japan3.34%
France3.66% Germany
3.88%
Canada3.89%
Sri Lanka4.52%
Bangladesh7.40%
UK11.98%
periodically reviewing the curricula of these disciplines
for their relevance among the best in the world.
One pre-requisite for tapping the services sector
exports is skilling the people in the right trades. The
government of India through various agencies has
embarked on a mission to impart the right skills to 500
million people in the foreseeable future so that the
demand from various sectors including the services
sector can be met. These people will be trained in ITI's
and similar organizations. India's track record of
industry training has been inadequate. There are more
than 100 trades that figure in the curricula of ITI's in
India. Of that, only a handful of trades are relevant to
industry. It is time to recast the curricula with the inputs
from the user industry.
There are well conceived industry -government
partnership models developed elsewhere, particularly
in Germany, which India can adapt. These can give a leg
up to the services sector, particularly exports of services
and trained manpower.
Medical tourism, which falls under mode 2 of the WTO
General Agreement on Trade in Services (GATS) is a case
in point. The sector continues to have many bottlenecks.
There are three ministries involved in medical tourism,
these are the ministries of health, tourism and
commerce and industry. Seamless coordination among
these ministries could vastly facilitate the international
arrival of medical tourists and improve the packaging
and delivery of service. The complexity of rules and
delays surrounding the issuance of medical visas and in
getting international accreditation to hospitals are
bottlenecks that can be resolved to accelerate growth.
Similarly, there are improvements needed in the
administrative and legislative framework governing the
professions like chartered accountants, company
secretaries, cost accountants, lawyers etc. It is time to
take a call on whether the age-old restrictions placed on
these professions should be continued, such as
restrictions imposed on foreign affiliate firms to operate
in India, ban on advertisement etc. Equally important is
that the regulators should give more attention to
36ECONOMY MATTERS
hotels from the liquidity crunch due to the prolonged
economic slowdown. Infrastructure status will allow
large capital-intensive hotel projects to avail loans with
longer repayment tenures of 15 years at lower rates of
interest and higher debt-to-equity ratio of up to 4:1. It
will also enable hoteliers to access more funds through
relatively low-cost external commercial borrowings and
become eligible for financial assistance including
takeout financing from specialised agencies like IDFC
Ltd, India Infrastructure Finance Co. Ltd and the newly
set up Infrastructure Debt Funds (IDF).
Some of the bottlenecks hindering the tourism industry
to realise its full potential are in Taxation, Visa, Aviation,
Environment, HR and marketing.
On Taxation front, rationalisation of tax structure on air
fares/airport charges and ATF charges and reduction of
multiplicity of taxes on aviation sector is needed. Luxury
tax on hotel rooms should be limited to make India's
accommodation globally competitive. Also the foreign
exchange earned by hotels and inbound tour operators
may be considered as 'deemed' exports and full service
tax exemption be provided to them at par with other
exporters. Also rationalisation of taxes would provide a
better fiscal operating environment for the tourism
sector to thrive.
Secondly, roll out of Visa on Arrival at Goa, Agra, Bodh
Gaya, Varanasi, Jaipur etc with requisite personnel and
proper infrastructure will be a good boost. The process
for application of visas should move to online. Also as
there are some countries that find it difficult to
comprehend the contents of the application form in
english especially in France and Germany. Thus multiple
language options are a necessity if India wants a sizeable
share of international traffic. There is an urgent need to
simplify visa procedures. While our neighbouring
countries have made entry procedures extremely user
friendly as well as price friendly.
Thirdly for the aviation sector there is a need for
upgrading air connectivity at key tourist destinations
and rationalisation of ATF charges and User
Development Fees. Also air taxi operation with small
aircrafts (20 seaters) should be permitted to a
consortium of hoteliers, tour operators to lesser
connected tourist destinations. This could be funded
under the Large Revenue Generating Scheme (LRG) of
the Ministry of Tourism under a Public Private
Partnership (PPP) Mode.
Fourthly, are the environmental issues. Tourism industry
Furthermore, investment into this sector has risen over
the years. In the year 2012, the industry is expected to
have attracted a capital investment of Rs.1761 billion
which is expected to grow by 6.5 per cent (per annum)
over the next ten years.
WTTC report on the impact of tourism to the Indian
economy states that tourism contributes approximately
6.4 per cent to the country's GDP, which is a larger share
than the education and the mining sector and at par with
the telecom sector. In terms of employment, the Indian
tourism industry in 2011 created 39.3 million direct or
indirect jobs in the country. This is 7.9 per cent of the
total employment in India and ahead of the telecom,
mining and automotive sectors. Over the next ten years,
jobs the tourism industry creates will rise steadily by 2
per cent per annum reaching 48 million by 2022- 8 per
cent of the total employment in India.
In India, tourism industry holds special position as it not
only have potential to grow at a high rate, but also
stimulate other economic sectors through its backward
and forward linkages and cross-sectional synergies with
s e c t o r s l i k e m a n u f a c t u r i n g , c o n s t r u c t i o n ,
communications, agriculture, horticulture, textiles, arts
and handicrafts, transport, etc and most importantly it
enhances and increases social outreach. That is, it can
provide impetus to other industries in the country and
generate enough wealth to help pay off the
international debt. It is the third largest net earner of
foreign exchange for the country. The travel and tourism
sector contributes to the national integration; preserves
natural and cultural environments; as well as enriches
social and cultural lives of the people.
Some positive developments so far have been Visa on
Arrival from 40 countries, to senior citizens from all the
countries and easing of visa issuance for conference
traffic should ease tourist inflow.
The inclusion of hotels with project cost in excess of
Rs.200 crore and convention centres with project cost of
more than Rs.300 crore in the Harmonised List of
Infrastructure and also to include such hotels and
convention centres of any star rating and located
anywhere in the country.
This is in addition to including three-star or higher
category hotels outside cities but in places with
populations of more than one million people in the
Reserve Bank of India's Infrastructure Lending List late
last year. The hotel industry has been demanding
infrastructure status for some years now to bail out
39 NOVEMBER - DECEMBER 2013
earnings. According to the World Travel & Tourism
Council (WTTC), a global forum for the business leaders
of the tourism industry, India is the 12th largest travel
and tourism economies of the world and a significant
contributor to the country's economy.
exports from agriculture, mining, automotive
manufacturing, financial services, construction, and
education. In 2012, India's share in international tourist
arrivals was 0.65 per cent of world travellers and its
share in international tourism receipts was relatively
higher at 1.61 per cent in 2012. The rising FTA flows is
clearly a function of the stellar performance of Indian
economy.
Correspondingly foreign exchange earnings too have
shown an increase- US$3103 million in 2002 to US$17,737
million in 2012 (see graph below). In 2013, till the month
of June, the country has received 3.31 million visitors and
has earned US$9201 million in terms of foreign exchange
The tourism industry constitutes a significant source of
export earnings. In 2011, visitor exports totalled US$17.2
billion. This was 12.0 per cent of all service exports and
3.9 per cent of all exports (including goods and services).
In 2012, this grew to Rs.1004.6 billion which is 4.2 per
cent of the total exports. This is forecast to grow by 8.7
per cent in 2013. The average growth rate per annum
from 2013-23 is slated at 5.7 per cent. In terms of
rankings, tourism sector earnings exceed earnings from
38ECONOMY MATTERS
Foreign Exchange Earnings from Tourism in India 1997-2012
Source: Ministry of Tourism, India
Percentage Share of India in InternationalTourist Arrivals in World
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Year
Ind
ia’s
Sh
are
(%)
Percentage Share of India in International TourismReceipts in World
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Year
Ind
ia’s
Sh
are
(%)
Source: Ministry of Tourism, India
20000
18000
16000
14000
12000
10000
8000
6000
4000
0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Year
FE
E (
in U
S $
Mill
ion
)
hotels from the liquidity crunch due to the prolonged
economic slowdown. Infrastructure status will allow
large capital-intensive hotel projects to avail loans with
longer repayment tenures of 15 years at lower rates of
interest and higher debt-to-equity ratio of up to 4:1. It
will also enable hoteliers to access more funds through
relatively low-cost external commercial borrowings and
become eligible for financial assistance including
takeout financing from specialised agencies like IDFC
Ltd, India Infrastructure Finance Co. Ltd and the newly
set up Infrastructure Debt Funds (IDF).
Some of the bottlenecks hindering the tourism industry
to realise its full potential are in Taxation, Visa, Aviation,
Environment, HR and marketing.
On Taxation front, rationalisation of tax structure on air
fares/airport charges and ATF charges and reduction of
multiplicity of taxes on aviation sector is needed. Luxury
tax on hotel rooms should be limited to make India's
accommodation globally competitive. Also the foreign
exchange earned by hotels and inbound tour operators
may be considered as 'deemed' exports and full service
tax exemption be provided to them at par with other
exporters. Also rationalisation of taxes would provide a
better fiscal operating environment for the tourism
sector to thrive.
Secondly, roll out of Visa on Arrival at Goa, Agra, Bodh
Gaya, Varanasi, Jaipur etc with requisite personnel and
proper infrastructure will be a good boost. The process
for application of visas should move to online. Also as
there are some countries that find it difficult to
comprehend the contents of the application form in
english especially in France and Germany. Thus multiple
language options are a necessity if India wants a sizeable
share of international traffic. There is an urgent need to
simplify visa procedures. While our neighbouring
countries have made entry procedures extremely user
friendly as well as price friendly.
Thirdly for the aviation sector there is a need for
upgrading air connectivity at key tourist destinations
and rationalisation of ATF charges and User
Development Fees. Also air taxi operation with small
aircrafts (20 seaters) should be permitted to a
consortium of hoteliers, tour operators to lesser
connected tourist destinations. This could be funded
under the Large Revenue Generating Scheme (LRG) of
the Ministry of Tourism under a Public Private
Partnership (PPP) Mode.
Fourthly, are the environmental issues. Tourism industry
Furthermore, investment into this sector has risen over
the years. In the year 2012, the industry is expected to
have attracted a capital investment of Rs.1761 billion
which is expected to grow by 6.5 per cent (per annum)
over the next ten years.
WTTC report on the impact of tourism to the Indian
economy states that tourism contributes approximately
6.4 per cent to the country's GDP, which is a larger share
than the education and the mining sector and at par with
the telecom sector. In terms of employment, the Indian
tourism industry in 2011 created 39.3 million direct or
indirect jobs in the country. This is 7.9 per cent of the
total employment in India and ahead of the telecom,
mining and automotive sectors. Over the next ten years,
jobs the tourism industry creates will rise steadily by 2
per cent per annum reaching 48 million by 2022- 8 per
cent of the total employment in India.
In India, tourism industry holds special position as it not
only have potential to grow at a high rate, but also
stimulate other economic sectors through its backward
and forward linkages and cross-sectional synergies with
s e c t o r s l i k e m a n u f a c t u r i n g , c o n s t r u c t i o n ,
communications, agriculture, horticulture, textiles, arts
and handicrafts, transport, etc and most importantly it
enhances and increases social outreach. That is, it can
provide impetus to other industries in the country and
generate enough wealth to help pay off the
international debt. It is the third largest net earner of
foreign exchange for the country. The travel and tourism
sector contributes to the national integration; preserves
natural and cultural environments; as well as enriches
social and cultural lives of the people.
Some positive developments so far have been Visa on
Arrival from 40 countries, to senior citizens from all the
countries and easing of visa issuance for conference
traffic should ease tourist inflow.
The inclusion of hotels with project cost in excess of
Rs.200 crore and convention centres with project cost of
more than Rs.300 crore in the Harmonised List of
Infrastructure and also to include such hotels and
convention centres of any star rating and located
anywhere in the country.
This is in addition to including three-star or higher
category hotels outside cities but in places with
populations of more than one million people in the
Reserve Bank of India's Infrastructure Lending List late
last year. The hotel industry has been demanding
infrastructure status for some years now to bail out
39 NOVEMBER - DECEMBER 2013
earnings. According to the World Travel & Tourism
Council (WTTC), a global forum for the business leaders
of the tourism industry, India is the 12th largest travel
and tourism economies of the world and a significant
contributor to the country's economy.
exports from agriculture, mining, automotive
manufacturing, financial services, construction, and
education. In 2012, India's share in international tourist
arrivals was 0.65 per cent of world travellers and its
share in international tourism receipts was relatively
higher at 1.61 per cent in 2012. The rising FTA flows is
clearly a function of the stellar performance of Indian
economy.
Correspondingly foreign exchange earnings too have
shown an increase- US$3103 million in 2002 to US$17,737
million in 2012 (see graph below). In 2013, till the month
of June, the country has received 3.31 million visitors and
has earned US$9201 million in terms of foreign exchange
The tourism industry constitutes a significant source of
export earnings. In 2011, visitor exports totalled US$17.2
billion. This was 12.0 per cent of all service exports and
3.9 per cent of all exports (including goods and services).
In 2012, this grew to Rs.1004.6 billion which is 4.2 per
cent of the total exports. This is forecast to grow by 8.7
per cent in 2013. The average growth rate per annum
from 2013-23 is slated at 5.7 per cent. In terms of
rankings, tourism sector earnings exceed earnings from
38ECONOMY MATTERS
Foreign Exchange Earnings from Tourism in India 1997-2012
Source: Ministry of Tourism, India
Percentage Share of India in InternationalTourist Arrivals in World
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Year
Ind
ia’s
Sh
are
(%)
Percentage Share of India in International TourismReceipts in World
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Year
Ind
ia’s
Sh
are
(%)
Source: Ministry of Tourism, India
20000
18000
16000
14000
12000
10000
8000
6000
4000
0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Year
FE
E (
in U
S $
Mill
ion
)
ECONOMY MATTERS
n
n
n
Keeps readers abreast of global & domestic
economic developments
Monthly Journal of top management of 8000
companies
Read by CII Members, Thought Leaders,
Diplomats, Policy Makers, MPs and other
decision makers
The Facts
n
n
n
n
n
n
n
Domestic Trends
Corporate Performance
Sector in Focus
Special Article
Special Feature
Economy Monitor
Global Trends
The Coverage
CII invites full-page* Advertisements for
this flagship document at an attractive rate
of Rs 60,000 per issue and Rs 6 lakh for 12
issues.
For more details, Please Contact: Confederation of Indian Industry
The Mantosh Sondhi Centre, 23, Institutional Area, Lodi Road, New Delhi- 110003 (INDIA)Tel : +91-011-24629994-7, Fax: +91-011-24626149; Email: [email protected]
Dr. Danish A. Hashim, Director- Economic Research
Sixthly, short courses, vocational courses and skill
development programmes like the Hunar se Rozgar
schemes should be encouraged. Facilitation of PPP
models for tourism related courses and institutions in
conjunction with National Skill Development
Corporation should be encouraged.
Lastly and most importantly, marketing and promotion
of India as a major tourist destination is critical for the
industry to achieve its potential. The "Incredible India"
campaign helped place India on top of the list and there
is a need for a renewed campaign. Newer tourism
concepts, which include cruise tourism, adventure
tourism, agri tourism or rural tourism, are emerging in
India and these require support to develop and flourish.
Hence, greater marketing push for these different
products is required.
To remain competitive in the fiercely crowded space,
India needs to change its traditional methodology to a
more agile, young and modern approach. There is a need
to develop a niche market and a brand position which
captures the essence of the country. All this should make
Indian tourism a major foreign exchange earner for the
country.
has requested the reduction of distance of the 'No
Development Zones' all along the tidal water bodies in
selected coastal stretches for promoting tourism from
100 to 50 m. Implementation of M.S. Swaminathan
Committee Report can add a substantial number of
tourist on beaches. Also Ministry of Environment &
Forests needs to issue their Ecotourism policy. This will
help articulate a lot of matters relating to the conduct of
wildlife tourism, community participation and
sustainable operations.
Fifthly, Coordination with Ministry of Culture is needed.
UNESCO has nominated 23 cultural and 5 natural as
World Heritage Sites in India and 32 other sites across
various states have been proposed to be included under
Heritage Status. At most sites basic infrastructure such
as transport linkages, garbage and solid waste
management, tourist facilities such as toilets, day
centres, site information and manuals guide,
recreational facilities are in need of an upgrade. One way
of doing it by selective brandings at monuments in PPP
mode, which should be allowed in lieu of sharing of
upkeep costs. Also selectively allow use of monument
sites as venues should be allowed for events to enhance
experience.
40ECONOMY MATTERS
ECONOMY MATTERS
n
n
n
Keeps readers abreast of global & domestic
economic developments
Monthly Journal of top management of 8000
companies
Read by CII Members, Thought Leaders,
Diplomats, Policy Makers, MPs and other
decision makers
The Facts
n
n
n
n
n
n
n
Domestic Trends
Corporate Performance
Sector in Focus
Special Article
Special Feature
Economy Monitor
Global Trends
The Coverage
CII invites full-page* Advertisements for
this flagship document at an attractive rate
of Rs 60,000 per issue and Rs 6 lakh for 12
issues.
For more details, Please Contact: Confederation of Indian Industry
The Mantosh Sondhi Centre, 23, Institutional Area, Lodi Road, New Delhi- 110003 (INDIA)Tel : +91-011-24629994-7, Fax: +91-011-24626149; Email: [email protected]
Dr. Danish A. Hashim, Director- Economic Research
Sixthly, short courses, vocational courses and skill
development programmes like the Hunar se Rozgar
schemes should be encouraged. Facilitation of PPP
models for tourism related courses and institutions in
conjunction with National Skill Development
Corporation should be encouraged.
Lastly and most importantly, marketing and promotion
of India as a major tourist destination is critical for the
industry to achieve its potential. The "Incredible India"
campaign helped place India on top of the list and there
is a need for a renewed campaign. Newer tourism
concepts, which include cruise tourism, adventure
tourism, agri tourism or rural tourism, are emerging in
India and these require support to develop and flourish.
Hence, greater marketing push for these different
products is required.
To remain competitive in the fiercely crowded space,
India needs to change its traditional methodology to a
more agile, young and modern approach. There is a need
to develop a niche market and a brand position which
captures the essence of the country. All this should make
Indian tourism a major foreign exchange earner for the
country.
has requested the reduction of distance of the 'No
Development Zones' all along the tidal water bodies in
selected coastal stretches for promoting tourism from
100 to 50 m. Implementation of M.S. Swaminathan
Committee Report can add a substantial number of
tourist on beaches. Also Ministry of Environment &
Forests needs to issue their Ecotourism policy. This will
help articulate a lot of matters relating to the conduct of
wildlife tourism, community participation and
sustainable operations.
Fifthly, Coordination with Ministry of Culture is needed.
UNESCO has nominated 23 cultural and 5 natural as
World Heritage Sites in India and 32 other sites across
various states have been proposed to be included under
Heritage Status. At most sites basic infrastructure such
as transport linkages, garbage and solid waste
management, tourist facilities such as toilets, day
centres, site information and manuals guide,
recreational facilities are in need of an upgrade. One way
of doing it by selective brandings at monuments in PPP
mode, which should be allowed in lieu of sharing of
upkeep costs. Also selectively allow use of monument
sites as venues should be allowed for events to enhance
experience.
40ECONOMY MATTERS
Exports (%) Imports (%) Trade Deficit (US$ Bn) Current Account Deficit (US$ Bn) Avg Exchange Rate (Rs/US$)
Source: RBI, CSO, SEBI, Office of Economic Advisor, Bureau of Economic Analysis, Euro Stat, Bank of Japan, National Bureau of Statistics
MONETARY VARIABLES (%)
CAPITAL FLOWS (US$ billion)
OTHER IMPORTANT INDICATORS (y-o-y%)
Non-Food Credit Growth (y-o-y%) M3Growth (y-o-y%) Repo Rate (%) Cash Reserve Ratio (%)
Net FII Flows Net FDI Flows Forex Reserves ECB flows
Core Sector Growth Cement Production Growth Steel Production Growth Commercial VehiclesProduction Growth
7.257.75
4.00 4.00 4.00 4.00 4.00
5.9
-16.4
10.5
Jul-13 Aug-13 Sep-13 Oct-13
22.6
32.6
18.121.8
2QFY13 3QFY13 4QFY13 1QFY14
61.6
Jul-13 Aug-13 Sep-13 Oct-13
17.318.4
17.916.8
14.1
Aug-13 Sep-13 Oct-13
0.4
Jul-13 Aug-13 Sep-13 Oct-13
1.7
3.2
Jun-13 Jul-13 Aug-13 Sep-13
281.3
Jul-13 Aug-13 Sep-13 Oct-13
1.0
2.8
4.2
0.9
2QFY13 3QFY13 4QFY13 1QFY14
8.0
Jun-13 Jul-13 Aug-13 Sep-13
11.5
Jun-13 Jul-13 Aug-13 Sep-13
6.6
Jun-13 Jul-13 Aug-13 Sep-13
-22.6
Jun-13 Jul-13 Aug-13 Sep-13 Oct-13
EXTERNAL ACCOUNT
12.310.9
6.8
59.8
63.263.8
12.5 12.2 12.5
-3.0 -2.5
1.22.1 1.7
277.2 275.5 276.3
0.1
3.13.7
2.3
0.8
5.5
3.4
7.0
4.3
2.0
4.0
6.0
8.0
10.0
12.0
0.0
-15.4-17.9 -19.6
-28.6
-6.2
11.6 13.0
-0.7
11.2
-18.1
13.5
-14.5
Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Nov-13
9.2
5.2
2QFY14
62.6
Nov-13
14.6
Jul-13 Aug-13 Sep-13 Oct-13 Nov-13
14.5
Jul-13 Aug-13 Sep-13 Oct-13 Nov-13
7.75
Nov-13
7.507.75
Dec-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13
0.3
Nov-13
2.0
Oct-13
291.3
Nov-13
1.5
2QFY14
-0.6
Oct-13
1.0
Oct-13
3.5
Oct-13
43 NOVEMBER - DECEMBER 2013
ECONOMY MONITOR
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
Euro Area GDP Growth China GDP Growth
Agriculture Services
Primary Fuel Manufacturing
General Manufacturing Electricity Mining
3Q12 4Q12 1Q13 2Q13
7.47.9 7.7 7.5 7.8
2.01.3 1.6
-1.2
-0.4
3Q12 4Q12 1Q13 2Q13
-0.3
0.11.2
3Q12 4Q12 1Q13 2Q13
5.24.8 4.4
2QFY13 3QFY13 4QFY13 2QFY14
1.7 1.81.4
2.7
2QFY13 3QFY13 4QFY13 1QFY14
1.3
2.52.7
0.2
7.6
6.7 6.6 6.6
2QFY13 3QFY13 4QFY13 1QFY14
3Q12 4Q12 1Q13 2Q13 3Q13
Jul-13 Aug-13 Sep-13 Oct-13
14.014.7
Jul-13 Aug-13 Sep-13 Oct-13
12.7
10.3
Jul-13 Aug-13 Sep-13 Oct-13
2.5
Jul-13 Aug-13 Sep-13 Oct-13
Jun-13 Jul-13 Aug-13 Sep-13 Jun-13 Jul-13 Aug-13 Sep-13
12.9
Jun-13 Jul-13 Aug-13 Sep-13
-1.0
Jun-13 Jul-13 Aug-13 Sep-13
GLOBAL GDP (y-o-y%)
3Q13
3.1
1.6
5.97.0 7.0
9.7
13.611.4
11.7
2.62.3 2.4
-1.8
2.6
0.4
2.0
-1.7
3.0
-0.2
0.60.0
5.2
7.2
-4.6
-3.0
3.3
-0.7-1.0
-0.6
3Q13
-0.2
3Q13
2.4
4.7 4.8
1QFY14
4.6
2QFY14
2.4
2QFY13 3QFY13 4QFY13 1QFY14 2QFY14
5.9
2QFY14
7.0
7.5
Nov-13
15.9
Nov-13
11.1
Nov-13 Nov-13
2.6
-1.8
Oct-13
-2.0
Oct-13
1.3
Oct-13
-3.5
Oct-13
42ECONOMY MATTERS
Exports (%) Imports (%) Trade Deficit (US$ Bn) Current Account Deficit (US$ Bn) Avg Exchange Rate (Rs/US$)
Source: RBI, CSO, SEBI, Office of Economic Advisor, Bureau of Economic Analysis, Euro Stat, Bank of Japan, National Bureau of Statistics
MONETARY VARIABLES (%)
CAPITAL FLOWS (US$ billion)
OTHER IMPORTANT INDICATORS (y-o-y%)
Non-Food Credit Growth (y-o-y%) M3Growth (y-o-y%) Repo Rate (%) Cash Reserve Ratio (%)
Net FII Flows Net FDI Flows Forex Reserves ECB flows
Core Sector Growth Cement Production Growth Steel Production Growth Commercial VehiclesProduction Growth
7.257.75
4.00 4.00 4.00 4.00 4.00
5.9
-16.4
10.5
Jul-13 Aug-13 Sep-13 Oct-13
22.6
32.6
18.121.8
2QFY13 3QFY13 4QFY13 1QFY14
61.6
Jul-13 Aug-13 Sep-13 Oct-13
17.318.4
17.916.8
14.1
Aug-13 Sep-13 Oct-13
0.4
Jul-13 Aug-13 Sep-13 Oct-13
1.7
3.2
Jun-13 Jul-13 Aug-13 Sep-13
281.3
Jul-13 Aug-13 Sep-13 Oct-13
1.0
2.8
4.2
0.9
2QFY13 3QFY13 4QFY13 1QFY14
8.0
Jun-13 Jul-13 Aug-13 Sep-13
11.5
Jun-13 Jul-13 Aug-13 Sep-13
6.6
Jun-13 Jul-13 Aug-13 Sep-13
-22.6
Jun-13 Jul-13 Aug-13 Sep-13 Oct-13
EXTERNAL ACCOUNT
12.310.9
6.8
59.8
63.263.8
12.5 12.2 12.5
-3.0 -2.5
1.22.1 1.7
277.2 275.5 276.3
0.1
3.13.7
2.3
0.8
5.5
3.4
7.0
4.3
2.0
4.0
6.0
8.0
10.0
12.0
0.0
-15.4-17.9 -19.6
-28.6
-6.2
11.6 13.0
-0.7
11.2
-18.1
13.5
-14.5
Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Nov-13
9.2
5.2
2QFY14
62.6
Nov-13
14.6
Jul-13 Aug-13 Sep-13 Oct-13 Nov-13
14.5
Jul-13 Aug-13 Sep-13 Oct-13 Nov-13
7.75
Nov-13
7.507.75
Dec-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13
0.3
Nov-13
2.0
Oct-13
291.3
Nov-13
1.5
2QFY14
-0.6
Oct-13
1.0
Oct-13
3.5
Oct-13
43 NOVEMBER - DECEMBER 2013
ECONOMY MONITOR
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
Euro Area GDP Growth China GDP Growth
Agriculture Services
Primary Fuel Manufacturing
General Manufacturing Electricity Mining
3Q12 4Q12 1Q13 2Q13
7.47.9 7.7 7.5 7.8
2.01.3 1.6
-1.2
-0.4
3Q12 4Q12 1Q13 2Q13
-0.3
0.11.2
3Q12 4Q12 1Q13 2Q13
5.24.8 4.4
2QFY13 3QFY13 4QFY13 2QFY14
1.7 1.81.4
2.7
2QFY13 3QFY13 4QFY13 1QFY14
1.3
2.52.7
0.2
7.6
6.7 6.6 6.6
2QFY13 3QFY13 4QFY13 1QFY14
3Q12 4Q12 1Q13 2Q13 3Q13
Jul-13 Aug-13 Sep-13 Oct-13
14.014.7
Jul-13 Aug-13 Sep-13 Oct-13
12.7
10.3
Jul-13 Aug-13 Sep-13 Oct-13
2.5
Jul-13 Aug-13 Sep-13 Oct-13
Jun-13 Jul-13 Aug-13 Sep-13 Jun-13 Jul-13 Aug-13 Sep-13
12.9
Jun-13 Jul-13 Aug-13 Sep-13
-1.0
Jun-13 Jul-13 Aug-13 Sep-13
GLOBAL GDP (y-o-y%)
3Q13
3.1
1.6
5.97.0 7.0
9.7
13.611.4
11.7
2.62.3 2.4
-1.8
2.6
0.4
2.0
-1.7
3.0
-0.2
0.60.0
5.2
7.2
-4.6
-3.0
3.3
-0.7-1.0
-0.6
3Q13
-0.2
3Q13
2.4
4.7 4.8
1QFY14
4.6
2QFY14
2.4
2QFY13 3QFY13 4QFY13 1QFY14 2QFY14
5.9
2QFY14
7.0
7.5
Nov-13
15.9
Nov-13
11.1
Nov-13 Nov-13
2.6
-1.8
Oct-13
-2.0
Oct-13
1.3
Oct-13
-3.5
Oct-13
42ECONOMY MATTERS
44ECONOMY MATTERS
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
The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the development of India,
partnering industry, Government, and civil society, through advisory and consultative processes.
CII is a non-government, not-for-profit, industry-led and industry-managed organization, playing a proactive role in India's
development process. Founded over 118 years ago, India's premier business association has over 7100 members, from the
private as well as public sectors, including SMEs and MNCs, and an indirect membership of over 90,000 enterprises from
around 257 national and regional sectoral industry bodies.
CII charts change by working closely with Government on policy issues, interfacing with thought leaders, and enhancing
efficiency, competitiveness and business opportunities for industry through a range of specialized services and strategic
global linkages. It also provides a platform for consensus-building and networking on key 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 ResearchThe 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]
44ECONOMY MATTERS
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
The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the development of India,
partnering industry, Government, and civil society, through advisory and consultative processes.
CII is a non-government, not-for-profit, industry-led and industry-managed organization, playing a proactive role in India's
development process. Founded over 118 years ago, India's premier business association has over 7100 members, from the
private as well as public sectors, including SMEs and MNCs, and an indirect membership of over 90,000 enterprises from
around 257 national and regional sectoral industry bodies.
CII charts change by working closely with Government on policy issues, interfacing with thought leaders, and enhancing
efficiency, competitiveness and business opportunities for industry through a range of specialized services and strategic
global linkages. It also provides a platform for consensus-building and networking on key 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 ResearchThe 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]